Notes to the consolidated financial information

1. General information     

Accrol Group Holdings plc (formerly Accrol Group Holdings Limited), (the "Company") was incorporated in England 30 April 2014 with company number 09019496. It is a public company limited by shares and it is domiciled in England in the United Kingdom. The registered address of the Company is the Delta Building, Roman Road, Blackburn, Lancashire, BB1 2LD.

 

The Company's subsidiaries are listed in note 22, 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.

 

Basis of preparation

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

 

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 profit or loss. The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest thousand pounds, except where otherwise indicated.

 

Standards issued not yet effective

At the date of authorisation of this financial information, the following new standards, amendments 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.

 

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 of 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 statement of financial position 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:

 

§ Leasehold 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.

Customer relationships, customer order books and other

Customer relationships are shown at fair value as part of acquisition accounting. 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.

The other intangible asset relates to a Management Services Agreement between Accrol Papers Limited and Accrol Group Holdings Plc (formerly Accrol Group Holdings Limited). This agreement has an infinite life and therefore is not amortised.

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 and cash flow hedges

The Group holds derivative financial instruments to hedge its foreign currency exposures. These derivatives, classified as cash flow hedges, are initially recognised at fair value and then re measured at fair value at the end of each reporting date. Hedging instruments are documented at inception and effectiveness is tested throughout their duration. Changes in the value of cash flow hedges are recognised in other comprehensive income and any ineffective portion is immediately recognised in the statement of comprehensive income. Amounts deferred in other comprehensive income are recognised in the statement of comprehensive income in the same period in which the hedged items affects profit.

 

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. 

 

Share based payments

The Group may issue equity settled share-based payments in the parent company to certain employees in exchange for services rendered. These awards are measured at fair value on the date of the grant using an option pricing model and expensed in the statement of comprehensive income on a straight line basis over the vesting period after making an allowance for the number of shares that it is estimated will not vest. The level of vesting is reviewed and adjusted annually.

 

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 and intangible asset 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.

 

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.

 

Accounting for IPO

The successful completion of the IPO has resulted in a significant change in the Group's financing structure, both in terms of equity and debt and has had a significant impact upon the Group financial statements. Accounting for the IPO and in particular for the transaction fees incurred requires an element of judgement as costs determined to be directly related to the IPO are deducted from the share premium account. Non directly related are expensed as incurred.

 

 

4. Revenue

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

 

 

Major customers

 In 2017 there were four major customers that individually accounted for at least 10% of total revenues (2016: four

 customers). The revenues relating to these customers in 2017 were £31,597,000, £14,532,000, £13,981,000,

 £12,602,000 (2016: £25,369,000, £14,300,000, £13,769,000 and £12,375,000).

 

5. Operating profit

Operating profit is stated after charging / (crediting):

 

				2017	2016
				£'000	£'000
Employee benefit expense				11,857	9,927
Depreciation of property, plant and equipment (included in administration expenses)				1,910	1,831
Amortisation of intangible assets (included in administration expenses)				2,042	2,060
Profit on disposal of property, plant and equipment				(26)	(22)
Operating lease rentals				1,957	1,946
Net foreign exchange losses / (gains)				27	(1,332)
Grants income				(212)	(61)
Auditors' remuneration				311	59
Inventories recognised as expenses				75,947	66,807
Exceptional items
Professional fees relating to the AIM flotation				208	-
Early settlement charges on finance leases				454	-
Acquisition deal fees				352	-
Consultancy fees				567	334
Other				-	159
				1,581	493

 

The exceptional items are described below:

 

Year ended 30 April 2017

 

Professional fees of £208,000 incurred as part of the IPO process have been classified as exceptional as they do not directly relate to the raising of the equity for the AIM flotation so cannot be charged against share premium. In addition, part of the funds raised in the IPO were used to reduce the debt in the business with the majority of the finance leases being repaid which attracted an early redemption charge of £454,000.

 

Fees totalling £352,000 relating to the acquisition of the Accrol Group in July 2014 by Accrol Group Holdings Limited, were also required to be written off as part of the accounting for the IPO.

