Earnings Call: H1 2021

Nov 29, 2020

Ladies and gentlemen, thank you for standing by and welcome to Axis Technology Plc Interim Results Presentation for the 6 Months Ended 30 September 2020 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I must advise you that this conference is being recorded today, 30th November 2020. I would like to hand the conference over to our 1st speaker today, Robert Harris, CEO. Please go ahead, sir. Good morning, and welcome, everyone, to the Axis Technologies Plc Interim Results Presentation for a Half Year to September 2020. I'm Rob Harris, CEO of Axis. Thank you for joining us today, and hope you and your loved ones are all safe and well at this challenging time with the COVID pandemic. As you know, at Axis, we are very proud of our successes, and we'd like to show some of the amazing projects from around the world that our products are used in, not least to break up the presentation a little today. So before we start, I'd just like to pause for a moment on this mountain picture and explain what you are seeing here. This is Acoya Wood decking in the Swiss Alps. It's over 2 kilometers above sea level and has to withstand the snow, the freezing temperatures and a lot of ski boots. I think it's a really great photo because it shows the wide opportunities for our products and why it's in demand, a beautiful product with best performance even in harsh and extreme environments. We have the usual disclaimers that I know will be familiar to In terms of this morning's agenda, I'm going to give you an initial overview of the results. Then Will Rudge, Axi's Finance Director, is going to take you through the financials in more detail. And then finally, I'll talk through our 2 product segments in a little more detail and recap on our strategy and outlook. The first half of the year has been a dynamic 6 months for AXIS, and I think it's fair to say for companies across all sectors and actually for all of us personally. Our reporting period runs from the 1st April to 30th September, so these results cover the time from the initial peak of COVID lockdowns in Europe through to the end of the summer. Firstly, despite this backdrop, I'm very pleased and proud to be reporting an excellent set of financial results this morning. We have achieved resilient sales, improved profitability and strong cash flow, delivering further strategic progress for the entire business. In fact, and actually, the first thing to say today is that we are reporting record results for AXIS with underlying positive EBIT, strong EBITDA and a robust balance sheet. Secondly, we have actively and effectively managed the impact of the COVID pandemic to deliver these excellent results. Thirdly, we have also seen continuing strong market demand for Ocoya and Tricoia. The wider market fundamentals for our business indeed remain very robust. Fourthly, during the period, we've made good progress and sustained positive momentum with the execution of our strategic expansion projects. More about these later. And finally, at the same time, we have been working hard to build our organizational capabilities to manage the growth ahead of us. But before diving deeper into our performance, let me take a moment to describe what I think is almost officially known as unprecedented challenging times, the COVID-nineteen pandemic. Access has been able to effectively manage the impacts of COVID-nineteen by focusing on 3 main priorities. The first thing to say is that our first priority was and is to ensure no harm to our people and to protect their well-being. I'm really proud of the way our people have responded to the necessary changes and challenges and to make progress and to come out stronger through this period together. We quickly changed the way we work at our Arnhem facility, in London and our Hull site to give people more physical space and protection to meet the local guidelines and generally to ensure that we are doing the right thing. This has included new workflow and shift patterns at Arnhem, where we produce Acoya, embracing remote working for our office based staff and adapting our working methods and practices for the construction and preparation for commercial operations at Hull. Secondly, not knowing how long the pandemic will last, we need to act responsibly with all the resources available to us. We have been agile in adapting our operations. Being able to keep our product flowing to customers is an achievement I'm really proud of. Our teams have really done a great job. As COVID impacted regions differently, our teams quickly directed, and in some cases redirected, production volumes to lesser impacted markets. This allowed us to proactively buffer against reduced sales in Millwall's strongly impacted regions. Our teams quickly learned how our sales channels and routes to markets had changed, and they rapidly adapted our plans to delight our customers. We also quickly pivoted our marketing activities to reflect changing consumer trends. For example, more demand for decking in some markets as people did more home improvements during the lockdown. We also brought forward our annual plant maintenance shutdown to minimize disruption by completing it when production was lower. This year has been a critical year for us in the completion of our whole construction. And frankly, COVID presented us