Accsys Technologies — FY23 results better than expected

Accsys’s FY23 results were slightly better than we had expected, even considering we had already raised our estimates following the company’s trading update on 3 May 2023. As previously announced, Accoya volumes were up 6% y-o-y to 63,344m³, after the decline of 19% in the first half, which was caused by the Arnhem plant shutdown in April and May around the installation of the fourth reactor. As reactors 1–3 returned to production and reactor four has been ramping up from September 2022, volumes showed a strong increase of 64% y-o-y in the second half (company guidance was for a 50% increase). During the analyst call, management noted that the annual maintenance stop was in H1 rather than in H2, which has supported volume growth in the second half.

Sales of wood to off-take partners Medite and Finsa for the manufacture of Tricoya panels were up 18% y-o-y, representing 24% of total volumes (FY22: 22%). Volumes to Accoya customers increased 3% y-o-y with broadly flat volumes in the UK and Ireland and Rest of Europe but a 10% increase in volumes to the United States for market seeding of the new Accoya plant, which is planned to be operational in mid-2024.

Revenues increased 34% y-o-y to €162m, driven by volumes growth and higher average selling prices, including the energy price premium (surcharge to cover the strong increase in acetyls prices). The strong growth in Accoya Color, which carries around 25% higher prices than standard Accoya, had a positive mix effect. Sales prices were raised over the past year to offset the higher raw material costs, particularly for acetyls. Revenues from Accoya wood rose 37% y-o-y to €143.5m, on 6% higher volumes and significantly higher average sales prices. Revenues from the by-product acetic acid increased 23% y-o-y to €16.8m, which was volume and price driven. The balance of the €162m group revenue came from Accoya licence revenue of €0.3m (FY22: 0.4m) and Tricoya revenues of €1.5m (FY22: €1.5m).

Gross margin increased 420bp to 34%, mainly driven by the higher average sales prices, thereby more than offsetting the impact of higher input costs. Accsys experienced a 19% increase in net acetyls and moderately higher wood costs. Gross margin is well above the company’s target of at least 30%.

Driven by higher volumes and higher average sales prices, underlying EBITDA showed a clear improvement: +120% to €22.9m. Accsys defines underlying EBITDA as the underlying EBITDA at group level (ie Accoya Arnhem, Tricoya, Corporate and R&D) and includes the group’s attributable share of the Accoya US JV’s underlying EBITDA, although the 60%/40% JV is equity accounted for. Group EBITDA increased from €10.6m to €23.6m and the company’s share in the EBITDA loss of the JV increased from €0.2m last year to €0.7m this year.

Exhibit 2 shows the development in EBITDA in FY23, with clearly the highest impact coming from the higher average sales prices. From the total price impact of €30.7m, sales price increases had an impact of €23.3m, the energy price premium €3.9m and currencies €3.5m. The energy price premium is no longer in place.

Reported EBITDA included an impairment of €86m related to the changed ownership of the Tricoya consortium (Accsys owns the full 100% since November 2022), the expected additional capex needed to complete the plant (unchanged at up to €35m) and the lowered expected output of the Hull plant (we assume for accounting reasons only to be more conservative).

Reported net loss was €39.9m, with the main impact from the above-mentioned impairment (partly compensated for by the positive impairment effect via minority interest of around €30m). Underlying net profit jumped from €1.9m last year to €9.5m this year with EPS at €0.05.

Total investments were €58.9m, with €7.9m investments in Arnhem, €20.1m in Hull and €29m in the Accoya US JV. As previously indicated on 3 May, net debt was up €16.9m to €44.1m, mainly due to the higher investments. Exhibit 3 shows the development of net debt during FY23.

There was little news on the two construction projects. The Accoya US JV is making good progress with the construction of the 43,000m³ Accoya plant, and in FY24 the partners will work towards the completion of the facility. It is still planned to be operational mid-2024 (July/August) following the previously mentioned delay and cost overruns (unspecified). We estimate potential revenues of €105m by CY27. This 60%/40% JV is equity accounted so will not be consolidated in Accsys P&L and only appear as ‘net result of JV’. The company, however, does include its 60% share of the EBITDA of the Accoya US JV when it mentions group underlying EBITDA.

The construction of the Tricoya plant in Hull has been on hold since November 2022. Management commented that it still believes in the value proposition of completing Hull and will continue to explore funding options to finance further construction, for which up to €35m is needed (unchanged from previous estimates). Funding discussions have been held but agreeable terms have not been reached yet. In the absence of third-party funding, Accsys will use modest levels of its cash flow to maintain the plant and progress certain pre-construction work. Funding Hull out of its own cash flows will, of course, take the longest until completion of the plant, but the willingness to do so proves that management wants to continue with the construction. The previously announced production volume forecast of the Hull plant was up to 30,000 metric tonnes (or 40,000m³) but for the impairment test of the Hull facility a reduced production volume of 24,000 metric tonnes was used. We still believe that the construction of the Tricoya plant will be continued but it is unlikely to be operational before CY25.

According to Accsys, demand for both its products Accoya and Tricoya remains strong as customers seek products that deliver outstanding performance, durability and sustainability. Accsys does not provide any guidance for FY24. The company stated that it has made a good start to FY24 without being more specific. Management commented that it expects to leverage the benefits from greater economies of scale combined with the anticipated higher production levels (reactor four in Arnhem further ramping up and contributing for the full year instead of seven months in FY23). This suggests higher volumes and higher margins. On the other hand, the company also mentioned some softening of price (the energy surcharge is no longer in place) and higher costs related to the completion of the Accoya plant in Kingsport (eg hiring staff).

We have lowered our FY24 revenue forecast by 6%, as we now expect a more gradual ramp up of the fourth reactor in Arnhem (which will be caught up in FY25), combined with a decline in average sales prices of 10% as the energy price premium is no longer in place (previously 5%). We estimate revenue growth of 7% y-o-y in FY24. For FY25, we expect 10% y-o-y revenue growth with flat pricing and Arnhem nearing its full capacity.

We anticipate that gross margin will normalise towards 32.5% in FY24 and FY25 after the very strong 34% in FY23, which was driven by the significantly higher average sales prices. We have lowered our EBITDA estimate for FY24 to €24.2m (reflecting growth of 6%), due to the anticipated lower gross margin and also higher sales and marketing costs in both Europe and USA (as communicated by management). We have left our FY25 EBITDA forecast broadly unchanged at €32.1m, driven by economies of scale as Arnhem is expected to near full capacity. This reflects 33% growth in EBITDA in FY25. Please note that the EBITDA mentioned includes Accsys’s 60% share in the Accoya US JV with Eastman, which we expect to be close to EBITDA breakeven in FY25 after a loss in FY24.

We value Accsys using a DCF model as there are no other listed companies with a similar business profile. The company currently is trading at 1.4x EV/sales and 9.1x EV/EBITDA in FY24e.

Our model includes the estimates for the four reactors in Arnhem as we have taken our Hull estimates out, awaiting further announcements. We add a separate value for the Accoya plant in the United States, which we still expect to be operational in mid-2024 (July/August) following the start of construction in April 2022.

As we have left our medium-term estimates broadly unchanged but rolled over our DCF by one year, the DCF value of the four reactors in Arnhem and the Accoya US JV now indicates a higher value per share of around €1.10, versus previously €0.95. The option value for the Hull project adds >€0.15 (down from €0.20 previously because it will take longer to be operational as no decision has been taken yet on whether to continue). This totals a group value of €1.25 per share (previously €1.15).