 

Consultancy costs totalling £567,000 were incurred as part of the restructuring. These related mainly to the Hussain Family consultancy, manufacturing consultancy and human resourcing consultancy.

 

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
							2017		2016
							£'000		£'000
Audit services - Company							13		7
Audit services - Rest of group							53		29
Non audit services:
Tax compliance services							11		10
Tax advisory services							9		13
Advice upon IPO							225		-
							311		59

 

 

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. Diluted earnings per share is calculated by dividing the profit after tax by the weighted average number of shares in issue during the year, adjusted for potentially dilutive share options. The following reflects the income and share data used in the earnings per share calculations:

 

 

Note 1: In the year ended 30 April 2016 and 2017, the basic weighted average number of shares was calculated by excluding the D class of shares (see note 20) as this class is subject to a dividend cap that does not materially impact upon the profit due to the remaining Ordinary equity shareholders.

 

The share option scheme in operation post flotation is dependent upon share price movements and could therefore result in future dilution of earnings per share.

 

 

7. Employee costs

 

 

 

8. Finance costs

 

			2017	2016
			£'000	£'000
Finance costs on pre-IPO debt structure
Shareholder loans			478	4,099
Finance lease interest			-	214
Amortisation of finance fees			-	143
			478	4,456
Finance costs on post-IPO debt structure
Bank loans and overdrafts			368	158
Finance lease interest			80	144
Interest on factoring facility			160	183
Amortisation of finance fees			43	-
			651	485
Total finance costs			1,129	4,941

 

 

9. Income tax expense

 

 

The tax charge for the year is higher (2016: lower) than the effective rate of Corporation Tax in the UK of 19.92% (2016: 20%). The differences are explained below:

				2017	2016
				£'000	£'000
Profit before income tax				9,399	6,979
Effective rate				19.92%	20%
At the effective income tax rate				1,872	1,396
Expenses not deductible for tax purposes				130	353
Change in rate				21	(475)
Total tax charge				2,023	1,274

 

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

 

 

The following is the analysis of deferred tax balances for financial reporting purposes:

		2017	2016
		£'000	£'000
Deferred tax assets		(545)	-
Deferred tax liabilities		4,336	4,478
		3,791	4,478

 

 

The deferred tax asset was recognized on the loss on cash flow hedges and the credit has been taken to the hedging reserve.

 

Deferred tax expected to be settled within 12 months of the reporting date is approximately £58,000 (2016: £186,000).

 

The Finance Act 2016 reduced the main rate of corporation tax to 20% from 1 April 2016 and to 19% from 1 April 2017. A future rate reduction to 18% from 1 April 2020, was substantively enacted on 26 October 2015.  A further change to reduce the rate from 1 April 2020 from 18% to 17% was announced on 16 March 2016. This change was substantively enacted as part of the Finance Bill 2016 on 15 September 2016. Therefore, the rate of 20% (2016: 20%) 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 2017 (2016: 18%). 

 

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
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
Additions	-	344	684	46	3,373	4,447
Disposals	-	-	-	(138)	-	(138)
At 30 April 2017	156	1,049	24,227	43	6,525	32,000
Accumulated depreciation
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
Charge	10	140	1,739	21	-	1,910
Disposals	-	-	(18)	(90)	-	(108)
At 30 April 2017	59	345	4,659	23	-	5,086
Net book value
At 30 April 2017	97	704	19,568	20	6,525	26,914
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 £538,000 (2016: £16,052,000) in respect of plant and machinery assets held under finance leases and £nil (2016: £3,152,000) in respect of assets under construction held under finance leases.

 

 

11. Intangible assets

 

		Goodwill	Customer lists	Order book		Other	Total
Cost		£'000	£'000	£'000		£'000	£'000
30 April 2015		14,982	20,427	86		-	35,495
Additions		-	-	-		-	-
At 30 April 2016		14,982	20,427	86		-	35,495
Additions		-	-	-		40	40
At 30 April 2017		14,982	20,427	86		40	35,535
Amortisation
30 April 2015		-	1,623	68		-	1,691
Charge		-	2,042	18		-	2,060
At 30 April 2016		-	3,665	86		-	3,751
Charge		-	2,042	-		-	2,042
At 30 April 2017		-	5,707	86		-	5,793
Net book value
At 30 April 2017		14,982	14,720	-		40	29,742
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 and are attributed to the sole cash-generating unit ('CGU').

