Full year results for the year ended 30 April 2016

 Consolidated Cash Flow Statement for the year ended 30 April 2016

 

			Note	2016	2015
				£'000	£'000
Cash flows from operating activities
Operating profit				11,920	3,784
Adjustment for:
Depreciation			5,10	1,831	1,511
Amortisation			5,11	2,060	1,691
(Gain) / loss on derivative financial instruments				(1,266)	1,455
Grant income				(61)	(22)
(Profit) / loss on disposals				(22)	11
Operating cash flows before movements in working capital				14,462	8,430
Decrease in inventories				20	2,375
Increase in trade and other receivables				(1,975)	(2,534)
(Decrease) / increase in trade and other payables				(1,433)	1,238
Cash generated from operations				11,074	9,509
Tax paid				(1,460)	(1,105)
Interest paid				(4,918)	(581)
Net cash flows from operating activities				4,696	7,823
Cash flows from investing activities
Purchase of property, plant and equipment				(683)	(761)
Proceeds from sale of property, plant and equipment				48	-
Government grants received				-	1,000
Purchase of subsidiary			22	-	(25,100)
Net cash acquired with subsidiary				-	(850)
Net cash flows used in investing activities				(635)	(25,711)
Cash flows from financing activities
Proceeds of issue of ordinary shares				37	60
Cost of raising finance				-	(781)
Increase / (decrease) in amounts due to factors				1,656	(4,395)
Repayment of capital element of finance leases				(3,082)	(1,856)
Repayment of bank loans				(1,200)	(900)
Drawdown of bank loans				-	6,000
Drawdown of shareholder loans/loan notes				249	20,495
Net cash flows used in / (from) financing activities				(2,340)	18,623
Net increase in cash and cash equivalents				1,721	735
Cash and cash equivalents at beginning of the year			14	735	-
Cash and cash equivalents at year end			14	2,456	735

 

 

 

Statement of Directors' Responsibilities

 

Each of the Directors confirms that, to the best of their knowledge:

 

• The financial statements within the full Annual Report and Accounts from which the financial information within this Final Results announcement has been extracted, have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and

 

• The outlook, trading performance overview and regional reviews include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1. General information

Accrol Group Holdings plc (formerly Accrol Group Holdings Limited) (the "Company") was incorporated in the United Kingdom on 30 April 2014 with company number 9019496. The registered address of the Company is the Delta Building, Roman Road, Blackburn, United Kingdom, BB1 2LD. Accrol UK Limited, which was incorporated on 24 April 2014, subsequently became a direct wholly owned subsidiary undertaking of the Company on 14 July 2014. On 14 July 2014, Accrol UK Limited acquired Accrol Holdings Limited and its trading subsidiary, Accrol Papers Limited (the "Acquisition"). Accrol Papers Limited is engaged in the business of soft tissue paper conversion. The Company's subsidiaries are listed in note 21, which together with the Company form the Accrol Group Holdings plc Group (the "Group").

 

2. Summary of significant accounting policies

A summary of the significant accounting policies is set out below. These have been applied consistently in the financial statements.

 

Statement of compliance

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted for use in the EU, International Financial Reporting Interpretations Committee ('IFRIC') interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

Basis of preparation                                                                                                                                          

The consolidated financial statements have been prepared on a going concern basis under the historical cost convention as modified by financial liabilities (including derivative instruments) at fair value through the profit and loss. The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest thousand pounds, except where otherwise indicated.

Transition to IFRS

This is the Group's first set of financial statements prepared in accordance with IFRS.  The Group previously prepared its financial statements under UK Generally Accepted Accounting Practice.  The Group's deemed transition date to IFRS is 1 May 2014, the beginning of the first year presented, and the requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards ('IFRS 1') have been applied as of that date.  IFRS 1 allows certain exemptions in the application of particular IFRS to prior years in order to assist companies with the transition process. The exemptions applied are detailed in note 23.

 

Standards issued not yet effective

At the date of authorisation of this financial information, the following new standards and interpretations which have not been applied in this financial information were in issue but not yet effective (and in some cases, had not yet been adopted by the EU):

·     IAS 16 and IAS 38 amendments - Clarification of Acceptable Methods of Depreciation and Amortisation (effective 1 January 2016)

·     IFRS 11 amendments - Accounting for Acquisitions of Interests in Joint Operations (effective 1 January 2016)

·     IAS 16 and IAS 41 amendments - Agriculture: Bearer Plants (effective 1 January 2016)

·     IAS 27 amendments - Equity Method in Separate Financial Statements (effective 1 January 2016)

·     IFRS 10 and IAS 28 amendments - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective 1 January 2016)

·     IAS 1 amendments - Disclosure Initiative (effective 1 January 2016)

·     Annual Improvements 2012-2014 Cycle (effective 1 January 2016)

·     IFRS 15 - Revenue from Contracts with Customers (effective 1 January 2018)

·     IFRS 9 Financial Instruments (effective 1 January 2018)

 

The adoption of these Standards and Interpretations is not expected to have a material impact on the consolidated financial statements of the Group in the year of initial application when the relevant standards come into effect.

 

IFRS 16 'Leases' is a new standard that has been published and is effective from 1 January 2019 but has not been early adopted by the Group and could have a material impact on the Group financial information. At the time of preparing this financial information, the Group continues to assess the possible impact of the adoption of this standard in future years. However, it is likely to result in an increase in leases recognised in the statement of financial position as finance leases and a reduction in the number of leases treated as operating leases and hence not recognised in the statement of financial position.

 

Going Concern

The Directors have made appropriate enquiries and formed a judgement at the time of approving the financial information that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial information.

 

Consolidation

 

Subsidiaries

 

A subsidiary is an entity controlled, either directly or indirectly, by the Company.  Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:

 

§ power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

§ exposure, or rights, to variable returns from its involvement with the investee; and

§ the ability to use its power over the investee to affect its returns.

 

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

 

§ the contractual arrangement with the other vote holders of the investee;

§ rights arising from other contractual arrangements; and

§ the Group's voting rights and potential voting rights.

 

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

 

When necessary, adjustments are made to the financial information of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

 

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

 

The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

 

Segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segment, has been identified as the Board of Directors. The Group's activities consist solely of the conversion of paper products, primarily within the United Kingdom. It is managed as one entity and management have consequently determined that there is only one operating segment.

 

Segment results are measured using adjusted earnings before interest, tax, depreciation, amortisation, gain / (loss) on derivative financial instruments and exceptional items. Segment assets are measured at cost less any recognised impairment. Revenue is attributed to geographical regions based on the country of residence of the customer. All revenue arises in and all non-current assets are located in the United Kingdom.  The accounting policies used for segment reporting reflects those used for the Group.

 

Revenue

Revenue representing sales to external customers, which is stated excluding Value Added Tax and trade discounts, is measured at the fair value of the consideration receivable for goods supplied.

 

Revenue from the sale of goods is recognised at the point of dispatch of goods from the warehouse as this reflects the transfer of risks and rewards of ownership.

 

Revenue is presented net of trade spend, including customer rebates, which consists primarily of customer pricing allowances, listing fees and promotional allowances (overriders) which are governed by agreements with our trade customers. Accruals are recognised under the terms of these agreements, to reflect the expected promotional activity and our historical experience. These accruals are reported within trade and other payables.

 

Cost of sales

Cost of sales comprise costs arising in connection with the conversion of paper products. Cost is based on the cost of a purchase on a first in first out basis and includes all direct costs and an appropriate portion of fixed and variable overheads where they are directly attributable to bringing the inventories into their present location and condition.

 

Exceptional items

Items that are material in size or unusual or infrequent in nature are included within operating profit and disclosed separately as exceptional items in the consolidated income statement.

 

The separate reporting of exceptional items, which are presented as exceptional within the relevant category in the consolidated income statement, helps provide an indication of the Group's underlying business performance.

