Good day, and thank you for standing by. Welcome to the Accsys Technologies PLC Interim Results Presentation for the six months ended 30th of September 2024 webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Dr. Jelena Arsic van Os, Chief Executive Officer. Please go ahead.
Good morning, everyone, and welcome to our interim results presentation for the six months ended 30th of September 2024. We are here today to update on the transformation journey of Accsys for its long-term success. As Accsys is redefining the future of the wood materials, we are very proud to showcase beautiful Accoya projects delivered in the period. On the picture here, you can see the Oakencroft Farm and Winery in Virginia where the owners chose Accoya to help create a warm and elegant space while supporting their commitment to sustainability and environmental conservation. Next slide, please. In terms of this morning's agenda, we will start with an overview of key developments. Then Sam Vohra, our new CFO, will take you through the financials. I will then discuss our operational highlights, market overview, and outlook. Following this, Sam and I will be happy to take any questions.
Before we proceed, I would like to take a moment to introduce Sam to all of you and officially welcome him to the company. Sam brings with him a wealth of experience as a proven CFO in the U.K. public companies, and his expertise will be an invaluable asset as we continue to transform Accsys. I'm personally very pleased to have him on board. Now, moving to the presentations. Next slide, please. Next slide. I am very excited to share that we have delivered strong half-year FY 2025 results that show clear operational, financial, and strategic progress as a direct result of our business transformation and focus strategy. Accsys is becoming a more customer-centric and more efficient business with a significant improvement in EBITDA, which more than doubled year on year while exceeding our 30% gross margin target.
As you may recall, at the end of the last financial year, we made several commitments. We are proud to share that we have either successfully achieved those goals or are on a strong track to deliver them by the end of the financial year 2025. Given the company history, it is very important to us to demonstrate valid proof points and deliver what we said we are going to deliver. Growth in the period was robust. Total Accoya sales volume grew 10% globally. This includes sales from both Arnhem and Kingsport. Our largest two geographies, being U.K. and the U.S., representing more than 50% of Accoya business globally, delivered impressive growth of 24% and 18% respectively on the back of good sales through our distribution channel. This is significantly ahead of the broader building market, which was mostly flat, although single digits, depending on the country.
We grew our market share, demonstrated successful management of market challenges, and capitalized on benefits and benefited from our investments in sales and marketing. In terms of OPEX reduction, last year we promised EUR 3 million in operational cost savings. Today, we are pleased to report cost savings of EUR 2.5 million that are visible in our results coming from our transformation and operational turnaround. In addition to this, we have made EUR 1.4 million of savings from lower Hull maintenance costs in the same period. Following the completion of Accoya USA and the discontinuation of the project in Hull, Accsys is now considerably de-risked as a business. The company moved beyond peak investment, meaning the capital-intensive phase is over. Accsys is already redefining the wood industry with our unique products.
Building on the operational measures we implemented last year and continue to refine and demonstrate through the first half of this financial year, we remain fully committed to strengthening our business fundamentals and establishing a healthier global platform for sustained growth. The company is now focusing on accelerating commercial activities to utilize the available capacity we have, increase profitability, and reduce debt. Last but not least, every business is as strong as the people behind it. This robust result delivery would not be possible without the strong dedication of our team across Accsys and Accoya USA. I am taking this opportunity to thank them sincerely for their hard work and engagement during the journey. With this, I would like to invite Sam to give you an overview on our financial performance.
Thank you, Jelena. Hello, good morning all. I'm delighted to talk you through the financial performance and results of the half-year in more detail. Next slide, please. This slide shows the financial performance and good financial progress made in the half-year. I'll go into a lot more detail on a number of the financial metrics shown in the next couple of slides, but highlighting some of them now. Total sales volumes are up 10% at 31,553 cubic meters compared to the prior period, with a 5% increase in volumes from Arnhem and the U.S. joint venture delivering 1,181 cubic meters. The sales from the joint venture relate to sales which previously would have been made by Arnhem. Aggregated revenue was up 4% to EUR 74.1 million due to higher sales volumes and maintaining a high average sales price across the mix.