The intangible addition during the year, relates to a Management Services Agreement between Accrol Papers Limited and Accrol Group Holdings Plc which provides a mechanism for a recharge of salary costs between the two entities.

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 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 13% (2016: 16%) and a long term growth rate of 2% (2016: 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 values reflect both past experience and external sources of information.

 

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

 

 

There are £nil provisions held against inventories (2016: £nil).

 

13. Trade and other receivables

The trade receivables balance is aged as follows:

 

			2017	2016
			£'000	£'000
Less than 1 month			14,048	12,831
Between 1 and 2 months			8,267	7,120
Between 2 and 3 months			988	383
Between 3 and 6 months			448	459
			23,751	20,793

 

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.

Included in the Group's trade receivables balance are debtors which are past due at the reporting date for which the Group has not provided as there has not been a significant change in the credit quality and the amounts are considered recoverable.

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:

 

 

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      

 

 

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 paid on average within 30 days at 30 April 2017 (2016: 29 days).

 

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

 

16. Borrowings

 

 

The following amounts remain undrawn and available					2017	2016
				£'000		£'000
Revolving credit facility				3,000		-
Factoring facility				13,043		9,879
				16,043		9,879

 

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

 

HSBC Revolving Credit Facility agreement ("Bank facility")

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 (formerly Accrol Group Holdings Limited), 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.

 

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

 

Finance fees

Finance fees are not included in the Loan Maturity Analysis table. As at 30 April 2017, finance fees relating to the arrangement of the Revolving Credit Facility have been capitalised and are being amortised. As at the 30 April 2016, the finance fees were incurred upon the arrangement of the shareholder loans by the Group's lenders.

 

The finance fees after amortisation are as follows:

 

			2017	2016
			£'000	£'000
Finance fees			222	354

 

 

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:

			2017	2016
Foreign currency contracts			£'000	£'000
Current assets			841	-
Current liabilities			(3,235)	(190)
Non-current liabilities			(474)	-
			(2,868)	(190)

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 year 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:

 

 

 

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.

 

			2017	2016
			£'000	£'000
Total borrowings			22,855	63,112
Less: cash and cash equivalents			(3,867)	(2,456)
Net debt			18,988	60,656

 

(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:

				2017	2016
				£'000	£'000
Euro - (loss)				(79)	-
USD - (loss) / gain				(844)	135
				(923)	135

 

(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:

				2017	2016
				£'000	£'000
Change in interest rate				94	56

 

(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:

 

 

(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 9 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:

			2017	2016
			£'000	£'000
Within 1 year			2,821	1,740
Between 1 and 2 years			3,614	1,740
Between 2 and 5 years			10,879	5,220
Greater than 5 years			17,191	6,516
			34,505	15,216

 

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:

 

 

 The present value of finance lease liabilities is as follows: 

 

 

Capital commitments

 

			2017	2016
			£'000	£'000
Contracted for but not provided			-	-

 

20. Share capital and reserves

 

 

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

	2017	2016
	Number	Number
Ordinary shares of £0.001 each	93,012,002	-
Class A Ordinary shares of £1 each	-	4,625
Class B Ordinary shares of £1 each	-	4,625
Class C Ordinary shares of £1 each	-	650
Class D Ordinary shares of £1 each	-	2,860

 

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

 