 

EBITDA and Adjusted EBITDA
Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) and Adjusted EBITDA are non-GAAP measures used by management to assess the operating performance of the Group. EBITDA is defined as profit before finance costs, tax, depreciation and amortisation. Depreciation is the write down of fixed assets and amortisation the write down of customer relationships held in intangibles. Exceptional items and gains / (losses) on derivative financial instruments are excluded from EBITDA to calculate Adjusted EBITDA.

The Directors primarily use the Adjusted EBITDA measure when making decisions about the Group's activities. As these are non-GAAP measures, EBITDA and Adjusted EBITDA measures used by other entities may not be calculated in the same way and hence are not directly comparable.

 

Foreign currency

Functional and presentation currency

Items included in the financial information are measured using the currency of the primary economic environment in which the Group operates ('the functional currency'). The financial information is presented in Sterling, which is the functional currency of all companies in the Group.

Transactions and balances

Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Property, plant and equipment

Property, plant and equipment are included at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is calculated to write down the cost of the assets on a straight-line or reducing balance basis over the estimated useful lives on the following bases:

 

Land and Buildings	Straight line over term of lease
Plant and Machinery	10% straight line, 40% residual value
Motor vehicles	30% straight line
Fixtures, fittings and office equipment	25% reducing balance

 

Assets under construction are not depreciated, but transferred into the appropriate asset class when they are ready for use. The estimated useful lives are reviewed at the end of each reporting period and adjusted if appropriate. The carrying values of tangible fixed assets are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.

Intangible assets

Goodwill

 

Goodwill represents the excess of the cost of an acquisition over the fair value of the group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in 'intangible assets'. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose and was identified according to operating segment.

Customer relationships and order books

Customer relationships are shown at historical cost. Customer relationships have finite useful lives and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of customer relationships over their estimated useful lives 10 years.

 

Customer order books relate to order for goods awaiting dispatch at the date of acquisition on 14 July 2014. Amortisation is calculated using the straight-line method to allocate the cost of customer order books over their estimated useful lives up to 1 year.

 

Impairment of non-financial assets

Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired.  Assets that are subject to depreciation and amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.  Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit ("CGU") to which the asset belongs. All tangibles and intangibles are allocated to the Group's sole CGU (see note 11).

 

Any impairment charge is recognised in the income statement in the period in which it occurs. Impairment losses relating to goodwill cannot be reversed in future periods.   Where an impairment loss on other assets, subsequently

reverses due to a change in the original estimate, the carrying amount of the asset is increased to the revised estimate of its recoverable amount.

 

Financial instruments

 

Financial Assets

The Group classifies its financial assets as loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting date, which are classified as non-current assets. The Group's loans and receivables comprise 'trade and other receivables' and cash and cash equivalents in the balance sheet. Subsequent to initial recognition, these assets are carried at amortised cost using the effective interest method. Income from these financial assets is calculated on an effective yield basis and is recognised in the income statement.

 

Financial liabilities

The Group initially recognises its financial liabilities at fair value net of transaction costs where applicable and subsequently they are measured at amortised cost using the effective interest method. Transaction costs are amortised using the effective interest rate method over the maturity of the loan.

 

Derivative financial instruments

The Group's activities expose it to financial risks associated with movements in foreign exchange rates. The Group uses forward foreign exchange rate contracts to hedge its foreign exchange rate exposure. The Group does not apply hedge accounting and re-measurements of the derivative financial instruments are recognised in the income statement. The use of financial derivatives is governed by the Group's treasury policies, as approved by the Board. The Group does not use derivative financial instruments for speculative purposes.

 

All derivative financial instruments are initially measured at fair value on the contract date and are also measured at fair value at subsequent reporting dates.

 

Leases

 

Finance leases

Assets funded through finance leases are capitalised as property, plant and equipment, and are depreciated over their estimated useful lives or the lease term, whichever is shorter. The amount capitalised is the lower of the fair value of the asset or the present value of the minimum lease payments during the lease term at the inception of the lease. The resulting lease obligations are included in liabilities net of finance charges. Finance costs on finance leases are charged directly in the income statement on an effective interest rate basis.

 

Material lease arrangements do not include any contingent rental conditions, options to purchase or escalation clauses. There are no restrictions imposed by these lease arrangements.

 

Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

 

Government grants

Government grants relating to tangible fixed assets are treated as deferred income and released to the income statement over the expected useful lives of the assets concerned. Other grants are credited to the profit and loss account as the related expenditure is incurred.

Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is based on the purchase on a first in first out basis and includes all direct costs and an appropriate portion of fixed and variable overheads. Net realisable value is the estimated selling price reduced by all costs of completion, marketing, selling and distribution. Supplier rebates are credited to the carrying value of inventory to which they relate. Once the inventory is sold, the rebate amount is then recognised in the income statement.

Trade and other receivables

Trade and other receivables relate mainly to the sale of paper products to trade customers.

 

Cash and cash equivalents (excluding bank overdraft)

Cash and cash equivalents in the balance sheet comprise cash at bank, short-term deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less, excluding any bank overdrafts which are disclosed separately within borrowings within current liabilities.

 

Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

 

Current taxation

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

 

Income tax relating to items recognised in comprehensive income or directly in equity is recognised in comprehensive income or equity and not in the income statement.

 

Deferred taxation

Deferred income tax is provided using the liability method on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, with the following exceptions:

 

·     where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;

·     in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and

·     deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which deductible temporary differences, carried forward tax credits or tax losses can be utilised.

 

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event; it is probable that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.

 

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and risks specific to the obligation. The increase in the provision due to the passage of time is recognised as interest expense.

 

3. Significant accounting judgements, estimates and assumptions

The preparation of the financial information in accordance with IFRS requires estimates and assumptions to be made that affect the value at which certain assets and liabilities are held at the balance sheet date and also the amounts of revenue and expenditure recorded in the year. The Directors believe the accounting policies chosen are appropriate to the circumstances and that the estimates, judgements and assumptions involved in its financial reporting are reasonable.

 

Accounting estimates made by the Group's management are based on information available to management at the time each estimate is made. Accordingly, actual outcomes may differ materially from current expectations under different assumptions and conditions. The estimates and assumptions for which there is a significant risk of a material adjustment to the financial information within the next financial year are set out below.

 

Critical accounting estimates and judgements in applying the entity's accounting policies

 

Goodwill impairment

The Group is required to test, on an annual basis, whether goodwill has suffered any impairment based on the recoverable amount of its sole CGU. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a pre-tax discount rate in order to calculate the present value of the cash flows. More information including carrying values is included in note 11.

 

Determining carry values of intangibles identified in business combinations

Valuation of separable intangible assets identified on new business combinations during the year requires management to make assumptions and estimates regarding the expected future cash generation of the intangibles identified, for which management employed the use of external valuation services to facilitate this exercise. Details of the intangible assets identified are set out in note 11.

Income taxes

The Group recognises expected liabilities for tax based on an estimation of the likely taxes due, which requires significant judgement as to the ultimate tax determination of certain items. Where the actual liability arising from these issues differs from these estimates, such differences will have an impact on income tax and deferred tax provisions in the period when such determination is made. Detail of the tax charge and deferred tax are set out in note 9.

 

Customer rebates

The Group provides for amounts payable to customers in relation to rebates and promotional activity. Whilst the Directors do not consider the Group's rebates to be highly complex as they are predominantly volume related, there is judgement required in calculating amounts due, as terms vary by customer.

 

4. Revenue

The analysis of geographical area of destination of the Group's revenue is set out below:

 

				2016	2015
				£'000	£'000
United Kingdom				118,041	81,624
Europe				178	280
Total				118,219	81,904

 

Major customers

 In 2016 there were four major customers that individually accounted for at least 10% of total revenues (2015: two customers). The revenues relating to these customers in 2016 were £25,369,000, £14,300,000 and £13,769,000, £12,375,000 (2015: £21,701,000 and £9,444,000).