The gross margin was 210 basis points higher than the prior period at 30.7%, which is particularly pleasing to note. Underlying operating costs were down year on year by 3.9 million, reflecting the benefits of the business transformation program and lower costs associated with Hull. Underlying EBITDA, which excludes the results of the joint venture, was up significantly to EUR 8.3 million from EUR 2.6 million in the prior period, and adjusted EBITDA, our main profitability performance measure, was up EUR 2.4 million to EUR 4 million. Net debt at the 30th of September stood at EUR 40.2 million, up from EUR 37.1 million at the start of the financial year. And we also booked EUR 3.9 million of exceptional restructuring costs and took a non-cash impairment charge of EUR 18 million associated with the closure of the Hull plant. The EUR 3.9 million will be paid out in cash in the second half of the year.
Next slide, please. Accoya sales volumes were up 10%, which was ahead of the broader building materials market, with wood revenue up 7% to EUR 67.4 million. We saw a particularly strong performance in the U.K. and Ireland, our largest market by sales volume. We saw 24% growth, and also North America, which was up 18%. North America sales are now fully transferred from Arnhem to the new U.S. joint venture facility in Kingsport following its commercial startup in H1. We also saw good growth in France and the Benelux countries during the period, but this was offset by lower sales in Germany, which is a feature of the wider German macroeconomic situation there. We also continue to see strong growth momentum for our Accoya Color product, which is also pleasing to see. Next slide, please.
Our sales performance for Accoya and Tricoya remains robust, with sales volumes up 7% and revenues up 11% to EUR 12.7 million compared to the prior period. Accoya and Tricoya represents 28% of group sales volumes, slightly down from 29% in the prior period, but reinforces our belief in the long-term market potential for Tricoya panel products. Next slide, please. This slide shows the EBITDA segmental breakdown in H1. EBITDA from our Accoya segment increased by 44% from EUR 9 million to EUR 13 million , which is a very strong performance. This growth is due to higher sales volumes and improvements in the gross margin of 210 basis points to 30.7% and lower costs arising from the business transformation program. Corporate and R&D costs were 0.3 million EUR lower than the prior period, again reflecting lower operating costs from the business transformation program.
Costs associated with the Tricoya UK Hull plant amounted to EUR 1.6 million in H1. Following the closure of the Hull plant, we expect to see annual operating cost savings of EUR 3 million per annum from this plant closure. So accordingly, underlying EBITDA improved significantly from EUR 2.6 million to EUR 8.3 million in the period. The Accoya USA joint venture reported a loss of EUR 4.3 million for the period, which reflected the costs associated with the pre-revenue phase of the plant and costs associated with the ramp-up of production. We expect the profitability of the U.S. joint venture to improve in H2 as production and sales volumes increase. Therefore, adjusted EBITDA, our main profitability performance measure, improved significantly to EUR 4 million for the period compared to EUR 1.6 million in the prior period. Next slide, please.
This slide shows the EBITDA progression during the period, reflecting the financial and operational improvements made by the business. Sales volumes in Arnhem were 5% higher than the prior period, as I mentioned before. We maintain a high average sales price across the mix, but in certain markets, in order to grow market share, we had to undertake selective discounting, and this had a slight effect on profitability. Following the commercial startup of the Accoya USA plant during the period, North American production and sales that were previously made from Arnhem have now fully transferred to the new plant in the USA. Since the sales price of Accoya products in North America is slightly above the overall average, there has been a small effect on revenue resulting from this transfer.
We saw a benefit of EUR 1.9 million in raw material costs during the period, which is primarily due to wood. We experienced a lower average purchase price for Accoya for Tricoya wood following the usage of higher-priced appearance-grade wood in H1 FY 2024. Net asset sales were slightly higher than the prior period also. The business transformation program implemented last year delivered benefits of EUR 2.5 million during the period, and we saw a reduction in costs associated with Hull of EUR 1.4 million. On an annualized basis, we expect to see benefits of EUR 3 million arising from the business transformation program and a further EUR 3 million arising from the closure of Hull going forwards. Next slide, please. This slide shows the evolution of net debt during the six-month period.
Net debt at the end of September 2024 amounted to EUR 40.2 million , an increase of EUR 3.1 million compared to the start of the financial year. Operating cash flow has been strong during the period at EUR 8.7 million . While the overall movement in net working capital was relatively neutral, inventory levels reduced by EUR 1.8 million , but this was offset by a high level of receivables of EUR 2.3 million arising from high sales. Tight working capital management and free cash flow generation remains a key area of focus for us. CapEx was EUR 0.7 million during the period, and interest amounted to EUR 2.2 million , of which EUR 0.8 million was paid and EUR 1.4 million was rolled up. We made planned investments of EUR 7.2 million into the Accoya U.S. JV as it completed its pre-operating activities and commenced commercial operations.
