Accsys Technologies PLC

Good morning. Welcome everyone to our interim results presentation for the six months ended 30th of September 2022. Before we get started, I want to draw your attention to this picture. It's of a newly built family house in the middle of a Lithuanian forest. I always like to start by talking about our products because we are all very proud of them in access. You can see the house features Akoya wood cladding installed vertically in narrow battens. Akoya was also used for the garden decking and also used for the walled garden snug. Akoya was an ideal choice for this harsh environment, which experiences extreme cold in the winter as well as very hot summers. Interestingly, in this project, it was the clients themselves that requested Akoya, showing the strength of our brand with our end users. This is supported by our recent brand awareness studies, which show that around one in three of our target audience in the UK and Germany is now actually aware of Akoya. Here is our usual disclaimer. Next slide, please. In terms of this morning's agenda, I will begin with an overview of the results, then we'll is going to take us through the financials. I'll then walk through the business review, highlighting progress on our growth and expansion strategy, the recent challenges we've had and overcome, and the outlook for our business. Turning now to the overview of the results. We have delivered revenue growth in the last six months up 5% to 589 million euros compared to H1 2022. This has been driven by strong pricing power and product mix, despite lower volumes. You'll see volumes were down 19%. This was due to the previously announced temporary production shutdowns in April and May related to our site expansion in Arnhem. We actually expect 50% higher volumes in H2, but more about that later. Gross profit is up 5%, and remarkably, our Akoya profit is up 30% per cubic meter. This reflects the strength of the Akoya brand and the pricing power it commands in the market. Our ability to push through higher selling prices has offset macroeconomic inflationary pressures, such as historically high energy and chemical prices. EBITDA is steady at 4.5 million euros compared to the same period last financial year. Demand for ACOIA continues to exceed capacity, and we are pleased to say we continue to have strong customer demand for the next three months and beyond. We have just 2% market share of our target market for ACOIA and Tricoya, leaving us a 98% opportunity. During this period, we have made excellent headway with our ACOIA growth projects in Arnhem, and with the Akoya USA Kingsport site in Tennessee. We are pleased to have completed the reactor capacity expansion of our Arnhem site in September and are focused on ramping up production there. As I previously said, we expect to see the benefit of this in sales volumes and operational leverage coming through in the second half of the year. Construction progresses very well at our exciting USA joint venture site in Kingsport, which will have a capacity of 43,000 meters cubed. The plant will service the substantial latent demand in the North American market and is on track for completion in early 2024. In Hull, We have previously reported on some ongoing challenges and delays with the construction of the world's first Tricoya plant. This has been a very challenging, very difficult and frustrating period, hampered by COVID, commissioning challenges and our capability needs. Discussions and validation work across the period have led to the restructuring of the Tricoya Consortium earlier this month. giving Axis 100% control and 100% of the potential earnings from Tricoya. We believe this is a good result for Axis, giving us the optionality to continue the project firmly on our terms and to our timelines. I'll provide more detailed updates on our projects in the business review. I will now pass over to Will to update on the financials.

Thank you, Robin. Good morning, everyone. First of all, just a comment on the image on the financial results page. You can see here a pool cover made of Akoya colour, made for a private residence in the Swiss Alps. Here, Akoya was selected for its durability and stability, even in this harsh alpine landscape. Moving on to the financial highlights, looking at the financial highlights for the six-month period to 30 September, Axis delivered a flat EBITDA, as Rob just explained, despite a 19% reduction in sales caused by the production capacity constraints. The 19% reduction to just under 24,000 cubic metres was due to the extended plant shutdown in Arnhem in April and May, which was required to complete the tiles of the fourth reactor expansion project, as we've previously reported. However, despite that, revenue grew by 5% to 58.9 million, driven by an increase in our average sales prices compared to last year. With inflationary cost pressures resulting, and those resulting from higher gas prices, our key manufacturing profits were, however, strong. We continued to achieve target gross margin, with 31% achieved in the period. More importantly, again, as Rob explained, the profit per cubic metre increased by 30% to €755 per cube, with an opportunity for further growth going forward as we start to benefit from the fourth reactor. This enabled gross profit to increase by almost €1 million, with our price increases more than offsetting the raw material costs and the impact from lower sales volumes. The resulting underlying EBITDA of €4.5 million in the period was the same as last year, after allowing for a moderate increase in other operating costs. We have recorded an exceptional non-cash impairment charge in the period of €58 million in respect of the tri-carrier assets. This takes account of up to 35 million euros of capital costs identified to complete the plant construction, a whole period of at least six months, which we report on the 2nd of November. And in addition, the impairment reflects other factors, notably current higher forecast acetyl costs and higher market interest