5. Operating profit

Operating profit is stated after charging / (crediting):

 

				2016	2015
				£'000	£'000
Employee benefit expense				9,927	6,172
Depreciation of property, plant and equipment (included in administration expenses)				1,831	1,511
Amortisation of intangible assets (included in administration expenses)				2,060	1,691
(Profit) / loss on disposal of property, plant and equipment				(22)	11
Operating lease rentals				1,946	1,283
Net foreign exchange (gains) / losses				(1,332)	1,396
Grants income				(61)	(22)
Auditor's remuneration				59	52
Inventories recognised as expenses				66,807	44,332
Exceptional items
Acquisition deal fees				-	1,530
Consultancy fees				334	-
Other				159	-
				493	1,530

 

The exceptional items are described below:

 

Year ended 30 April 2015

On 14 July 2014, Accrol Group Holdings plc through its subsidiary, Accrol UK Limited, purchased the entire issued share capital of Accrol Holdings Limited for a consideration of £45,600,000. Deal fees of £1,530,000 were incurred and have been fully expensed in the year of acquisition.

 

Year ended 30 April 2016

One off consultancy fees totalling £334,000 were incurred in relation to a market, competitor, customer and working capital review to support the growth strategy following the acquisition in July 2014.

 

In September 2015, there was a fire within the embossing unit of one of the converting lines. The line was back up and running within one week with no disruption to customer orders. The cost of repair was £159,000.

 

Auditors' remuneration
							2016		2015
							£'000		£'000
Audit services							36		28
Non audit services:
Tax compliance services							10		11
Tax advisory services							13		13
							59		52

 

A fee of £556,000 was paid to the Group's auditors for services provided as part of the Group restructuring in the year ended 30 April 2015.

 

6. Earnings per share

 

The basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. The following reflects the income and share data used in the basic earnings per share calculation:

 

				2016	2015
				£'000	£'000
Profit / (loss) for the year attributable to shareholders				5,705	(700)
				Number	Number
Basic weighted average number of shares 1				9,900	9,514
				£	£
Basic earnings per share				576.26	(73.58)
Diluted earnings per share				576.26	(73.58)

 

Note 1: The basic weighted average number of shares is calculated by excluding the D class of shares as this class is subject to a dividend cap that does not materially impact upon the profit due to the remaining Ordinary equity shareholders.

 

During the year under review the group had no shares or options with a dilutive effect and, therefore, the basic and diluted earnings per share are the same.

 

7. Employee costs

 

		2016	2015
		£'000	£'000
Employee costs during the year amounted to:
Wages and salaries		9,171	5,712
Social security costs		684	411
Other pension costs		72	49
		9,927	6,172
The average number of employees (including the executive directors) during the year were:
		Number	Number
Production		431	296
Administration		29	39
		460	335

 

8. Finance costs

 

				2016	2015
				£'000	£'000
Shareholder loans				4,099	3,263
Bank loans and overdrafts				158	154
Finance lease interest				358	284
Interest on factoring facility				183	143
Amortisation of finance fees				143	288
				4,941	4,132

 

9. Income tax expense

 

Tax charged in the income statement				2016	2015
				£'000	£'000
Current income tax
Current tax on profits for the year				1,780	895
Total current income tax				1,780	895
Deferred tax
Origination and reversal of temporary differences				(31)	(348)
Change in tax rate				(475)	(195)
Total deferred tax				(506)	(543)
Tax charge in the income statement				1,274	352

The tax charge for the period is lower (2015: higher) than the effective rate of Corporation Tax in the UK of 20% (2015: 20%). The differences are explained below:

				2016	2015
				£'000	£'000
Profit / (loss) before income tax				6,979	(348)
Effective rate				20%	20%
At the effective income tax rate				1,396	(70)
Expenses not deductible for tax purposes				353	617
Change in rate				(475)	(195)
				1,274	352

 

During the year the Group recognised the following deferred tax (assets) / liabilities:

 

	Accelerated capital allowances	Intangibles	Other	Total
	£'000	£'000	£'000	£'000
30 April 2014	-	-	-	-
Acquired	1,237	4,291	-	5,528
Charge in year	349	(354)	(344)	(349)
Change in deferred tax rate	(10)	(203)	18	(195)
30 April 2015	1,576	3,734	(326)	4,984
Acquired	-	-	-	-
Charge in year	127	(412)	254	(31)
Change in deferred tax rate	(176)	(306)	7	(475)
30 April 2016	1,527	3,016	(65)	4,478

 

The Finance Act 2013 reduced the main rate of corporation tax to 21% from 1 April 2014 and to 20% from 1 April 2015. Further future rate reductions, to 19% from 1 April 2017 and 18% from 1 April 2020, were substantively enacted on 26 October 2015.  Therefore, the rate of 20% (2015: 21%) has been reflected in the consolidated financial statements and deferred tax assets and liabilities have been measured at the rate expected to be in effect when the deferred tax asset or liability reverses. Deferred tax has been provided at the rate of 18% as at 30 April 2016 (2015: 20%).

 

10. Property, plant and equipment

 

	Leasehold land & buildings	Fixtures & fittings	Plant and machinery	Motor vehicles	Assets under construction	Total
Cost	£'000	£'000	£'000	£'000	£'000	£'000
30 April 2014	-	-	-	-	-	-
Acquisition of subsidiary	126	435	15,138	133	-	15,832
Additions	30	97	3,899	-	4,417	8,443
Disposals	-	-	(24)	-	-	(24)
At 30 April 2015	156	532	19,013	133	4,417	24,251
Transfer	-	-	4,417	-	(4,417)	-
Additions	-	173	162	37	3,152	3,524
Disposals	-	-	(49)	(35)	-	(84)
At 30 April 2016	156	705	23,543	135	3,152	27,691
Accumulated depreciation
30 April 2014	-	-	-	-	-	-
Charge	39	86	1,335	51	-	1,511
Disposals	-	-	-	-	-	-
At 30 April 2015	39	86	1,335	51	-	1,511
Charge	10	119	1,626	76	-	1,831
Disposals	-	-	(23)	(35)	-	(58)
At 30 April 2016	49	205	2,938	92	-	3,284
Net book value
At 30 April 2015	117	446	17,678	82	4,417	22,740
At 30 April 2016	107	500	20,605	43	3,152	24,407

 

The net book value of tangible fixed assets includes an amount of £16,052,000 (2015: £13,718,000) in respect of plant and machinery assets held under finance leases and £3,152,000 (2015: £4,417,000) in respect of assets under construction held under finance leases.

 

11. Intangible assets

 

		Goodwill	Customer lists	Order book	Total
Cost		£'000	£'000	£'000	£'000
30 April 2014		-	-	-	-
Additions		14,982	20,427	86	35,495
At 30 April 2015		14,982	20,427	86	35,495
Additions		-	-	-	-
At 30 April 2016		14,982	20,427	86	35,495
Amortisation
30 April 2014		-	-	-	-
Charge		-	1,623	68	1,691
At 30 April 2015		-	1,623	68	1,691
Charge		-	2,042	18	2,060
At 30 April 2016		--	3,665	86	3,751
Net book value
At 30 April 2015		14,982	18,804	18	33,804
At 30 April 2016		14,982	16,762	-	31,744

 

The balance for Goodwill, Customer relationships and Order book arose on the Group's Acquisition of Accrol Holdings Limited (note 22) and are attributed to the sole cash-generating unit ('CGU').

Impairment test for goodwill

Goodwill is monitored for internal management purposes at the Group's sole CGU level. The recoverable amount of the CGU has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by the board covering a three to five year period. Cash flows beyond this period are extrapolated using the estimated growth rates stated in the key assumptions.