Included within the net debt balance of EUR 40.2 million at the 30th of September are borrowings of EUR 7 million relating specifically to Tricoya U.K. Following the closure of the Hull plant and for the Tricoya U.K. entity to enter a creditors voluntary liquidation, the EUR 7 million of debt associated with that entity will fall away. Debt reduction and deleveraging the balance sheet really does remain a key focus area and priority for us going forwards. I'd like to now hand you back to Jelena, who will talk you through the business review. Next slide, please.
Thank you. Thank you, Sam. Next slide, please. Looking at our H1 results, we conclude that global demand for Accoya remains resilient, with a 10% increase in total Accoya sales, making good progress for our midterm volume target of 100,000 cubic meter run rate at the end of financial year 2027. With continued challenging conditions in the construction industry, H1 sales volumes grew ahead of the broader building materials market, with market growth in the Americas forecasted to be flat in the calendar year 2024 and negative minus 0.5% in Europe, according to the Oxford Industrial and Building Materials Global Industry Forecast. We have achieved this market share growth while maintaining our gross margin of 30%. Teams are working very hard on elevating the customer experience. Accoya also continues with its premium price discipline.
We have maintained a high average sales price across the product mix, with some sporadic discounting in selective markets to stimulate growth and establish market presence. Our product availability improved, and it will continue to impact positively on our customer experience. Our demand drivers remain robust. Accoya is redefining wood building material performance. Global economic development and the substitution of CO2-intensive materials with more sustainable solutions is happening right now, as government policies around the world focus on delivering a net zero economy. Wood materials are well positioned to take the market share they deserve, as they are naturally capturing CO2 and are truly circular and renewable. Next slide, please. On the screen, you can see some of the impressive projects from the past six months, all showcasing the beauty and versatility of Accoya and Accoya Color.
We are incredibly proud of our products, and now they empower builders and architects to bring their creative visions to life across such a wide range of projects. This year, we had the honor of showcasing Accoya Color decking at the world-renowned Chelsea Flower Show in London, a prestigious event that attracts over 150,000 visitors. From garden designs to commercial buildings, it is exciting to see more and more offices and business structures embracing sustainability. Accoya was chosen for projects like the Unusual Rigging headquarters and the Oakencroft winery, and the major development and Willowburn Retail park in the U.K., just to name a few. Beyond commercial applications, Accoya continues to be a popular choice for the high-end residential buildings.
A perfect example is this stunning boathouse in Austria, where Accoya Color, resistant to the moisture, played a key role in their decision to use our wood for such a distinctive and demanding project. Next page, please. Our most significant achievement in this period is the opening of our second production site, Accoya USA, in a joint venture with Eastman Chemical Company. Located within the Eastman complex in Kingsport, Tennessee, this site gives us a local production in one of the world's most attractive markets. I would like to reiterate many thanks to our joint venture partner and the teams involved from Kingsport and Arnhem for their hard work in bringing the site into production. The plant which represents our Arnhem basically replicates our Arnhem facility, gives us an additional 43,000 cubic meters of capacity, with the potential to increase this in the future.
I'm very pleased to report that manufacturing operations of the plant are on track. While pre-operational and ramp-up costs have been higher than anticipated for this period, as you heard from Sam, we are confident that the site's underlying profitability will strengthen in H2, and as we pass startup phase and production volumes and customer sales grow further. The opening of this site is a huge achievement for Accsys and Accoya USA. It transforms our business and provides growth potential. Next slide, please. We are intensely focused on rapidly increasing sales across North America, ensuring Accoya reaches more customers than ever before, now that we have increased capacity and reliability of supply. Our North American strategy focuses on three key aspects. Firstly, targeting high-demand regions.
