Accsys Technologies — Good progression shown in Q424

Accsys’s FY24 results (ending 31 March 2024) showed lower revenues and margin pressure due to subdued construction markets and destocking at its clients, particularly in Q3. Accoya wood volumes were down 11% y-o-y after an increase of 20% in H124. According to management, there were two key positives: Accoya Color showing double-digit volume growth with good demand in the DACH region; and 14% volume growth in Accoya for Tricoya, supported by Accsys’s offtake partners Medite and Finsa. Revenues were lower than we had anticipated, mainly due to a larger-than-expected decline in revenues from the sale of acetic acid (a by-product of the acetylation process). In November 2023, when the company warned of weaker market conditions, Accsys announced an increase in investments in sales and marketing, and that seems to have paid off. Q4 was much better than Q3, with 40% q-o-q growth and an increase in demand since January.

Accsys managed to keep sales prices relatively stable (Accoya -0.4% y-o-y and Accoya for Tricoya 1.3% y-o-y) in a market environment where competitors in hard wood and other modified materials materially reduced their prices. The average sales price for the group was 4% lower y-o-y, due to the mix effect (higher growth in lower priced Accoya for Tricoya), a decrease in sales of the by-product acetic acid and discounts in the US (ahead of the new plant being operational). There was also a negative impact from the non-recurrence of the energy surcharge (€3.9m), which was implemented at the time of the energy price hike in the last financial year.

Gross margin declined 400bp to 30.0% after a decline of 220bp in the first half of the year. This was due to lower sales volumes, the modestly higher average wood prices and higher wood mix costs. These were only partly offset by lower net acetyls costs (which are gas price related). The Accoya wood gross margin was 350bp lower at 30.7%. This was still above the company’s ambition of at least 30%, but at the lower end of the realised range over the past five years of 30–34%.

With higher opex, EBITDA decreased by 79% y-o-y to €4.8m (Exhibit 2 shows the development of EBITDA in FY24). This result includes higher sales and marketing costs, higher pre-operational costs in the Accoya USA plant of €3m and higher running costs of €1.1m for the Tricoya UK project.

Net debt in FY24 declined €7m to €37m (see Exhibit 3 for a net debt bridge), with capex and the investment in the Accoya USA JV compensated for by the positive EBITDA and the proceeds of the equity raise in November 2023. Working capital was a negative €3m, with a decrease in payables partially compensated for by €4.2m lower inventories. Free cash flow showed a positive development from a negative €13.6m last year to €3.7m this year.

As mentioned above, the Arnhem plant faced weaker market conditions, particularly in Q3, but still maintained a good gross margin level of 30.7%. Cost saving measures were initiated in FY24, and in FY25 the focus will be on reliability and improvement measures, including cost conversion. Accsys will launch its Solid Roots programme in Arnhem, which aims to create a mature manufacturing facility and which includes supply chain optimisation and improvements, and creating manufacturing excellence. More details on this programme will be provided at the planned investor day in H225.

In the US, the construction of the Accoya plant in Kingsport is complete and commissioning is well underway. Accsys expects to start the first production test batches over the coming weeks and still expects the plant to be operational towards the end of the summer. The plant has an initial capacity of 43,000m³ with two reactors, which we estimate will generate revenues of €105m at full capacity. As previously communicated, the site includes space for six additional reactors. Accsys operates in the US via the 60%/40% JV with Eastman, which is equity accounted for. The JV’s results are not included in Accsys’s revenues and EBITDA, however the company also reports an adjusted EBITDA that includes the results.

The Tricoya project in Hull has been on hold since November 2022 but management still believes in the long-term market potential of Tricoya panel products, with the support of offtake partners Medite and Finsa. Good volume growth of 14% in Accoya wood to produce Tricoya was recorded in FY24 and Accsys distributed more Tricoya panels in comparison to last year, to, among others, the US and Australia (revenues up from €1.4m to €4.1m). The company has hired an external adviser and management will take a decision on Hull before the end of September. The initial plans for Hull were a capacity of 24,000 tonnes (equivalent to 40,000m³), with estimated revenues of around €50m at full capacity. We do not take a Tricoya plant into account in our model but still believe that a restart of the construction is possible. Operational running costs are €6m on an annual basis until a decision has been made, and if Accsys decides to continue the plant, it will not be operational before FY26 (and an estimated capex of around €35m will be needed to complete the plant).

In the analyst call, Accsys CEO Jelena Arsic van Os, who is now a year into the job, discussed the company’s strategic trajectory, which started in FY24 with a re-focus of its organisation and which delivered a cost reduction of €2.7m in H224. During the second half, Accsys invested in demand creation by increasing the number of sales and marketing staff and by adding 10 new clients, seven of which are distributors and three are direct manufacturers. The company also secured €24m in new capital, which fully covered the costs of the completion of the Accoya USA plant.

FY25 will be a transformational year during which the Focus strategy will be launched, which should drive performance and operational excellence, and the Accoya USA plant will be operational, adding 43,000m³ in Accoya capacity.

From FY25 Accsys aims to re-enter a growth phase with leveraging the benefits from greater economies of scale associated with the ramp-up of Accoya USA in Kingsport. The company is aiming for around 100,000m³ in sales volume by the end of FY27, which would reflect growth of around 80% compared to FY24. This could be supported by good growth of the global wood products market, for which The Business Research Company expects a CAGR of 7% in 2024–28. The Accoya USA JV is equity accounted for, thus the P&L will only show the volumes from the Arnhem plant, which we estimate at 70,000m³ for FY27.

Gross margin is expected to move up in the range of 30–34% (currently at the low end), driven by the benefits of economies of scale. According to the company, the group EBITDA margin for continuing operations of 18% in FY23 was exceptional and the level in FY21 and FY22 of 11–14% is a better indication for the years to come. The eventual outcome is still dependent on the development of the wood and acetic acid prices.

Accsys did not provide specific guidance for FY25 but mentioned several factors that would influence the performance in the current financial year:

Following Accsys’s trading update in May, we adjusted our estimates upwards and we now fine-tune them. As the revenue base of FY24 was 4.5% lower than we had anticipated, due to the larger-than-expected decline in acetic acid sales, we have also lowered our revenue estimates for the next few years, but have also incorporated the gradual positive effect of the investments in sales and marketing. We have adjusted our revenue forecast by 6.4% for FY25 and 4.5% for FY26.

As we now expect a revenue decline in FY25 we also lower our EBITDA forecast for that year by 9%. With a return to revenue growth in FY26 we now expect a stronger leverage effect, which results in an increase in our FY26 EBITDA forecast by 1.4%.

Our new estimates assume a revenue decline of 1% y-o-y in FY25, anticipating that the plant in Arnhem will not fully absorb yet the lost volumes to the plant in the US (which is not consolidated in Accsys’s P&L). Management has indicated to expect to replace the lost volumes within 12 months after migration to the US on a run rate basis. For FY26, we expect stronger revenue growth of 11% y-o-y, driven by improving market conditions and the contribution of new clients as a result of increased sales and marketing efforts.

For the valuation of Accsys we use a DCF model as there are no other listed companies with a comparable business profile. Our model is based on the four reactors in Arnhem and we add a separate value for the Accoya plant in the US, which is expected to be operational by the end of summer 2024, now that the first test batches are expected in the coming weeks. Our DCF indicates a value per share of €0.91 (€0.89 previously). The option value for Hull adds €0.07 per share (unchanged), bringing Accsys’s value per share to €0.98 (previously €0.96).