 

The key assumptions used in the value in use calculations are a pre-tax discount rate of 16% (2015: 16%) and a long term growth rate of 2% (2015: 2%).  The discount rate is derived from the Group's weighted average cost of capital and is calculated with reference to latest market assumptions for the risk free rate, equity market risk premium and the cost of debt. The discount rate is derived from the Group's weighted average cost of capital and is calculated with reference to latest market assumptions for the risk free rate, equity market risk premium and the cost of debt.

 

Goodwill is tested for impairment on at least an annual basis, or more frequently if events or changes in circumstance indicate that the carrying value may be impaired. In the years under review management's value in use calculations have indicated no requirement to impair.

 

Sensitivity to changes in assumptions

The estimates of the recoverable amounts associated with these CGU affords significant head room over the carrying value, consequently only significant adverse changes in these key assumptions would cause the group to recognize an impairment loss.

 

12. Inventories

 

			2016	2015
			£'000	£'000
Raw materials			6,996	6,416
Finished goods and goods for resale			2,365	2,965
			9,361	9,381

 

13. Trade and other receivables

			2016	2015
			£'000	£'000
Trade receivables			20,793	19,206
Less: provision for impairment of trade receivables			(85)	(62)
Trade receivables - net of provisions			20,708	19,144
Prepayments			569	157
			21,277	19,301

 

The trade receivables balance is aged as follows:

 

			2016	2015
			£'000	£'000
Less than one month past due			12,831	11,705
Between one and two months past due			7,120	6,909
Between two and three months past due			383	342
Between three and six months past due			459	250
			20,793	19,206

 

Trade and other receivables which are less than three months past due are not considered impaired unless specific information indicates otherwise. Trade and other receivables greater than three months past due are considered for recoverability, and where appropriate, a provision against bad debt is recognised. There are no trade receivables amounts more than six months past due.

 

The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.

 

The movement in the provision for trade and other receivables is analysed below:

 

			2016	2015
			£'000	£'000
At the beginning of the year			(62)	-
Acquisition of subsidiary			-	(52)
Provisions made for receivables impairment			(23)	(28)
Amounts unused reversed			-	18
			(85)	(62)

 

The creation and release of the provision for impaired receivables has been included in administrative expenses in the Income Statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.

 

14. Cash and cash equivalents  

 

			2016	2015
			£'000	£'000
Cash and cash equivalents			2,456	735

 

Cash and cash equivalents earn interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

 

15. Trade and other payables

Trade payables are non-interest bearing and are payable on average within 29 days at 30 April 2016 (2015: 36 days).

 

			2016	2015
			£'000	£'000
Trade payables			7,868	9,149
Social security and other taxes			1,947	1,821
Accruals and deferred income			4,613	5,086
Deferred government grant income			1,026	1,087
			15,454	17,143

 

Deferred government grant income relates to grants received for purchase of plant and machinery.

 

16. Borrowings

			2016	2015
			£'000	£'000
Non-current
Bank facility			2,600	3,700
Finance leases			7,232	5,444
Shareholder loans			41,087	40,824
			50,919	49,968
Current
Bank facility			1,103	1,070
Factoring facility			7,485	5,829
Finance leases			3,605	5,566
			12,193	12,465
Loan maturity analysis:
Within one year			12,294	12,465
Between one and two years			4,164	3,515
Between two and five years			5,768	5,629
After five years			41,240	41,321
			63,466	62,930

 

 

 

16. Borrowings (continued)

The following amounts remain undrawn and available					2016	2015
				£'000		£'000
Factoring facility				9,879		10,051
				9,879		10,051

 

The Group's bank borrowings are secured by way of fixed and floating charge over the Group's assets.

 

Term loan under the £20.495 million 10% Fixed Rate Secured Manager Loan Notes 2023 ("Shareholder loans")

On 14 July 2014 the Group entered into a 9 year, £20.495 million credit facility with Majid Hussain, Wajid Hussain, Mozam Hussain to part finance the Group's acquisition of Accrol Holdings Limited. Interest is accrued on the loan from date of issue at the rate of 10% per annum and compounded on each anniversary. Interest is then also payable on the PIK notes at a rate of 10% per annum by the issue of further PIK notes. The shareholder loans are repayable in full in June 2023. These notes were listed on the Channel Island Securities Exchange. 

 

Term loan under the £20.495 million 10% Fixed Rate Secured Investor Loan Notes 2023 ("Shareholder loans")

On 14 July 2014 the Group entered into a 9 year, £20.495 million credit facility with Northedge Capital LLP to part finance the Group's acquisition of Accrol Holdings Limited. Interest is accrued on the loan from date of issue at the rate of 10% per annum and compounded on each anniversary. Interest is then also payable on the PIK notes at a rate of 10% per annum by the issue of further PIK notes. The shareholder loans are repayable in full in June 2023. These notes were listed on the Channel Island Securities Exchange.

 

HSBC term loan under the £6.0 million revolving bank facility ("Bank facility")

On 8 August 2014 the Group entered into a 5 year, £6.0 million sterling revolving credit facility. The facility was to part finance the Group's acquisition of Accrol Holdings Limited and to provide financing for general corporate and working capital requirements. The variable interest rate payable under the facility is LIBOR plus a variable margin between 2-3% (dependent upon gearing ratio) plus mandatory costs.  The loan is repayable in quarterly instalments commencing 31 October 2014. All amounts outstanding under the facility are repayable on 8 August 2019.

 

HSBC £20 million factoring credit facility ("Factoring facility")

On 8 August 2014 the Group entered into a £20.0 million multi-currency revolving credit facility to provide factoring financing for general working capital requirements for a minimum period of 3 years. Under the terms of this facility the drawdown is based upon gross debtors less a retention with 90% of the remaining debt funded.  Each drawing under the facility is repayable within a maximum of 90 days from date of invoice for jurisdictions within the United Kingdom and 120 days for other countries.

 

Covenants

The Group is subject to financial covenants in relation to the Bank Facility and the Factoring Facility. The covenants in relation to the Bank Facility cover the following ratios: a) Cash flow cover, b) Interest cover and c) Leverage. The covenants in relation to the Factoring Facility cover the following: a) Debt turn, b) Debt dilution, c) Disputed debt and d) Tangible net worth. The Group has been in compliance with all of the covenants during the periods under review. Breach of the covenants would render any outstanding borrowings subject to immediate settlement.

 

Finance fees

Finance fees incurred for the arrangement of Shareholder loans by the Group's lenders are not included in the Loan Maturity Analysis table.  The finance fees after amortisation are as follows:

 

			2016	2015
			£'000	£'000
Finance fees			354	497

 

 

17. Financial instruments

 

Derivative financial instruments

 

Derivative financial instruments represent the Group's forward foreign exchange contracts. The liabilities representing the valuations of the forward foreign exchange contracts at the year end are:

			2016	2015
Current			£'000	£'000
Foreign currency contracts			190	1,455

 

 

The group has entered into a number of foreign exchange contracts that were open as at the year end. The total value of open foreign exchange contracts at the Balance Sheet date are as follows:

			2016	2015
EUR (in €'000)			-	26,000
USD (in $'000)			19,500	19,700

 

The fair value of a derivative financial instrument is split between current and non-current depending on the remaining maturity of the derivative contract and its contractual cash flows. The foreign currency swaps are designated as fair value through profit or loss at initial recognition. The fair value of the Group's foreign currency derivatives is calculated as the difference between the contract rates and the mark to market rates which are current at the balance sheet date. This valuation is obtained from the counterparty bank and at each period end is categorised as a Level 2 valuation, see below. The maximum exposure to credit risk is the fair value of the derivative as a financial asset.

 

Fair value hierarchy

IFRS 7 requires fair value measurements to be recognised using a fair value hierarchy that reflects the significance of the inputs used in the value measurements:

 

Level 1:  inputs are quoted prices in active markets.

 

Level 2: a valuation that uses observable inputs for the asset or liability other than quoted prices in active markets.

 

Level 3: a valuation using unobservable inputs i.e. a valuation technique.