We are doubling down on critical areas like east and west parts of the country, Northern California and Florida, by ensuring we have two significant distributors in each area to fully penetrate these key regions. Secondly, we are relentlessly building our distribution footprint, partnering with new distributors, expanding our highly effective approved manufacturer program, and deepening relationships with existing distributors to grow together. Already in H2, we have secured two significant new distributors in America to support our market growth. Our distribution is serving more than 100 of AMPs, approved manufacturers, in the country. Finally, we are driving awareness and demand among architects, contractors, and end users, those who ultimately make the decision whether to use Accoya using the full suite of marketing channels. With this investment in marketing and awareness, we are ensuring Accoya stands out against competition.
We are confident that this strategy will increase our market share and deliver the benefits of Accoya to more end customers than ever before. Next slide, please. Tricoya revenues showed robust growth of 11% in the period, and it represents 28% of the group sales volumes. As we exited the project in Hull, we would like to reiterate that the group remains fully committed to Tricoya, and we are confident that this product has a bright future ahead, as demonstrated by its sales growth momentum. We will continue producing Accoya for Tricoya at our Arnhem site, ensuring that we meet the needs of our longstanding customers. Our immediate focus will be on improving production efficiencies, including increasing the use of Spanish radiata pine in this product line, which will help us enhance both performance and sustainability. Next slide, please. Turning now to our operational highlights.
As you can see on this slide, we are progressing well on our key operational targets that we communicated at the end of financial year 2024. Kingsport is online and commercially operational. Our business transformation program is working and delivering results. We have made operational cost savings in the first half of EUR 2.4 million compared to the same period last year. The team is now more agile, with faster decision-making, driving operational efficiencies. With the organizational delayering, the leadership and organization are more empowered to drive further continuous improvements. We are making good strides with our focus strategy. We have worked hard to quickly embed our new assets, ensuring a smooth transition from volumes being sold out of Arnhem to the USA.
We are sharing best practices and learning between the two sites and accelerating our sales and marketing to progress towards our target of 100,000 cubic meter run rate by the end of financial year 2027. The company also made very strong progress with our Solid Roots program in Arnhem. In the period, we have improved the overall equipment effectiveness to be on track for a 500 basis point improvement at the running financial year. We also have a new incentive program in place, and we continue to accelerate our sales and marketing as we go further our volume. Delivering on our promises is very important to us, and we are proud of the proof points along the way. Next slide, please.
Looking at the outlook, as much as we are very pleased with the delivery so far, we will stay laser-focused to continue to drive performance going into the second half of the year. We do not expect too much support from the market, which is still being relatively soft. Nevertheless, we are upgrading our EBITDA outlook and do expect end-of-year results to be significantly better than consensus. Growth momentum is expected to persist, and our commercial team works very hard on demand creation, as commercial success is one of the most impactful accelerators of the company performance. We are committed to enhancing customer experience while strengthening our commercial presence in Europe and the US, expanding our market channels, and driving strategic initiatives globally. Our product is premium in the marketplace, so our product pricing and gross margin discipline will continue.
We will advance with the further ramp-up of the Kingsport capacity, with focus to improve our joint venture underlying profitability. Efficient cash management and leveraging the balance sheet remains our key priority. Overall, H1 result has been a period of strong progress for Accsys. The company is building robust foundations with a simplified structure. We are creating a higher quality business with greater capacity. This will enable us to deliver on our significant potential. The executive committee and the board have been working on refreshing the company strategy in the first half of the financial year. I'm very excited to inform you that we will be holding an investor strategy day on the 30th of January 2025, where we will discuss our growth outlook and the company strategy in more detail. This was everything what we prepared for today.
Thank you very much for listening, and now we will open for questions.
Thank you. Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now go to your first question. One moment, please. And your first question, consultant line of Martijn den Drijver from ABN AMRO - ODDO BHF, please go ahead.
Yes, thank you, Operator. Good morning, Jelena. Good morning, Sam.
Good morning, Martijn.
Hi, Martijn.
I have four questions, and I'll take them one by one, please. When talking about sales growth, you mentioned 10%. Can you elaborate a little bit on how much is restocking, how much is real underlying market demand, and how much is market share gain?
Just to give us a bit of a sense between these three drivers.
Do you want me to answer the question? Okay, so listen, Martin, we see quite a good sale through our distribution channel, and as you can remember, at the end of the last calendar year, we had quite a lot of stock in the distribution channel, but nowadays, we are able to follow the sales through, and most of the demand and most of the growth that you are seeing today is actually being the underlying demand and market share growth in the region. Now, we do have also, with the new distributors, they are building some stock, so every new distributor that comes in, they do create some stock, but this is nothing large, and we are following very, very swiftly how much is going through.