		Number
31 May 2016
Issue of A Ordinary shares of £1 each		50
Issue of B Ordinary shares of £1 each		50
1 June 2016
Bonus issue of shares 5:1
Bonus issue of A Ordinary shares of £1 each		23,375
Bonus issue of B Ordinary shares of £1 each		23,375
Bonus issue of C Ordinary shares of £1 each		3,250
Bonus issue of D Ordinary shares of £1 each		14,300
Subdivision of shares
Subdivided A ordinary shares of £0.001 each		28,050,000
Subdivided B ordinary shares of £0.001 each		28,050,000
Subdivided C ordinary shares of £0.001 each		3,900,000
Subdivided D ordinary shares of £0.001 each		17,160,000
Re-organisation of shares into one class
Ordinary shares of one class of £0.001 each		49,683,858
Deferred shares of one class of £0.001 each		27,476,142
10 June 2016
Issue of Ordinary shares of £0.001 each		43,328,144
11 July 2016
Purchase of Deferred shares of £0.001 each		27,476,142

On 1 June 2016, a 5:1 bonus issue of shares occurred and subsequent to this, all shares were subdivided into shares of £0.001 each. On the same day, all shares were re-organised into one class of share and then were reassigned to either Ordinary or Deferred class.

 

On 10 June 2016, further ordinary shares of £0.001 were issued.

 

On 11 July 2016, all deferred shares were purchased by Accrol Group Holdings plc (formerly Accrol Group Holdings Limited) for £1.

 

Each holder of the £0.001 Ordinary Shares are entitled to vote at general meetings of the Company. Every holder of an Ordinary Share shall have one vote for each Ordinary Share held.

 

 

21. Dividends

		2017	2016
		£'000	£'000
Amounts recognised as distributions to the owners of the parent in the year:
Interim dividend for the year ended 30 April 2017 of 2 pence (2016: £nil) per share		1,860	-
Total distributions to the owners of the parent in the year		1,860	-
Proposed final dividend for the year ended 30 April 2017 of 4 pence (2016: £nil) per share		3,720	-

 

The proposed final dividend is subject to approval of the shareholders at the AGM and has not been included as a liability in these financial statements. It will be recognised in the shareholders' equity in the year ending 30 April 2018.

 

 

22. Related party disclosures

 

(a) Identity of related parties

The Company's significant shareholders include NorthEdge Capital LP 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 were made. Post the AIM listing, Peter Cheung is now remunerated for his services via payroll. Nisiac Limited is a company under the control of the Hussain family, to which payments for the consulting services of the Hussain family were 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%

The registered address of all subsidiaries in the Group is the Delta Building, Roman Road, Blackburn, Lancashire, BB1 2LD.

 

(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:

 

			2017	2016
			£'000	£'000
NorthEdge Capital LP			-	21,704
NorthEdge Capital - GP			-	460
The Hussain family			-	22,126
Alklar Limited			-	270
Nisiac Limited			-	-
Owed to related parties			-	44,560
Opening balance			44,560	44,262
Loans advanced during year			-	249
Interest charged			478	4,099
Purchases			2,003	1,898
Repayments			(47,041)	(5,948)
Owed to related parties			-	44,560
Borrowings			-	41,240
Trade & other payables			-	3,320
Owed to related parties			-	44,560

 

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
			2017	2016
			£'000	£'000
NorthEdge Capital LP			259	2,129
The Hussain family			241	2,050
Phoenix Court Blackburn Limited			1,744	1,740
Alklar Limited			62	78
Nisiac Limited			175	-
Total			2,481	5,997

 

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 in comparative periods carried interest at 10%. Payments to Phoenix Court Blackburn Limited are in respect of the provision of services. Payments to Nisiac Limited are in respect of the provision of consultancy services.

 

(c)   Directors' emoluments

			2017	2016
			£'000	£'000
Directors' fees			62	72
Salaries			649	709
Share based payments			196	-
Post employment benefit			32	-
			939	781

 

During the year retirement benefits were accruing to nil directors under defined contribution schemes (2016: nil).  The aggregate amount of emoluments paid to the highest paid director was £305,000 (2016: £204,000).

(d)   Key management personnel

Key management personnel are considered to be the executive and non-executive directors of the Company. The remuneration of all directors who have been identified as the key management personnel of the group is set out above in aggregate for each of the categories specified in IAS 24 Related Party Disclosures:

 

(e)   Company transactions with its subsidiaries

The Company received dividends from and charged management fees to its' subsidiaries in the current year as summarised in the table below:

			2017	2016
			£'000	£'000
Dividends received			10,000	-
Management fees charged			620	-
			10,620	-

 

 

23. Share based payments

The charge for share based payments under IFRS 2 arises under the Management Incentive Plan ("MIP"). The total expense recognised for the year arising from share-based payment was £196,503 (2016: £nil). All of the total share based payments expense arises from transactions accounted for as equity-settled share-based payment transactions.