 

There were no transfers between levels throughout the years under review.

 

Fair values

The fair values of the Group's financial instruments approximates closely with their carrying values, which are set out in the table below:

 

 

			Fair values and Carrying values
			2016	2015
Financial assets			£'000	£'000
Current
Trade and other receivables			21,277	19,301
Cash and short-term deposits			2,456	735
Financial liabilities
Current
Borrowings			12,193	12,465
Trade and other payables			15,454	17,143
Derivative financial instruments			190	1,455
Non-current
Borrowings			50,919	49,968

 

18. Capital and financial risk management objectives and policies

 

(a)  Capital risk management

The Group's objective when managing capital is to safeguard the group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust capital the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

 

Consistent with others in the industry, the group monitors net debt. Net debt is calculated as total borrowings less cash and cash equivalents.

 

 

			2016	2015
			£'000	£'000
Total borrowings			63,112	62,433
Less: cash and cash equivalents			(2,456)	(735)
Net debt			60,656	61,698

 

(b)  Financial risk management

The Group has exposure to the following risks from its use of financial instruments:

 

• Foreign currency risk

• Interest rate risk

• Liquidity risk

• Credit risk

 

This note presents information about the Group's exposure to each of the above risks, and the Group's objectives, policies and procedures for measuring and managing risk. The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework.

 

(i) Foreign currency risk

 

The Group has transactional currency exposures arising from purchases in currencies other than the Group's functional currency. These exposures are forecast on a monthly basis and are monitored by the Finance Department. Under the Group's foreign currency policy, such exposures are hedged on a reducing percentage basis over a number

of forecast time horizons using forward foreign currency contracts.

 

The Group's largest exposures are the US Dollar and Euro forward contracts. The derivative analysis below had been prepared by reperforming the calculations used to determine the balance sheet values assuming a 1% strengthening of Sterling:

				2016	2015
				£'000	£'000
Euro - gain				-	157
USD - gain / (loss)				135	(81)
				135	76

 

(ii) Interest rate risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's Factoring facility and Bank facility, both of which have floating interest rates.

 

The Group manages its interest rate risk by holding the majority of borrowings in fixed rate secured loan notes. The exposure to the remaining risk is deemed to be manageable and is reviewed on a continual basis. The Group are not expecting any reduction in interest rates over the next 12 months, the impact of 0.5% increase in interest rates on profit before tax is shown below:

				2016	2015
				£'000	£'000
Change in interest rate				56	55

 

 

 

 

(iii) Liquidity risk

 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Ultimate responsibility for liquidity risk management rests with the Board of Directors. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows, matching the maturity profiles of financial assets and operational liabilities and by maintaining adequate cash reserves. 

 

The table below summaries the maturity profile of the Group's financial liabilities:

 

As at 30 April 2016
	Due within	Due between	Due between	Due in more	Total
	1 year	1 and 2 years	2 and 5 years	than 5 years
	£'000	£'000	£'000	£'000	£'000
Borrowings	12,295	4,163	5,768	41,240	63,466
Trade and other payables	15,454	-	-	-	15,454
Derivative financial instruments	190	-	-	-	190
Total financial liabilities	27,939	4,163	5,768	41,240	79,110
As at 30 April 2015
	Due within	Due between	Due between	Due in more	Total
	1 year	1 and 2 years	2 and 5 years	than 5 years
	£'000	£'000	£'000	£'000	£'000
Borrowings	12,465	3,515	5,629	41,321	62,930
Trade and other payables	17,143	-	-	-	17,143
Derivative financial instruments	1,455	-	-	-	1,455
Total financial liabilities	31,063	3,515	5,629	41,321	81,528

 

(iv) Credit risk

 

The Group's principal financial assets are bank balances and cash, trade and other receivables and investments. The group's credit risk is low. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

 

19. Commitments and contingencies

 

Operating lease commitments 

The Group has entered into leases on commercial real estate. These leases have an average life of 12.6 years with no renewal option included in the contracts. There are no restrictions placed upon the Group by entering into these leases. The lease expenditure charged to the income statement during the year is disclosed in note 5.

 

Future minimum rentals payable under non-cancelable operating leases as at the year end, analysed by the period in which they fall due, are as follows:

			2016	2015
			£'000	£'000
Within one year			1,740	1,740
Between one and two years			1,740	1,740
Between two and five years			5,220	5,220
Greater than five years			6,516	8,256
			15,216	16,956

 

Finance lease commitments 

Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are, as follows:

 

			2016	2015
			£'000	£'000
Within one year			3,989	5,917
Between one and two years			3,228	2,687
Between two and five years			4,617	3,302
			11,834	11,906
Future finance charges			(997)	(896)
Present value			10,837	11,010

 

 The present value of finance lease liabilities is as follows: 

 

			2016	2015
			£'000	£'000
Within one year			3,605	5,566
Between one and two years			2,963	2,415
Between two and five years			4,269	3,029
			10,837	11,010

 

Capital commitments

 

			2016	2015
			£'000	£'000
Contracted for but not provided			-	-

 

20. Share capital and reserves

 

		2016 £	2015 £
Called up, allotted and fully paid
Class A Ordinary shares of £1 each		4,625	4,625
Class B Ordinary shares of £1 each		4,625	4,625
Class C Ordinary shares of £1 each		650	300
Class D Ordinary shares of £1 each		2,860	-
	12,760		9,550

The number of ordinary shares in issue is set out below:

	Number	Number
Class A Ordinary shares of £1 each	4,625	4,625
Class B Ordinary shares of £1 each	4,625	4,625
Class C Ordinary shares of £1 each	650	300
Class D Ordinary shares of £1 each	2,860	-

 

The movements in shares occurred on the following dates set out below:

 

14 July 2014
Issue of A Ordinary shares of £1 each	-	4,625
Issue of B Ordinary shares of £1 each	-	4,625
Issue of C Ordinary shares of £1 each	-	200
10 September 2014
Issue of C Ordinary shares of £1 each	-	100
4 March 2015 (transacted on 19 June 2015)
Issue of C Ordinary shares of £1 each	350	-
Issue of D Ordinary shares of £1 each	2,860	-

 

20. Share capital and reserves

 

On 14 July 2014, Accrol Group Holdings plc through its subsidiary, Accrol UK Limited, purchased the entire issued share capital of Accrol Holdings Limited for a consideration of £45,600,000 which comprised of £20,500,000 loan notes ("Shareholder Loans") issued by Accrol UK Limited to the Vendors and cash of £25,100,000. The vendors of Accrol Holdings Limited, entered into put and call options with Accrol Group Holdings plc over £4,625 of their loan notes in Accrol UK Limited. The options were exercised such that the Shareholder loans notes were transferred to Accrol Group Holdings plc in exchange for new B ordinary shares in Accrol Group Holdings with a nominal value of £4,625 with no impact on cash.

 

The issue of the A, B and C Ordinary Shares in July and September 2014 were satisfied by the receipt of £55,000 in cash and the exchange of £4,625 of shareholder loan notes, resulting in share premium of £50,000. The issue of the C and D Ordinary Shares in March 2015 (transacted on 19 June 2015) were satisfied by the receipt of £37,000 in cash, resulting in share premium of £34,000.

 

The A Shares, B Shares and C Shares rank pari passu in all respects. The D Ordinary Shares rank pari passu with the other share classes except that the dividend payable to D shareholders are subject to a cap.

 

Each holder of an A Share, B Share or D Share is entitled to vote at general meetings of the Company. The C Shares do not confer on the holders any right to vote at general meetings of the Company. Every holder of an A Share or B Share shall have one vote for each A Share or B Share held; and the D Shares entitle the holders to such number of votes (in aggregate) as is equal to 30% of the total votes to be cast, such votes being divided proportionately between the holders of such D shares being cast on such poll.