So that is the new process we have with our distributors. So most of it is market share growth.
Clear. Clear. Moving on to my second question. The guidance for significantly higher results at the EBITDA relative to consensus, what kind of production/sales level have you baked into that guidance for Accoya USA? And should we just assume that Arnhem did roughly 10,000 on an annual basis, so 5,000 for the second half of the year for Accoya, or would that be a too optimistic assumption? Just a bit more color on that development in the guidance.
Yeah, sure. I think, Martijn, it's a new plant. It's a new facility. It is going to take a period of time to ramp up.
We've always said that the sales that were made out of Arnhem, it would take about 12 months for that to be for it to come through North America. I would say in total for the financial year, looking at North America doing around 7,000-8,000 cubic meters for the joint venture.
Got it. Got it. Thanks for that. With regards to pricing, I was wondering, that's my third question. Can you talk a little bit about what you're seeing, and particularly Europe versus the U.S.? Because I understand that there are some Latin-based hardwood exporters that are driving down prices in the market. Maybe you could talk about pricing in Europe and pricing in the U.S. That would be very helpful. Thank you.
As you can see, usually the pricing in the U.S. is higher than the pricing in Europe.
That is our experience so far. You saw it in our bridge that we did realize minus EUR 1.2 million of price reduction in the first half of the year. The 0.9 million came from reduction so this very specific discounting that we put in place to attack the new customers or to attack the new market and 0.3 for transferring volume from Arnhem to the U.S. Now, as you remember, in our last year result presentation, we were talking about specific discounting that we started in the U.S. at the end of calendar year 2023. Those efforts basically paid off. It took a little bit of time for distributors because our marketing and commercial activities are not focusing on really gaining the market share by reducing the price.
We put quite a lot of it to premium products, and we are putting quite a lot of efforts on specification selling. We are putting quite a lot of efforts to invest in the marketing and sales activity so that we actually sell the value of Accoya. So our pricing in the U.S. has stayed on a very high level as it also stayed in Europe. So we are not expecting some massive price reductions, if you like, in any of the region going forward.
Okay. So no effect for whatever pricing those hardwood competitors are actually using. Okay. Clear. Now, my fourth question is with regards to the gross profit margin. You did a very strong level in the first half.
When we talk about Solid Roots and that 500 basis points improvement, should we use that as an uptick for the gross margin based on the 2024 level, or should we use it from a base of the 2020 to 2023 gross profit margin level when it was already 32%-34%? So just to give one bit more sense of where this Solid Roots program could lead in terms of gross profit once concluded.
Yeah. That's a good question, Martin. I think the Solid Roots program and the 500 basis points that we talked about, it's looking at overall equipment effectiveness. That's not saying that it's 500 basis points on top of our gross margin because the gross margin is made up of raw materials, labor costs, and overhead costs. So at 30.7%, the gross margin is up 210 basis points on the prior period.
It's above our target of 30%. But really, I would expect for the full year us to maintain the gross margin at roughly the sort of level, but we would be looking to increase it over the next couple of years because really, it's all about reliability and availability.
And just to come back to that, are you now saying that if you've concluded it and volume goes back, you can—and I know that this program doesn't equate gross profit margin, but that you can get overall for Arnhem to above that 32%-34% that you did in the past? That's essentially what you're saying?
Yeah. That's correct. That's correct.
All right. I have additional questions, but I'll move into the queue for now. Back in the queue. Thank you.
Okay.
Thank you.
Thank you. We will now take the next question. Your next question comes from the line of Thomas Rands from Davy U.K. Please go ahead.
Good morning. Can I just check you can hear me okay?
Yeah. All good.
Great. Thank you. I've got three questions. The first one, I'll take them in order if that's okay. The first one is just thank you for the details of the kind of guidance for U.S. Accoya volumes. But can you just remind us when you see that kind of plant kind of being break-even? What kind of volume are we needing to get to that point, and what the kind of timescale could be, please?
We don't give guidance in terms of the break-even point for the North American plant. It has only just started commercial operations.
But as you'd expect for any new facility, that initial period, you would expect to have those start-up losses, which is what we're seeing. But as we ramp up production and hence sales, the profitability will improve. So really, we would be looking at profitability in the next financial year. But we don't give specific guidance as to amount of break-even point.