rates, which impacts the discount rate. Rob will cover the Tricolour project in more detail a bit later on. Net debt increased to $61.4 million as a result of investments into the U.S. joint venture, completion of the fourth reactor, and investment into the hull project for Tri-Koya. We are expecting the cash balance of $7.2 million as at the end of September to increase over the second half of the year, or in completion of the Arnhem expansion, and as we focus on ramping up the Koya sales and unwinding a high inventory position. Coming to the next slide and looking in more detail at our sales mix, During the period, we've continued to balance our customer demands with our capacity constraints while successfully targeting key growth markets. The chart sets out the proportion of our coil sales by end market, with the percentages in brackets reflecting the change to this proportion compared to last year. We continue to see strong underlying demand for a coil across our regions and with our tri-coil panel manufacturers. We increased sales into North America by 4% of total sales, where we are targeting the market ahead of our planned US capacity expansion, and what also remains the largest market globally. With total sales volumes down year on year, given low production in the period, other markets saw a small decline in sales volumes. This does not reflect a change in the underlying demand. The next slide sets out how the group EBITDA compared to the same period last year. Now, we have sought to carefully manage our profitability at a time of increasing raw material costs. Average ACOIA prices increased significantly, as represented by the left-hand green bar, with higher pricing having been implemented to help offset high raw material prices and ensure we achieve our target 30% gross margin. There are a number of components within this 11.1 million increase, which is summarized in the pie chart on the right. 8.9 million is due to ACOIA price increases implemented both last year, but also in the most recent six-month period. 1.5 million was due to the benefit of the US dollar strengthening, noting that while we sell the coil in euros to most of our customers, our North American pricing is in US dollars. And 0.7 million was attributable to the energy price premium, which is implemented from May this year. This is a mechanism whereby we invoice our customers an additional amount if gas prices increase above certain thresholds and enables us to mitigate the effects of volatile CETRs pricing, which I'll come back to. The 3.3 million Sales volume reduction is due to the 19% reduction in sales volumes, resulting from the lower production as explained before. Raw material costs increased driven by higher acetic anhydride costs and raw wood costs, and I'll explain that in more detail. Other manufacturing costs also increased due to high inventory levels and high utility costs, most of which is due to high energy pricing. Akoya operating costs and other group operating costs both increased more moderately, but the main increase is due to higher staff costs and insurance costs. The ACOIA USA joint venture share of loss also increased as planned, following the investment decision in March and reflecting an increase in the project activity levels. Most of the costs incurred in respect to the US joint venture have been capitalized within the joint venture. The total of $31 million have been invested in CapEx within the joint venture by the end of September. Coming up to the next slide, this next slide summarizes how our key raw material costs have increased. As a reminder, our key chemical raw material is acetic anhydride, the price of which is linked to gas prices. However, we produce a byproduct, acetic acid, which is also linked to gas prices, although we produce less acetic acid compared to the volume of anhydride we use in the process. As a result, while there remains a partial natural hedge, the net cost of acetals has continued to increase by 49% in the period, given the significant increase in European gas prices. mentioned earlier we've been able to mitigate this increase with price increases for acquire and continue to manage the volatile changes in the cost for the implementation of the energy price premium from may which has been understood by our customers raw wood pricing also increased in the period with average prices up by approximately 14 compared to last year broadly as expected we continue to purchase higher grade timber and benefit from a number of long-term supply agreements as a result we've not experienced significant volatility volatility, which has been seen with some other timber products. Looking forward, we expect raw wood prices to remain or wood price increases to remain moderate. The next slide looks at the profitability. We continue to achieve our 30% gross margin. Fortunately, we've continued to grow the profit per cubic metre, which has increased by 30% to the €755 per cubic metre. This chart shows this key metric has continued to grow over the recent periods with 124% increase since 2000, or the financial year ending March 2019. This is a result of price increases, but also the economies of scale resulting from when we bought on the third reactor, which helped drive the increase in FY20. Going forward, we expect to continue to achieve our 30% target gross margin and expect to continue to do so, although this margin will remain a little volatile depending on the sales mix and the effect of the energy price premium. The opportunity is to grow the profit per cubic metre further as we see the benefits from the fourth reactor in Arnhem in the second half of this year and beyond. The next chart shows the movement in net debt for the six-month period. We start on the left-hand side with net debt of £27.2 million at the 1st of April and ended with net debt of £61.4 million at 30th September. There are a number of parts to highlight. The Akoya business and its steady profitability generated significant cash inflows, again, of €10.4 million, while