No dividends have been paid or proposed in either 30 April 2016 or 30 April 2015.

 

 

21. Related party disclosures

 

(a) Identity of related parties

The Company is under joint control. The Company's controlling shareholders are Northedge Capital LLP and members of the Hussain family. Phoenix Court Blackburn Limited is a company under the control of the Hussain family providing commercial premises for letting. Alklar Limited is an entity under the common directorship of Peter Cheung, to which payments for Peter Cheung's services as a director for Accrol UK Limited are made.

The subsidiaries of the Group are as follows:

 

Company	Principal activity		Country of incorporation		Holding %
Accrol UK Limited	Holding company		United Kingdom		100%
Accrol Holdings Limited	Holding company		United Kingdom		100%
Accrol Papers Limited	Paper convertor		United Kingdom		100%

 

(b) Transactions with related parties

The following table provides the total amounts owed to / (due from) related parties as at the end of each year:

 

			2016	2015
			£'000	£'000
NorthEdge Capital LP			21,704	21,668
NorthEdge Capital - GP			460	460
The Hussain family			22,126	22,126
Alklar Limited			270	8
Owed from related parties			44,560	44,262
Opening balance			44,262	-
Loans advanced during year			249	40,990
Interest charged			4,099	3,264
Purchases			1,898	1,190
Repayments			(5,948)	(1,182)
Owed from related parties			44,560	44,262
Borrowings			41,239	40,990
Trade & other payables			3,321	3,272
Owed from related parties			44,560	44,262

 

Note 16 details loan notes net of financing fees.

The following table provides the total amounts of purchases and interest charged from related parties for the relevant financial year:

 

Transactions
NorthEdge Capital LP			2,129	1,698
The Hussain family			2,050	1,632
Phoenix Court Blackburn Limited			1,740	1,085
Alklar Limited			78	39
Total			5,997	4,454

 

Terms and conditions of transactions with related parties

The purchases and loans from related parties are made at normal market prices. Outstanding balances at the year end are unsecured, interest free and settlement occurs in cash. There have been no guarantees provided for any related party payables. Loans from related parties carry interest at 10%. Payments to Phoenix Court Blackburn Limited are in respect of the provision of services.

 

(c)   Directors' emoluments

			2016	2015
			£'000	£'000
Directors' fees			72	38
Emoluments			709	565
Other pension costs			-	-
			781	603

 

During the year retirement benefits were accruing to nil directors under defined contribution schemes (2015: nil).  The aggregate amount of emoluments paid to the highest paid director was £204,000 (2015: £150,000).

Key management personnel comprises the directors of the Company and the trading subsidiary. The remuneration of all directors who have been identified as the key management personnel of the group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures:

 

			2016	2015
			£'000	£'000
Short-term employee benefits			986	663
Post-employment benefits			-	-
Other long-term benefits			-	-
			986	663

 

22. Acquisitions

 

On 14 July 2014, Accrol Group Holdings plc through its subsidiary, Accrol UK Limited, purchased the entire issued share capital of Accrol Holdings Limited for a consideration of £45,600,000. The operations of Accrol Papers Limited, a wholly owned subsidiary of Accrol Holdings Limited, are focussed on soft tissue paper conversion from its premises in Blackburn, Lancashire from where it produces toilet rolls, kitchen rolls and boxes of facial tissues. The acquisition brought additional funding into the business allowing it to focus and deliver its growth strategy.

 

 

Goodwill represents the expected benefits to the wider Group arising from the acquisition. The fair value of assets and liabilities acquired are set out below:

					Fair
					value
Net assets acquired					£'000
Intangibles					20,513
Property, plant and equipment					15,832
Inventories					11,756
Trade and other receivables					17,642
Bank overdraft					(850)
Trade and other payables					(28,747)
Deferred tax liabilities					(5,528)
Net sssets					30,618
Goodwill					14,982
Total consideration					45,600
Satisfied by:
Cash					25,100
Loan notes					20,495
Shares issued					5
Total consideration					45,600
Net cash outflow arising on acquisition:
Cash consideration					25,100
Bank overdraft acquired					850
Net cash outflow					25,950

 

Professional deal fees of £1,530,000 incurred in effecting the acquisition were fully expensed during the year ended 30 April 2015. These costs are classed as an exceptional item and are included in 'Administrative expenses'.

The amount of revenue and profit for Accrol Papers Limited from 1 May 2014 to 14 July 2014 was £19.2 million and £2.0 million respectively.

For analysis of the full year revenue and profit of the Group including Accrol Papers Limited, refer to Note 26 Proforma result.

 

 

 

23. Explanation of transition to IFRS

This is the first time that the Group has presented its financial information under IFRS. The last financial information under UK GAAP was for the year to 30 April 2015 and the date of transition to IFRS was 1 May 2014. 2015 is the earliest year for which Accrol Group Holdings plc has published UK GAAP financial information.

IFRS 1 'First-time Adoption of International Financial Reporting Standards' offers a number of exemptions from full retrospective application of applicable standards on transition to IFRS. Following a review of these exemptions it has been concluded the Group has taken advantage of the exemption not to adopt retrospective application of IFRS 3 'Business Combinations' to historic acquisitions prior to the date of transition to IFRS.

Set out below are the UK GAAP to IFRS consolidated statements of financial position reconciliations for Accrol Group Holdings plc at 30 April 2015 (last financial information under UK GAAP) and profit reconciliation for Accrol Group Holdings plc for the 10 months ended 30 April 2015.

 

UK GAAP to IFRS reconciliation of the Consolidated Statement of Financial Position as at 30 April 2015 of Accrol Group Holdings plc

 

 

	Note	UKGAAP	IFRS adjustments	IFRS
		£'000	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment	a(i)	22,124	616	22,740
Intangible assets	b(ii),c	31,430	2,374	33,804
Investments in subsidiaries		-	-	-
Total non-current assets		53,554	2,990	56,544
Current assets
Inventories	d	9,306	75	9,381
Trade and other receivables		19,301	-	19,301
Cash and cash equivalents		735	-	735
Total current assets		29,342	75	29,417
Total assets		82,896	3,065	85,961
Current liabilities
Borrowings	a(ii)	11,834	631	12,465
Trade and other payables	e	16,823	320	17,143
Income taxes payable	f(iii)	496	90	586
Derivative financial instruments	(g)	-	1,455	1,455
Total current liabilities		29,153	2,496	31,649
Non-current liabilities
Borrowings		49,968	-	49,968
Deferred tax liabilities	f(ii)	1,539	3,445	4,984
Total non-current liabilities		51,507	3,445	54,952
Total liabilities		80,660	5,941	86,601
Net assets / (liabilities)		2,236	(2,876)	(640)
Capital and reserves
Issued capital		10	-	10
Share premium		50	-	50
Retained earnings / (deficit)	a(iii),b(i),c,d,e,f(i),f(ii),g	2,176	(2,876)	(700)
Total equity shareholders' funds / (deficit)		2,236	(2,876)	(640)

 

 

(a) IAS 17 - 'Leases'

The Group reclassified leases previously treated as operating leases to finance leases as they satisfied the recognition criteria outlined under IAS 17. This resulted in the following impact in the years under review as follows

					2015
					£'000
Tangible assets - recognition	(i)				616
Borrowings - recognition of lease liability	(ii)				(631)
Net reduction in net assets resulting from IAS 17	(iii)				(15)

 

(b)  IFRS 3 'Business Combinations' - Intangible assets

Under IFRS 3 'Business Combinations the Group is required an assessment of the fair value of any identifiable intangibles assets that exist at the date of acquisition and to also identify any transaction fees that were capitalised in determining the carrying value of goodwill in the acquisition accounting. The carrying value of goodwill is reduced by these amounts under IFRS3, the transaction fees being recognised in the income statement in the year of acquisition and the separately identified intangibles recognised as assets alongside goodwill. The recognition of these intangibles also gives rise to a deferred tax liability at the date of acquisition in July 2014 which will unwind as the intangible assets are amortised. The table below itemises the impact of goodwill during the year ended 30 April 2013 and subsequent years            