Okay. Understood. Thank you. The second question was given some detail on the U.S. kind of marketing ramp-up to kind of absorb this extra volume that's going to be coming in the next couple of years.
Obviously, in Europe, as that volume transitions from Arnhem to Kingsport, is there a plan, and can you share some of the details of marketing in Europe to kind of absorb some of that spare capacity at Arnhem that would have obviously or has been and will do for a short period supply that U.S. market? Or are you too early to talk about that?
No, but we are actually investing quite a lot in the people, in the marketing and sales option tools. If you look for the Accoya USA, we basically doubled the headcount from April 2023 until today. We are also increasing the number of salespeople, of commercial people, and that includes sales and marketing FTEs in Europe as well. So our plan is really developing the business development plans with our key distributors.
We are working with them on the lead, on the definition of target, and we are supporting them with the marketing material, so we do have quite a detailed and very close cooperation with all of them, and as I mentioned in the first part of when I was answering questions to my clients, we do now follow with them also what is the sell-through, not with all of them, but with the largest ones. What is the sell-through and how much stock do they have in place so that we can be much more efficient also with our supply?
Okay. Thank you, and then the third question is kind of three elements linked together, so hopefully, I'll try and get this out quickly. I guess the extra volume, Accoya volume in Europe, that will allow you to kind of feed more into Tricoya production.
Is that a key part of that kind of extra plan to help ramp up the Tricoya? From a raw materials availability point, given that you're now obviously Hull closure, you're not using the pine kind of wood chips to feed that plant to feed into Tricoya, is there access to lower-grade wood, the radiata pine, either in Europe through, I think you mentioned the Spanish kind of supply chain now, as well as the traditional one, to kind of feeding lower-grade into Accoya for Tricoya production? And then the third element of my third question is just any comments around the kind of market acceptance of Tricoya given its disruptive nature?
Obviously, you've seen growth in the period, but I guess, is the market pulling for more demand and you're struggling to supply, or is it still kind of a steady acceptance from the market, which is just feeding into that kind of demand profile? Thank you.
So as I already said, that Tricoya is a very important product range for us. We reported last year at the end of financial year growth in the volume, and we are continuing to report also in this first half of the year this growth of 11%. So Tricoya represents today 28% of our volume, and we are able to basically keep that volume. We don't want to fill in half of Arnhem plant with the Tricoya volume because for us, Accoya as a product range is more profitable than Tricoya.
But in any case, it is a very important product range, and we are continuing to serve our existing and long-standing customers. Now, we do put a lot of effort to optimize the cost to serve and, if you like, the cost to produce Tricoya. So today, we are using much more of the cheaper wood species than radiata pine. So radiata pine, so Spanish pine, is one of the wood species that we are using regularly to optimize the cost of Tricoya production. So yes, we do have access to the lower-priced wood, and yes, Tricoya, it will remain quite an important product range. If you look at today on 28%, that is basically one reactor in Arnhem is dedicated for the Tricoya production. I hope I answered this question.
Yes. Thank you. The last point was around kind of market acceptance of Tricoya. What are you seeing?
What are you hearing from kind of customers and distributors of the end customer architects' kind of design and use of Tricoya, please?
So we really see that the progress is slow, but it is very consistent. So what we are seeing, and we are reporting this very regularly, plenty of applications, Tricoya is being used, and it is being used from the siding of the roofing to the facades of the buildings. And our Medite and both of our customers are actually taking care that it is becoming very visible in their product range, and it is an important part of their product mix to have it always on stock and available for architects.
Okay. Great. Thank you very much for answering my questions.
You're welcome.
Thank you. We will now take the next question, and the question comes from the line of Christen Hjorth from Deutsche Bank. Please go ahead.
Thank you very much, Martijn. Three questions from me. I'll take them in order as well because that seems to be the trend. The first one, could you just touch on the initial feedback from new U.S. distributors and architects now that North America's supply can ramp up? Any particular pushbacks from them? Thanks.
So I must say everybody is super, super excited about having the greater availability and greater, if you like, security of the supply and local production in the U.S. So feedback from our distributors was really very, very positive.
Brilliant. Excellent. And then the second one is just on that sort of theme of Tricoya from Accoya. Would the plan be to do that in the U.S. as well?
