By Stewart Dalby
We have got used to referring to Accsys Technologies as an Anglo-Dutch company, but with Brexit having finally been done the group now refers to itself as a ‘sole’ Dutch company. This does not matter too much for investors, however, because Accsys will continue to be listed on London’s AIM where, according to broker Numis, before problems related to Covid 19 arose, Accsys had been exceeding expectations in terms of growing profitability.
.Acsys Technologies is a chemical technology company specialising in an acetylation process that makes wood stronger and prevents decay. The strengthened solid wood acetylation that prevents decay makes it particularly suitable for exterior applications because of its sustainability and durability. Tricoya Wood Elements are used for doors, windows, decking, cladding and other construction products. Also, Accsys’ proprietary acetylation of wood chips produces high density fibreboard and particle board.
Basically, the company has two divisions: The flagship Accoya Wood is based in Arnhem in Holland, and accounts for more than 75 per cent of turnover, while Tricoya Wood Elements is building a new plant in Hull in North East England. In addition to this the group continues to progress its US Accoya facility with its joint venture (JV) with Eastman Chemical. The group also continues to progress with PETRONAS the opportunity to expand Tricoya into Malaysia.
Tricoya Wood Elements are used for doors and windows
In a report by Investec on the interim results for the Financial year (FY) 2020/2021 released on 30 November 2020 the broker said: “Based on its expansion projects the company should be on course, in line with its strategy, to deliver five times (versus the 2019 total) production of 200,000 cubic metres by 2025”. The company might well be on course, but there have been upsets in the past delaying progress, and there could be more in the future.
It was not so long ago, for example, that the company said it had a capacity problem. In the report for FY ending 31 March 2018 it said: “Demand for Accoya continues to be strong but as previously stated we are now operating at full capacity. Further growth will therefore be constrained until the third reactor is complete”. The third reactor referred to expansion at the Arnhem plant. The company added: “The new capacity should be available from the beginning of the next financial year starting on 1 April 2019.”
However, anyone who on 28 November 2019 bothered to read the interim results for the six months ended 30 September 2019 published on that day would have gained some enlightenment. They still did not say whether the third plant had been built but they were upbeat.
Total group revenue for the period was 39 per cent to the good at Euros 44million against Euros 37.6m in the comparable period in 2018. Paul Clegg CEO of Accsys at the time didn’t say that the good increase in revenue was because the needed increase in capacity had been achieved. He merely said: “Our plans to increase capacity are on track.”
Any lingering doubts that there was a capacity shortfall that remained a problem, however, was finally quashed when on 23 June 2020 the Preliminary Results for the Year ended 31 March 2020 were released. It turns out that the company did a very clever manoeuvre in 2019. Debt was increased to over Euros 50m. A huge chunk of it was indeed used to build the third plant at Arnhem. The management then paid down a lot of the debt with an equity raise in December 2020.
Brokers Numis and Investec both said the results exceeded expectations. There was a 16 per cent volume increase in Accoya products sold to 57,842 cubic metres. Total underlying group revenue was Euros 90.9m a 21per cent rise over the Euros 75.2m achieved in FY 2018/2019. This was the first time the group was profitable at the EBIT level (earnings before interest and taxation). It was a Euros 1.4m profit against a Euros 3.1m loss in 2018/2019. The company was clearly making progress in its expansions and volume and revenue growth.
But there was more to come. On 30 November 2020, the company’s interim results for the first six months of FY2020/21 were released. They were most interesting. This gist of what happened in the first six months came from comments by the brokers particularly Numis. The broker commented : “ Accsys has reported a robust recovery, with the group delivering a material step up in profitability.” Numis added there was a drop of 35 per cent in volume sales because of Covid 19 lockdowns.
Revenue also fell. On the other hand, pre-tax profits increased by 72 per cent. Numis concluded by saying: “Based on all this we increase our pre-tax profit for FY2021 by 60 per cent to Euros 8.3m”. Clearly, Accsys is continuing to make progress with its expansions, production and sales targets. Numis set a target price of 125 pence against 107p on the day the results were released. Investec set a target price of 135p.
- It is perhaps important to note the optimistic forecasts above were made at the end of November when restrictions were being eased. We are now enduring rampant variants of a virus which are far more contagious with more deaths and infections that the one we had to contend with earlier in 2020. Who knows how businesses will fare this time around? Just now the market seems sanguine. The Accsys share price last evening was £148.50
- Stewart Dalby is a shareholder in Accsys Technologies