					2015
					£'000
Transaction fees expensed in the year	(i)				(1,530)
Recognition of identifiable intangibles on acquisition					(20,508)
Deferred tax					4,290
Net reduction in goodwill carrying value resulting from IFRS3					(17,748)
Increase in other intangible assets carrying value under IFRS					20,508
Net impact in goodwill carrying value resulting from IFRS3	(ii)				2,760

 

 

 

 

 (c) IAS 38 'Intangible assets'

      Amortisation of intangible assets

Under IAS 38 'Intangible Assets' goodwill is treated as an intangible asset with an indefinite useful life and is not amortised as such all amortisation recognised under the previous UK GAAP treatment must be written back. In addition, the intangible assets recognised in (b) do not have indefinite useful lives and as such give rise to amortisation in the years under review as follows:

 

					2015
					£'000
Writeback of amortisation of goodwill (cumulative)					1,305
Amortisation of intangibles recognised on acquisition (cumulative)					(1,691)
Net decrease due to amortisation under IAS 38					(386)

 

(d)  IAS 2 - 'Inventories'

      Overheads absorbed have been re-evaluated to ensure compliance with IAS 2.

						2015
						£'000
	Overhead absorption (cumulative)					91
	Supplier rebates absorption (cumulative)					(16)
	Net increase in inventories arising under IAS 2					75

 

(e) IAS 19 - 'Employee benefits'

IAS 19 requires the accrual of unpaid holiday benefits.

					2015
					£'000
Holiday pay accrual					(320)

 

(f) IAS 12 - 'Income taxes'

 

					2015
					£'000
Deferred taxes
Net decrease in deferred tax liabilities due to IFRS adjustments			(i)		845
Net (increase) in deferred tax following recognition of intangibles on acquisition					(4,290)
Net (increase) in deferred taxes			(ii)		(3,445)
Incomes taxes
Net increase in income taxes payable due to IFRS adjustments	(iii)				(90)

 

(g) IAS 39 - 'Financial instruments'

Under IFRS the group are required to recognise financial derivatives at fair value. However the group did not qualify for hedge accounting under IAS 39 'Financial instruments' and as such all movements in fair value are recognised in the income statement. The net impact on net assets is as follows:

 

						2015
						£'000
Fair value of foreign currency contracts						(1,455)

 

 

Statement of Comprehensive Income for the Year ended 30 April 2015

	Note	UKGAAP	IFRS adjustments	IFRS
		£'000	£'000	£'000
Revenue		81,904	-	81,904
Cost of sales	d,e,g	(58,917)	(1,700)	(60,617)
Gross profit / (loss)		22,987	(1,700)	21,287
Administration expenses	a(i),b,c	(7,067)	(1,887)	(8,954)
Distribution		(8,549)	-	(8,549)
Operating profit / (loss)		7,371	(3,587)	3,784
Analysed as:
- EBITDA 1		9,786	185	9,971
- Depreciation		(1,110)	(401)	(1,511)
- Amortisation		(1,305)	(386)	(1,691)
- Gain / (loss) on derivative financial instruments		-	(1,455)	(1,455)
- Exceptional items		-	(1,530)	(1,530)
Operating profit / (loss)		7,371	(3,587)	3,784
Finance costs	a(ii)	(4,088)	(44)	(4,132)
Loss before tax		3,283	(3,631)	(348)
Tax (charge) / credit	f	(1,107)	755	(352)
Profit/(loss) for the year attributable to equity shareholders		2,176	(2,876)	(700)

 

Note 1: Adjusted EBITDA, which is defined as profit before finance costs, tax, depreciation, amortisation, gain / loss on derivative financial instruments and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure.

 

Notes to the Consolidated Statements of Comprehensive Income

 

   (a) IAS 17 - 'Leases'

 

The Group reclassified leases previously treated as operating leases to finance leases as they satisfied the recognition criteria outlined under IAS 17. This resulted in the following impact in the year under review as follows:

 

 

					2015
					£'000
Depreciation (P&L)					(400)
Operating lease rental (P&L)					429
Net impact on Administrative expenses resulting from IAS 17				(i)	29
Interest (P&L)				(ii)	(44)

 

(b)       IFRS 3 'Business Combinations' - Intangible assets

 

Under IFRS 3'Business Combinations' the group have expensed transaction fees associated with the acquisition in 2014. The net impact in the years under review is as follows:

 

 

					2015
					£'000
Transaction fees expensed in the year					(1,530)

 

 

 

 

23. Explanation of transition to IFRS (continued)

 

 

   (c)  IAS 38 - 'Intangible assets'

 

Under IAS 38 'Intangible Assets' goodwill is treated as an intangible asset with an indefinite useful life and is not amortised, as such, all amortisation recognised under the previous UK GAAP must be written back. In addition the intangible assets recognised in (a) do not have indefinite useful lives and as such give rise to amortisation in the years under review as follows

					2015
					£'000
Writeback of amortisation of goodwill (cumulative)					1,305
Amortisation of intangibles recognised on acquisition (cumulative)					(1,691)
Net increase/(decrease) due to amortisation under IAS 38					(386)

    

        

 (d) IAS 2 - 'Inventories'

 

					2015
					£'000
Overhead absorption (cumulative)					91
Supplier rebates absorption (cumulative)					(16)
Net reduction in 'Cost of Sales' under IAS 2					75

 

 

(e) IAS 19 - 'Employee benefits'

IAS 19 requires the accrual of unpaid employee holiday benefits.

 

					2015
					£'000
Holiday pay accrual					(320)

 

 (f)  Income taxes

 

Other than the deferred tax arising on the recognition of separately identifiable intangibles there are income and deferred tax effects arising on recognition of the IFRS adjustments. The impact of taxes payable and deferred tax liabilities are as follows:

 

					2015
					£'000
Deferred taxes					845
Incomes taxes					(90)
Net impact of recognition of IFRS adjustments					755

 

 

(g)  Financial instruments

 

(i) IFRS adjustment - derivative financial instruments

Under IFRS the Group are required to recognise financial derivatives at fair value. However the Group did not qualify for hedge accounting under IAS 39 ' Financial instruments' and as such all movements in fair value are recognised in the income statement. The net impact on net assets is as follows:

 

 

					2015
					£'000
Fair value of foreign currency contracts					(1,455)

 

 

23. Explanation of transition to IFRS (continued)

 

Cash flow statement

 

The move from UK GAAP to IFRS does not change any of the cash flows of the Group. The IFRS cash flow format is similar to UK GAAP but presents various cash flows in different categories and in a different order from the UK GAAP cash flow statement. All of the IFRS accounting adjustments net out within cash generated from operations except for the intangible assets reclassification and the inclusion of liquid investments with a maturity of less than three months on acquisition, together with related exchange adjustments, within cash and cash equivalents under IFRS.

 

24. Subsequent events

 

Re-registration as Accrol Group Holdings plc

 

On 26 May 2016, the Group issued a notice of intention to seek admission to AIM (the "Admission") through a share reorganisation in the parent company, Accrol Group Holdings Limited, and then re-registering the Company as a public limited company by the name of Accrol Group Holdings plc.

 

Share re-organisation

 

On 2 June 2016 Accrol Group Holdings plc issued 50 new A ordinary shares of £1 each and 50 new B ordinary shares of £1 each to NorthEdge Capital LLP and the Principal Shareholders (Majid Hussain, Wajid Hussain and Mozam Hussain) respectively. Accrol Group Holdings plc undertook a bonus issue of 4 A, B, C or D ordinary shares for each existing A, B, C and D ordinary share, respectively, to existing shareholders financed from the share premium reserve in order to enable Accrol Group Holdings plc to have a minimum nominal share capital of £50,000. The bonus shares were issued in the same proportions to the existing shareholdings. Each A, B, C and D ordinary share of £1 each was then sub-divided into 1,000 A, B, C and D ordinary shares of £0.001 each. Immediately prior to Admission, Accrol Group Holdings plc converted and re-designated the existing A, B, C and D shares of £0.001 each into ordinary shares of £0.001 each and deferred shares of £0.001 each. Following Admission, Accrol Group Holdings Plc purchased all of the deferred shares of £0.001 each in its capital for an aggregate consideration of £1.