I assume the first is just the focus will be on Accoya, but then going forward?
So as you said, our primary focus is really getting the capacity building with Accoya. We do not have at this moment in time plans to produce Accoya for Tricoya in the U.S. But as the market develops and as we come to that stage, I mean, never say never. But for now, we are really focusing on getting as much Accoya from that plant as possible.
Brilliant. And then maybe one for Sam. There's been the theme of deleveraging in the presentation. Just how should we think about the right level of leverage for this business?
Yeah. It's a good question.
I mean, clearly, I did show and I talked about the net debt, but really what I'd like the group to get to is being in a position of between one to one and a half times leverage. And I think that will be a healthy level and will give us ample headroom to undertake additional CapEx as we see fit.
Brilliant. And maybe just one more. I mean, the growth in the U.K. seems very noticeable, and lots of U.K. companies like Kingfisher have been in queue yesterday talking about the struggles that the U.K. is having at the moment. So what's been the driver of that big bounce back in U.K. sales volumes?
It is really the result of our investments in the commercial activity, better availability of the product, better reliability of supply.
As you know, we struggled quite a lot for a period of time with the availability of the products in all the markets. Then we went through the period of very big stock levels at our distributors, and now we are coming back to that regular sales through. So everything what we see from the U.K. is really the effort of our big, big effort in investing in the commercial activity. So it's really a market share gain.
Brilliant. Thank you very much.
You're welcome.
Thank you. As a reminder, if you would like to ask a question, please press star one and one on your telephone keypad. We will now take your next question. And your next question comes from the line of Johan van den Hooven from Edison. Please go ahead.
Yeah. Good morning. Most of the questions are already asked. Good morning. Few left.
If you look at the inventory levels, they further decreased in the first half. What are your expectations going forward? Is there some more room for further reductions?
Yeah. Good morning, Johan. Yeah, absolutely. I mean, you saw in the first half a reduction in inventory levels, which came through in the cash flow statement. And that's easy to see. But yeah, for us, tight working capital management, which is really around our focus on inventory, both raw materials and finished goods, is really key. And quite typically, we look at having about three months of raw material wood inventory on hand, given the lead time in terms of purchasing and the duration from New Zealand for it to get to the Netherlands, and approximately one month of finished goods. And actually, the stock turnover of finished goods is very fast. So tight inventory management is very key for us.
But really think about three months raw material, one month finished goods.
Okay. So from the current level, there's still some room for improvement? You're not there yet, I mean?
Yeah. There is a little bit on the raw material side.
Okay. Yeah. Second question is, you just mentioned the good growth in the U.K. due to increased commercial efforts. Martijn missed a bit in the presentation, but the rest of Europe was the only region showing a small decline. Is there a special reason for that, and are you expecting to turn it around?
Now, yes. Basically, we are seeing a growth in France and Benelux, for instance, but in Germany was really, really very, very soft. And if you look at Euroconstruct reports that we have available, the number of new built homes in Germany since 2022 decreased 40% in this year.
So it is predominantly the numbers you see in our report are predominantly driven by weak Germany, and then all the other parts of EMEA are relatively good.
Okay. Thank you. And the last question for now. I saw the Tricoya panel revenue was a bit lower than last year. What is your plan with, well, selling Tricoya panels yourself?
We will continue doing that. It is, of course, additional marketing and commercial effort for us, but we do have a few partners that are doing it, and we will continue to basically prove the viability of a bigger push. So we will continue doing it.
Okay. Thank you very much.
You're welcome.
Thank you. Your next question comes from the line of Max Hayes from Cavendish. Please go ahead.
Hi. Can you all hear me?
Yes, we can.
Hi there. Congratulations on the results.
Just one quick question for me. I think you spoke about the plans to grow gross margin past that 30% after FY 2025. Are you seeing anything that could impact that, such as sort of the potential wage inflation across your markets?
No. I think clearly there's always going to be inflationary pressures on our input costs. Yes, absolutely. There is wage inflation. With our workforce, the majority in the Netherlands, inflation levels in the EU, but also our workforce in the U.K. have reduced. So there is less inflationary pressure there. And in terms of wood availability, for a number of the sawmills in New Zealand, we are their largest customer. So we have very good purchasing power.
