Accsys Technologies — Accoya USA off to a good start

Accsys returned to revenue growth of 1% y-o-y in the first half (ending 30 September), despite the continuing challenging conditions in the global construction market, lower revenues from the by-product acetic acid (1% y-o-y impact) and 2% y-o-y lower average sales prices. Volume growth at the Arnhem plant of 5% to 30,372m³ was stronger than expected, and the company continues to gain market share in a still subdued building materials market. To continue its strong performance, Accsys added several new distributors in H125.

Including volumes from the Accoya USA plant, which started commercial operations in September, total volumes reached 31,553m³, reflecting growth of 10% y-o-y. Strong growth of 18% y-o-y was reported in the large and attractive North American market, which the company has started serving directly from the JV plant in Kingsport. The company operates in the US via the 60%/40% JV with Eastman Chemical Company, which is equity accounted, but Accsys provides combined sales volumes, including 100% of the volumes of the US JV and aggregated revenues including 60% of the revenues of the US JV (€74.1m in H1).

After the decision to discontinue the Tricoya project in Hull, the company still provides lower-grade Accoya to produce Tricoya chips for offtake partners Medite and Finsa.

Accsys managed to keep its sales prices at a high level, with the average sales price declining only 2% y-o-y, which reflects selective discounting to grow market share. This was a result of the mix of sales for Accoya (70% of total volumes), which declined 3% y-o-y, and the price for Accoya for Tricoya (30% of volume), which increased 4% y-o-y.

Gross margin recovered from last year and was up 210bp y-o-y to 30.7%, driven by increased sales volumes and lower raw wood and maintenance costs. Accsys targets a level of 30% and during the analyst call it commented that it expects further upside from the current levels in the years to come, mostly driven by efficiency and scale effects.

Adjusted EBITDA improved to €4.0m from €1.6m (see Exhibit 2), mainly driven by higher volumes. This was supported by the realisation of €2.5m in cost savings from the business transformation programme and €1.4m lower opex in Hull, while absorbing the €3.3m higher loss from the US JV, which has just started commercial operations.

Following the decision to discontinue the Tricoya project in Hull at the end of the first half, Accsys wrote off the remaining book value of €18m and incurred a one-off charge of €3.9m for the discontinuation and winding up of the plant. These one-offs resulted in a reported EBIT loss of €18.2m versus a loss of €10.3m last year (which included one-offs for an amount of €8.2m).

Accsys’s 60% part of the net loss of the US JV increased from €1.2m last year to €6.1m this year. Combined with higher interest costs and paid taxes, reported net loss increased from €13.5m to €27.5m, with the underlying net loss increasing from €5.4m to €6.7m.

Net debt increased to €40.2m from €37.1m at the end of FY24, mainly due to investments of €7.2m into the US JV. Working capital was flat with a further reduction in inventories of €1.8m. During the analyst call, management commented that it expects further improvements in inventory levels and is targeting three months of raw material inventory and one month of finished goods inventory. Free cash flow improved from a negative €1.7m last year to a positive €8.1m this year. Management focus is on deleveraging, with a net debt/EBITDA level of 1.0–1.5x seen as healthy.

In September, Accsys achieved the milestone of starting commercial operations at its Accoya USA plant (the second in the world). The Arnhem plant performed well despite the ongoing challenging market conditions and the start of the transfer of volumes to Accoya USA, which caused a decline of 10% in volumes from Arnhem to North America (see Exhibit 4). Management believes it can close the volume gap at Arnhem in 12 months after the start of Accoya USA in September.

Accoya USA sold 1,181m³ in its first month of operations and Accsys commented that it expects volumes of 7,000–8,000m³ from the US plant for the full year, which is in line with our anticipated 7,500m³. Accsys still expects a ramp up to full capacity in three years’ time, but it did not indicate when the plant is expected to break even.

Growth in the UK and Ireland was a strong 24% due to the positive effects of increased sales and marketing efforts. Rest of Europe showed a small decline of 2%, which, according to management, is the balance of good growth in France and the Benelux offset by a sharp decline of around 30% in Germany, where industrial markets are under severe pressure.

Now that Accsys has discontinued the Tricoya project in Hull, it will continue to produce Tricoya chips from Accoya wood to further exploit the market for Tricoya. During the analyst call, management commented that market acceptance of Tricoya is slow but consistent. Focus is also on sourcing more cost-effective pine species such as Spanish radiata pine and other wood chip grade wood. Accsys also sells Tricoya panels to further develop this potentially very large market.

After a strong start to the year, Accsys expects FY25 results to be significantly ahead of market consensus (adjusted EBITDA of €7.6m, versus our previous estimate of €10m). Despite ongoing difficult market conditions, the company expects volumes to maintain momentum. This refers to the total volume of Arnhem and Kingsport combined, as volumes in Arnhem will be affected by the transfer of volumes to Accoya USA. The Arnhem plant is fully consolidated while Accoya USA is equity accounted, thus the transferred volumes will no longer be visible in the P&L. As Accsys expects that Arnhem can close this gap in 12 months after the start of Accoya USA, there will be a negative impact in H225. If we were to assume full-year volumes in Arnhem for UK and Ireland, Rest of Europe and Rest of world to be double those of the first half (supported by a very weak comparison base with Q324), while assuming no further volumes to the US, we end up at a volume level of around 57,000m³, 1% higher than our previous estimate. In H224, Accsys sold 5,067m³ to North America while the company expects Accoya USA to sell 6,000–7,000m³ in H225, which explains our expectations of no volumes to the US from Arnhem from H225.

Accelerating sales and marketing activities should continue to support volume growth. The operational turnaround is in progress, which should deliver the full €3m in planned cost savings, while the closure of the Hull project lowers opex by €3m annually.

Accsys remains committed to reaching around 100,000m³ in volumes across Arnhem and Kingsport by the end of FY27. It will host an investor strategy day in Arnhem on 30 January 2025, where we expect the company to provide building blocks on how it plans to reach this target. The combined capacity of Arnhem and Kingsport is 123,000m³, with potential revenues of at least €300m at full capacity.

We have modestly lowered our revenue estimates for FY25 and FY26 by 1–2% to incorporate somewhat lower pricing and lower non-wood revenues due to lower pricing of acetic acid. We have slightly raised our EBITDA estimate for FY25 to €11m, the result of a mix of higher profitability in Arnhem offset by a higher-than-anticipated loss for the US JV. For FY26 we have also raised our EBITDA forecast, mainly due to the larger than previously expected declining loss at the US JV.

Our updated estimates assume a small revenue decline of 1% y-o-y in FY25 and an increase of 10% in FY26. We also introduce our FY27 estimates, which assume 17% revenue growth, based on improving market conditions and Arnhem further scaling up. EBITDA margins are expected to increase steadily from FY25 due to higher efficiency and scale effects, while initial losses at the US JV will decline when the plant ramps up further.

There are no other listed companies with a comparable business profile to Accsys and therefore we only use a DCF model for our valuation. Our DCF model is based on the four reactors in Arnhem and we add a separate value for the Accoya plant in the US, which has been operational since September. On slightly raised margin expectations, our DCF now indicates a value per share of €0.95 (previously €0.92).