 

Adoption of employee share plans

 

On 2 June 2016, the Group adopted a Management Incentive Plan (MIP). Initially, there are three participants in the MIP. Participation in the MIP is at the discretion of the Board. There is an intention that at a future date, further shares will be issued to a member or members of the senior team.

 

 

 

 

Relationship agreements

On Admission, Accrol Group Holdings plc entered into two relationship agreements, the first with the Principal Shareholders (Majid Hussain, Wajid Hussain and Mozam Hussain) and the second with NorthEdge Capital Fund I LP and NorthEdge Capital I GP LLP (the "NorthEdge Capital Funds"). The principal purpose of the relationship agreements was to ensure that the Company is capable of carrying on its business independently of each of the Principal Shareholders and the NorthEdge Capital Funds and their respective associates.

The relationship agreements contain undertakings from each of the Principal Shareholders and the NorthEdge Capital Funds that:

(i)           transactions and relationships with them and their connected persons will be conducted at arm's length and on a commercial basis;

(ii)          neither them nor any of their connected persons will take any action that would have the effect of preventing the Company from complying with its obligations under the AIM Rules; and

(iii)         neither them nor any of their connected persons will propose or procure the proposal of certain shareholder resolutions.

The relationship agreements were effective from Admission and will remain in effect until:

(i)           the Principal Shareholders in aggregate cease to hold in aggregate a shareholding to which attaches in excess of 10% of the total voting shares in the Company from time to time; and

(ii)          the NorthEdge Capital Funds cease to hold in aggregate a shareholding to which attaches in excess of 10% of the total voting shares in the Company from time to time (as the case may be).

 

Initial Public Offering (IPO)

 

On the 10 June 2016 the company listed on AIM. The net proceeds of the Placing receivable by the Company being gross proceeds of £43.3m less estimated fees and expenses related to the Placing of £1.9 million.

 

Authority for the Company to purchase its own shares

 

On 1 June 2016, the Company passed resolutions and entered into a share buyback contract with each member of the Company to buy back, on 11 July 2016, all of the deferred shares of £0.001 each held by each member, buying back in aggregate, 27,476,142 deferred shares of £0.001 each for an aggregate consideration price of £1.

 

 

Revolving Credit Facility agreement

 

At 30 April 2016, the Group had borrowings under a committed bank loan facility of £4 million provided by HSBC plc, a factoring facility of £20 million and finance leases of £8 million. Subsequent to the year end, on 13 June 2016, the bank loan facility and the finance leases have been repaid from a new Revolving Credit Facility ("RCF"). The RCF is a 5 year £18 million facility with a day 1 drawdown of £13 million. The RCF reduces to £10 million subject to the following profile

 

	30 April 2017: £16 million 30 April 2018: £14 million 30 April 2019: £12 million 30 April 2020: £10 million
The minimum drawing is: £500,000 with the maximum number of outstanding drawings at any one time being 10. Interest is charged on the RCF at LIBOR plus a margin of 2.0% subject to the below ratchet:

 

≥2.0x Net Debt: EBITDA = 2.25 basis points

≥1.5x Net Debt: EBITDA = 2.00 basis points

≥1.0x Net Debt: EBITDA = 1.75 basis points

<1.0x Net Debt: EBITDA = 1.50 basis points

 

An arrangement fee of 1.5% of the RCF is payable at inception. An annual commitment fee of 40% of applicable margin on any undrawn RCF commitment is also payable. There is no commitment fee or ticking fee arising between signing and Admission. The facility is subject to financial covenants and each of Accrol Group Holdings plc, Accrol UK Limited, Accrol Holdings Limited and Accrol Papers Limited will enter into a guarantee and the security each have previously granted in favour of HSBC shall remain in respect of all liabilities arising under the RCF agreement.

 

25. Non-GAAP measures

Adjusted earnings per share

The adjusted earnings per share is calculated by dividing the adjusted earnings attributable to ordinary equity holder of the parent by the weighted average number of ordinary shares outstanding during the year. The following reflects the income and share data used in the adjusted earnings per share calculation.

 

				2016	2015
				£'000	£'000
Earnings attributable to shareholders				5,705	(700)
Adjustment for:
Depreciation				1,831	1,511
Amortisation				2,060	1,691
Gain / (loss) on derivatives				(1,266)	1,455
Exceptional items - deal costs				-	1,530
Exceptional items - consultancy				493	-
Tax effect				(258)	(630)
Adjusted earnings attributable to shareholders				8,565	4,857
				Number	Number
Basic weighted average number of shares1				9,900	9,514
				£	£
Basic adjusted earnings per share				865.15	510.51
Diluted adjusted earnings per share				865.15	510.51

 

 

Note 1: The basic weighted average number of shares is calculated by excluding the D class of shares as this class is subject to a dividend cap that does not materially impact upon the profit due to the remaining ordinary equity shareholders.

 

 

 

26. Proforma result

The consolidated financial statements contain comparative information for the year to 30 April 2015 which does not include a full year of trading information.

 

The statutory consolidated income statement contains 10 months of trading results as the acquisition of the trading subsidiary, Accrol Papers Limited occurred on 14 July 2014 and not at the beginning of the financial year.

 

In order to aid year-on-year comparison, the statutory audited income statement has been adjusted to include the results relating to the period 1 May 2014 to 13 July 2014 that would have been included in the Accrol Group Holdings plc financial statements for year ended 30 April 2015 had the acquisition occurred on 1 May 2014.

 

2015 is the first year reporting under IFRS for Accrol Group Holdings plc, and there are a number of IFRS adjustments. As Accrol Group Holdings plc was incorporated in the financial period, the opening balance sheet did not include these IFRS adjustments and the cumulative IFRS impact has been included in the statutory comparatives. The adjustments column in the table below, adjusts this cumulative IFRS impact and includes only the element of the IFRS adjustment relating to the year to 2015.

 

Proforma consolidated income statement for the year ended 30 April 2015

 

 

	Statutory 2015	Adjustments	Unaudited Proforma 2015
	£'000	£'000	£'000
Revenue	81,904	19,152	101,056
Cost of sales before gain / (loss) on derivative financial instruments	(59,162)	(15,661)	(74,823)
Gain / (loss) on derivative instruments	(1,455)	428	(1,027)
Cost of sales	(60,617)	(15,233)	(75,850)
Gross profit / (loss)	21,287	3,919	25,206
Administration expenses	(8,954)	(1,644)	(10,598)
Distribution	(8,549)	463	(8,086)
Operating profit	3,784	2,738	6,522
Analysed as:
- EBITDA 1	9,971	2,308	12,279
- Depreciation	(1,511)	2	(1,509)
- Amortisation	(1,691)	-	(1,691)
- Gain/ (loss) on derivative financial instruments	(1,455)	428	(1,027)
- Exceptional items	(1,530)	-	(1,530)
Operating profit	3,784	2,738	6,522
Finance costs	(4,132)	(99)	(4,231)
(Loss) / profit before tax	(348)	2,639	2,291
Tax (charge)	(352)	(519)	(871)
(Loss) / profit for the year attributable to equity shareholders	(700)	2,120	1,420

 

 

This approach enables the reader of the financial statement to easily reconcile the statutory 2015 results to those that would have been presented in 2015 had a full year of trade been included under ongoing IFRS accounting treatment which was presented in the Historical Financial Information presented within the Admission document.