They have their own input cost inflation, which they will try and pass on to us, but we can leverage our position in terms of buying appearance-grade wood to sort of try and reduce that inflationary pressure. And then really from the chemical side, similarly, there are options other than contractual and high-volume purchasing. There is a stock market, but we balance off purchasing chemicals because it's really based on availability. But really, we target 30% gross margin as a minimum, but I would expect us to be above that in the coming years through really optimizing our operational performance.
Great. Thank you very much.
Thank you. Your next question comes from the line of Martijn den Drijver from ABN AMRO - ODDO BHF. Please go ahead.
Yes. Thank you, Operator.
Firstly, can I come back to Germany just to get a bit of a sense of how much headwind that has been? Do you know by heart what is the absolute decline in sales in Germany relative, let's say, from two years back to now?
Well, listen, if you look at the best times in Germany, we are probably maybe 30% down. I'm not talking about last year. I'm talking about a few years back.
Yeah. So 30% down. And can you just remind me what type of absolute number is that or maybe even a range if you don't know the exact number?
No, I would prefer to not. I don't think we ever shared that number.
No. We don't quote individual countries. Germany just falls by the rest of Europe.
Okay. Then my second follow-up question is on Accoya Color.
Would you be able to share a bit the developments in that segment? So, maybe a little bit more color on volumes and your expectations for volume in the second half of the year.
So we do have Accoya Color is becoming one of our major products, if you like, on the growth path. We are investing also in some improvements on the finishing part of the product. So as you know, Accoya Color can be acetylated, and then it goes to the profiling so that you can make the final product that is decking, for instance. So we had this year a 29% year-on-year growth on the Accoya Color. It is a relatively small part of our sales mix, and we do expect to actually continue on this growth path as we go into H2.
So today, Accoya Color is around 7% of our mix.
Can I attempt to give us a bit of a sense of the utilization of that plant in Barry? Are we talking 20%? Are we talking 40%? Where are we roughly?
So the plant in Barry is basically mostly limited by the availability of the proper quality of the raw material. Accoya Color does need a premium wood. And so the problem is not with the capacity. The problem is really the raw wood availability.
Okay. And then my final question. When we were talking about Accoya USA and the startup costs and scaling up, you said that it cost a little bit more than anticipated. Are there incidental non-recurring items that we should not take into account for H2 that did impact H1? Or are they just all normal startup costs, scale-up costs?
No.
They're all just regular startup costs as any plant would expect to see. Nothing to compare with.
All right. Thank you very much. Those were my questions.
Okay.
Thank you. Your next question comes from Thomas Rands from Davy, UK. Please go ahead.
Hello. Thank you. Just one follow-up on the back of Martijn's question on the Accoya Color. Given the limited supply of raw materials, would it be fair to say that the expansion of the range of colors, because I think Germany's buying one color at the moment, previously you talked about maybe adding other colors in time. Is that kind of delayed while you kind of build up the potential with the existing kind of color offering? Thank you.
So maybe I should kind of bring you to the right thought.
So this availability of the right quality wood was a temporary thing for the H1, and it was the consequence of basically availability on the supplier side. But in general, we do have enough, there is enough good quality Accoya Color wood available across all the suppliers that we have in our portfolio. It takes a couple of months to get wood from New Zealand to Arnhem or to Barry. So in that sense, we do expect this availability, and we see that availability improving, and it will continue. So we will grow Accoya Color quite aggressively as we go forward. We are also investing in the plant in Barry on the planer and the other finishing capabilities. So then you're going to hear, hopefully, in the future, positive news about that.
Our innovation progress on other colors, like Accoya Brown, for instance. We are very much dedicated to expand portfolio as much as we can. So we are putting a lot of effort to actually continue this work, and we will report on the progress as we go.
Great. Thank you. That's very clear.
Thank you.
Thank you. There are currently no further questions. I will hand the call back for closing remarks.
I just want to leave you with a couple of key messages that we want to leave with you. First of all, Accsys is becoming a higher quality and more profitable business. We also moved beyond the peak investment phase. We do have a new platform in place and capacity to deliver on our growth ambitions, which you all know is quite aggressive.
And we are also demonstrating with all the proof points from this H1 that we are actually committed to deliver what we say that we are going to deliver. With this, I want to thank everybody who contributed to the call and also everybody who asked the questions and our moderators. Thank you very much, and we will now close the call.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.