 

Movements in the number of share options outstanding and their relative weighted average exercise prices are as follows:

 

 

		2017	2017		2016	2016
		Average exercise price in £ per share option	Options (Number)		Average exercise price in £ per share option	Options (Number)
At 1 May		-	-
Granted		1.30	3,052		-	-
Forfeited		-	-		-	-
Exercised		-	-		-	-
Expired		-	-		-	-
At 30 April		1.30	3,052		-	-

 

 

Out of the 3,052 outstanding options (2016:nil) nil options (2016: nil) were exercisable. No options were exercised in 2017 (2016: nil).

 

Share options outstanding at the end of the year have the following expiry date and exercise prices:

 

				Share options
Grant - vest	Expiry date	Exercise price in £ per share option			2017	2016
2016-2019	10-Jun-23	1.30			3,052	0
					3,052	0

 

 

The weighted average fair value of options granted during the period determined using the Black-Scholes-Merton model valuation was £217.5. The significant inputs into the model were the underlying equity value (taken to be the total market capitalisation of Accrol Group Holdings plc on admission), the exercise price of an option (shown above), volatility of 26.95%, divided yield of 6%.

 

The volatility is based on statistical analysis of the volatility of comparable companies over a 5 year period as the historical data is not available due to Accrol Group Holdings plc's recent listing on AIM.

 

See note 7 for the total expense recognised in the income statement for share options granted to directors and employees.

 

24. Events after the balance sheet date

 

Details of the proposed final dividend are given in note 21. There are no other significant events that have occurred after the balance sheet date.

 

25. Alternative performance measures

The Group makes use a number of alternative performance measures to assess business performance and provide additional useful information to shareholders about the underlying performance of of the Group

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.

 

				2017		2016
					£'000	£'000
Earnings attributable to shareholders					7,376	5,705
Adjustment for:
Amortisation					2,042	2,060
Gain on derivatives					-	(1,266)
Exceptional items					1,581	493
Tax effect of adjustments above					(524)	(258)
Adjusted earnings attributable to shareholders					10,475	6,734
					Number	Number
Basic weighted average number of shares1					85,113,194	9,900
Dilutive share options					1,321,025	-
Diluted weighted average number of shares					86,434,219	-
					£	£
Basic adjusted earnings per share					0.12	680.20
Diluted adjusted earnings per share					0.12	680.20

 

 

Note 1: In the year ended 30 April 2016 and 2017, the basic weighted average number of shares was 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.

 

 

 

Reconciliation from GAAP- defined reporting measures to the Group's alternative performance measures

 

Management use these measurements to better understand the underlying business of the Group.

 

Consolidated income statement
					2017	2016
(a) Adjusted gross margin					£'000	£'000
Revenue					135,053	118,219
Gross profit					37,679	34,489
Gross margin					27.9%	29.2%
Revenue					135,053	118,219
Gross profit					37,679	34,489
Less: gain on derivative financial instruments					0	(1,266)
Adjusted gross profit					37,679	33,223
Adjusted gross margin					27.9%	28.1%
(b) Adjusted EBITDA
Operating profit					10,528	11,920
Adjusted for:
	Depreciation				1,910	1,831
	Amortisation				2,042	2,060
	Gain on derivative financial instruments				0	(1,266)
	Exceptional items				1,581	493
Adjusted EBITDA					16,061	15,038
(c) Adjusted PBT and adjusted PAT
Profit before tax					9,399	6,979
Adjusted for:
	Amortisation				2,042	2,060
	Gain on derivative financial instruments				0	(1,266)
	Exceptional items				1,581	493
Adjusted PBT					13,022	8,266
Taxation					(2,023)	(1,274)
Adjusted PAT					10,999	6,992