the Tri-Koya, Corp and R&D segments have partially offset this. And we've also reported a €6.9 million increase in working capital in the period, which I'll explain in a bit more detail. This working capital increase was largely driven by high inventory levels, which actually increased by €12 million, partly offset by receivables which decreased by 5.6 million euros. While inventory was expected to increase ahead of the additional capacity coming online and due to higher input costs, the increase was more than we had planned and as a result of the previously reported delays completing the fourth reactor expansion. Former material levels ended the period at higher levels given the long lead times from New Zealand and work in progress levels also increased as we commenced operation of the fourth reactor in September. As a result, we do anticipate inventory levels reducing significantly in the second half of the year. The 22.6 million of capex in the period includes 6.3 million relating to the completion of the fourth reactor in Arnhem, plus 16.3 million in respect to progressing the construction of the whole plant prior to ceasing construction and completing the tri-core re-organization, which Rob will explain in more detail. The 29.1 million investment into the Khoi USA joint venture represents the earmarked cash which had been committed to be invested in March 2022 at the time of completing the final investment decision where the funds were only contributed into the joint venture in the current period. This cash represents Axis 60% investment and was made alongside Eastman's 40% investment. Finally, Axis completed an equity raise by way of a placing in May this year to help strengthen the balance sheet, increase liquidity headroom and fund additional costs for the fourth reactor. The final finance slide just looks at the cash and net debt position in a little bit more detail. As I said, net debt at the end of September was 61.4 million. This takes into account a number of debt facilities. 45 million was drawn under the ABN term loan entered into last October. Five million utilized under the ABN revolving credit facility. Just over 15 million was drawn under the NatWest facility, which was subsequently reorganized in November. and $10 million drawn under the convertible loan agreement with Daeng, which was entered into in March this year. The cash balance was $18.1 million. However, $10.9 billion of this cash balance was pledged to ABN AMRO to support the $20 million U.S. dollar letter of credit, which was put in place back in March to support the U.S. funding arrangements. Excluding this, our adjusted cash balance at the end of September was $7.2 million. And therefore, with a focus on cost and cash management. The second half of the year is expected to benefit from increased acquire profits from the staff of the fourth reactor, no planned shutdowns, reduction in inventory, as well as significantly reduced cash outflows in respect to the whole task, and therefore a strengthening of the balance sheet as we go forward. With that, I'll pass back to Rob to discuss the business review and outlook.

Many thanks, Will. Turning now to the business review. Before I begin, I want to draw your attention to this picture of the Edgewater Public Market in Colorado. You can see rough sawn Akoya wood manufactured by Delta Millworks installed as cladding. This public market was previously a 55,000 square foot abandoned grocery store. The owner's vision was to transform it into a food market and brewery using sustainable materials to minimize environmental impact. As a repurposing project, with sustainability front of mind, Akoya, with its strong sustainability credentials, was a natural choice of material for the developers. The project was commended by the American Institute of Architects Colorado for adaptive reuse in 2022. Next slide, please. Many of you follow our business closely, so I'll run through the next few slides pretty quickly as a recap on what we do, our products, our market and our strategy. Our proposition is this. We have world leading products and innovative technology with an outstanding global market opportunity of over 2.6 million meters cubed, coupled with a global growth strategy to increase our production capacity. While the six month hold period in Hull will naturally push out our five times capacity targets by six months, we remain committed to significantly increasing our capacity over the coming few years. We've already made great progress in increasing capacity with our fourth reactor at Arnon coming online in September. Next slide, please. Many of you will also be familiar with this slide and our product, so I'll skip over it. We'll upload the presentation to our website after this call, so if you wish to review it in more detail, it will be available. So now, let's look at ACOIA's performance in the first half. Next slide, please. We achieved good segment revenue growth for ACOIA despite 19% lower volumes due to the shutdowns of the Arnhem site in April and May, as previously reported. Revenue was up 6%, comprising of a 5% growth of wood revenue and a 9% growth in acetic acid sales, our manufactured co-product. We achieved a phenomenal 30% growth in gross profit per meter cube for Akoya compared to the same period last year, increasing from 581 euros to 755 euros per cubic meter. During the summer, we introduced price rises as well as an energy price premium. These price increases have successfully offset the impact of inflationary pressures and increased raw material costs. Our main raw Our main raw material cost is acetic anhydride, which we use in our acetylation process. The cost of this is closely linked to the gas prices, which, as you know, has been impacted by wider geopolitical events. At their peak, they were actually 10 times higher than the normal average. We expect further good progress over time on our profitability metric through, one, operating with greater economies of scale, two, improved product mix, and three, additional downstream activity. These Akoya price rises were largely repeated in the main for Tricoya wood sales from Arnhem, which is very encouraging for our future potential. The fact that customer demand remains strong following these price increases is testament to the outstanding pricing power of our inspirational Akoya and Tricoya propositions. The launch of Akoya Color has continued successfully with further distribution in the DAC markets and North America, as well as preparation for launch into France and Australia and New Zealand. Customer feedback and demand remains very positive, in particular for decking and siding applications with Akoya Color. H1 has seen a 172% increase in sales versus the same six-month period in FY22. And it's set to grow further across H2 at potentially higher price points. Next slide, please. We are thrilled to have successfully expanded our capacity at our production site in Arnhem with the addition of Reactor 4, a new 20,000-meter cube reactor. This is a great step forward in realizing our ambitious capacity expansion plans. As previously reported, there were unfortunately unplanned delays in the final installation, pushing back the expected startup. This also resulted in an unexpected second shutdown across the plant in April through May of this year. Subsequently, during commissioning in June, defects were also identified, which required repair work over the following eight weeks. The remedial costs were around 1 million euros, and we have started a program to recover costs from third parties. In September, we were delighted to produce our first commercial batch of Akoya from the new reactor. And I'm pleased to report that it is working very well today. I have now commenced the operational ramp up of the reactor to increase its output to full capacity over a two year period. And of course, if we can accelerate this, we most certainly will. As an aside, our other three reactors at Arnhem are operating at full capacity and we are anticipating a 50% increase in total volume in H2 compared to H1. Our customers are really delighted with this news as they have been waiting patiently for more product and remain strong proponents of both Akoya and TriKoya. I'd like to thank them for their loyalty, commitment and patience. Next slide, please. In the USA, during the first half, we make good progress together with our joint venture partner, Eastman, in progressing the construction of the plant in Kingsport, Tennessee, in line with our expected timeline and budget. The plant is expected to take around two years to build and to be operational by March 2024. Once fully operational, it will have the potential to produce up to 43,000 meters cubed of aqua. with a site allowing for further future expansion. In the first part of the period, groundworks and deep drilling were successfully completed. This has been followed by the commencement of steel work. Today, the site is a hive of activity with construction of the main warehouse building well underway. And you can see that in the photo in the top right. Access and Eastman teams are working seamlessly together, reflecting the joint and complementary expertise and strong project leadership between us. The construction is managed by an EPC contractor with Eastman taking a lead role within the joint venture in overseeing the EPC contractor and construction project management. We are using the lessons learned from our previous projects. A strong focus on projects and cost management continues by the JV. All major equipment has now been ordered, and multiple large shop contracts, including piping, have now been placed. We anticipate delivery of our two new Akoya reactors to the site from Germany in January. And as a live update, today they are actually on their way and left the manufacturer's premises with destination Kingsport, Tennessee. Safety has been established as a key priority at the site, Around the end of H1FY22, we are able to celebrate 50,000 hours worked without accident. And you can see the team enjoying lunch in recognition for this. Celebrating good HSC performance is something we do. The overall forecasted project costs remain on track. The market opportunity remains tremendous with an anticipated achievable market of 1 million cubic meters. And importantly, both current and projected selling prices remain ahead of our original forecast. Once complete, the site will be a huge value add for our business and will dramatically increase production volumes and our ability to service the US market, which is actually very hungry for our products. I'll take the next slide, please. Oya continues to be specified by some of the world's leading brands for prestigious and innovative projects. Akoya has been specified by the architects Heatherwick Studios and Bjark Ingalls Group for several projects for their client, Google. Yes, Google, including, I'm very proud to say, its flagship London headquarters at London King's Cross. The large horizontal building has been described as a land scraper. At 333 metres long, it is as long as the London Shard is high. Selected for use with the large wooden facade for the building, Akoya can be seen within what will be one of the world's largest timber and glass facades at 23,000 square metres in total area. Akoya has also been specified for exciting and ambitious new tourism projects in the Middle East. Red Sea Development Company is creating a new development of hotels and an airport across 90 undeveloped islands in the Red Sea. Akoya will be used as part of the building materials and was selected once again for its sustainable properties and performance. Moving now to Tricoya. Tricoya Revenues represents 27% of total group sales volume. I'm pleased to share that Tricoia revenue is up 2% in H1, again supported by a strong pricing power in the market, which over the past two years has increased by approximately 30%. The market for Tricoia remains extremely strong, and the applications for our product continues to be many and varied. One of our Tricoia partners, Medite, wanted to showcase the possibility of wood panels and set its sights on the RHS Chelsea Flower Show, a meeting of over 150,000 garden designers, architects, and enthusiasts in London. Working with award-winning garden designer and innovator Sarah Erbel, they created a garden showcasing the possibility of wood panels. Medite Tricoya Extreme, was chosen for the centerpiece of the garden. And as you can see in the picture, they created a large Tricoya cavern-like structure with waterfalls on the interior. The structure demonstrates the durability, versatility, and sustainability of Tricoya. The garden actually won the award for best constructed garden. Tricoya was also selected for this medical center in Santiago, Chile, in the top image. More than 2,500 square meters of tricoia panel was used for interior and exterior cladding. I'll take the next slide, please. During H1, we ran into several challenges with our whole tricoia plant. These challenges were related to cost overruns, partly due to commissioning challenges, and partly due to our resource capability. A new and clear path forward was needed and a positive intervention was made. Following detailed discussions with our consortium partners in November, we announced a restructuring of this consortium. Access now owns 100% of Tricoia and 100% of Tricoia Technologies Limited. That's the intellectual property associated with Tricoia. This gives us full control and the optionality to complete the structure the construction on our terms and at the right time. It also means that we, Access, benefit from 100% of the potential long-term returns. As part of the restructure, consortium partners receive 11.9 million new Access shares, which represents approximately 5.7% of Access's current issued share capital. We've also restructured our loan facility with NatWest Bank. NatWest has agreed to lower the principal amount by approximately $9 million to a total $6 million facility under a new seven-year term. We're also very pleased to maintain the continued support of INEOS and Medite as supply and off-take partners, respectively. Following the restructure, we've taken the decision to put the project on hold for a minimum of six months. While it's disappointing not to be moving forward right now, our board is supportive that this is in the best interest of Access and its shareholders. The validation work undertaken to date as part of the restructure has demonstrated that the opportunities produced tricoia of attractive margins in the future remain strong. The Access Board will have tight control over decision-making, and we have identified several factors that will inform our next steps. These include validating the cost to complete and commission the facility, monitoring asset hours pricing, volatility, supply, and margins, ensuring we have the project delivery capability, skills, organization, and structure in place to give certainty, visibility, and assurance of the project completion. And importantly, we'll be looking at full exploration of funding options by Access, including consideration of trade and financial co-investors, debt, new equity, and contributions from Access's cash resources from our product sales. Looking now in a bit more detail on the project status and outlook, Third parties have validated the plant is substantially complete and that commissioning has progressed. This photo above was taken very recently. During the six-month hold period, we will carry out further validation work and focus on cash generation from our increased capacity at Arnhem. By putting the project on hold for this period, it also increases the opportunity to improve plant startup profitability so that we would not be coming into operation during a time of volatile and historically high acetic anhydride and gas prices. During the hold period, the plant will have a monthly cost of approximately 500,000 euros. Two separate specialist firms were engaged to validate the capital costs for the remaining construction and commissioning work. Noting that the plant is the first of its kind, the additional cost to complete and commission the plant is suggested to be up to 35 million euros. In terms of funding these additional costs, we will explore a range of options, including consideration of trade and financial co-investors, debt, new equity, and contributions from access to cash resources. The Access Board will continue to closely review the project and will ensure necessary returns on further capital commitments. With the plant on hold, we will continue to profitably seed the market for Tricoya from our Arnhem supply. And now a chart of a summary of H1 and the outlook for H2. Throughout the period, we have achieved good EBITDA and revenue growth despite lower volumes. This comes back to the outstanding pricing power of Akoya. The high performance and sustainability of the product means that our customers will remain loyal and committed to our proposition. Looking ahead, we have reasons to be cautiously optimistic. Our pricing power is proven. We have increased capacity through the expansion at Arnhem, and current trading remains good. Additionally, H2 has started on a good footing. with 6,600 meters cubed sold in October, and demand continues to look strong. So we are showing resilience in the face of continued global economic uncertainty. We anticipate that revenue growth and EBITDA will accelerate over H2 as the R4 plant volumes ramp up, making it an exciting period for Axis and its customers. We will remain focused on our ambitious expansion plans. In Hull, we will use the whole period to validate the remaining construction work, the risks, and the full range of potential funding choices. We will be ramping up production in Arnhem, further demonstrating value-add integration with Akoya Color, and continuing with the construction of our USA joint venture plant, all with a focus on ongoing cash and rigorous cost management. Thank you for your time. Thank you for listening. We'll now open it up to questions. Thank you.