with a new and challenging time schedule. To keep Hull moving forward, we increased our resources on the site, resumed safe activity as soon as it was possible. We've been able to make really good progress, and I'll come back to Hal later in the presentation. Thirdly, we necessarily took measures to protect our balance sheet. We diligently managed our cash flows to protect this valued resource and importantly, to ensure we protected our strategic growth options. In addition to tight cost control and temporary reductions in spend in the first half, our teams have successfully managed working capital to ensure that the capital we have allocated to our growth plan is preserved and available for deployment. And while we have been managing COVID since March, we've also reached some significant milestones in the growth and development of our Access business. Today, we are reporting another good increase in EBITDA, actually now 2 full years or four half years of consecutive EBITDA positivity for AXIS. We completed the construction of the 9 storey acetylation tower at the world's first tricoia plant at Hull in the U. K. We lifted the top three floors of the tower, weighing in at around 60 tonnes into place in October, raising it now to its full height of over 55 meters. We also signed a joint venture with Eastman Chemical Company in the U. S. In August, progressing our plans to build an Acoya plant there. This marks a strategic step forward in our plans to expand Acoya in North America, which we no doubt offers a tremendously big market opportunity for us. We recorded our highest ever monthly sales volume in October with over 6,000 cubic meters sold. We also broke our monthly record for sales in North America. And at the same time, we have also used this 6 month period to prepare and build our organization for the growth ahead of us. As we look to become a multisite organization with multiple international manufacturing sites and with Hull becoming operational next year, we have established cross functional project teams working to ensure we build on our processes and organizational foundations to support this transformation. Our Chief Operating Officer, Bob Mannion, joined Axis last January, and he is leading evolution of our operations and operating process with a strong focus on project execution and delivery, so we actually learn from the past. Ensuring we have the right people and skills to manage growth is a prime focus of our HR strategy, alongside improving employee engagement and performance management. As we grow, it's also very important that we don't lose sight of our purpose, changing wood to change the world. Sustainability has long been key to access, and we have done significant work in the period in developing our ESG agenda and material priorities. I'm very pleased that we are also announcing today the release of our sustainability report and strategy. This will be a road map for our sustainable growth. I'll be coming back to ESG later in the presentation. But now I'll hand over to Will for the financial results, please. Thank you, Rob, and good morning, everyone. As Rob explained, we believe our first half financial results represent excellent progress in what has otherwise been challenging times. This first slide summarizes our financial highlights for the 6 months to 30 September 2020. And in the next few slides, I will explain in more detail how we have improved our profitability and focused on maintaining a robust balance sheet. While sales volume and revenue marginally decreased compared to last year, this reflected the impact of COVID-nineteen on customer supply chains in the Q1 April in particular. Since then, sales recovered quickly and second quarter sales were meeting our production capacity levels. There was a smaller reduction in revenue compared to the volume reduction, and this is primarily due to a change in our sales mix, but mainly due to the sales price increases, and I'll explain this in a bit more on the following slide. Our gross margin increased from 29% to 33%, with this driven by the higher average selling prices, plus €400,000 of recognized license income associated with the formation of our new joint venture and the license agreement relating to that for the Acoya plant in North America. Together with management of our other operating costs, which remained relatively stable, this translated to a significant 72% increase in underlying EBITDA. Finally, careful cash management has helped maintain a robust balance sheet, the reduction in net debt by €8,900,000 over the 6 month period. Moving on to the next slide, improved profitability. The two charts here help summarize our improved profitability. On the left hand side, this sets out which of our reported segments generated the net €4,300,000 of EBITDA, with a €9,200,000 of positive EBITDA generation driven by our Ochoa operations. This was partially offset by the Tricoa business, which is still in its pre operating stage, together with ongoing R and D and corporate costs. The right hand chart shows a bridge setting out how the CHF 4,300,000 of group EBITDA has increased compared to the €2,500,000 reported in the first half of last year, with the improvements almost all being attributable to the improvements in the Ochoa business. With the Tricoa, corporate and R and D costs remaining relatively stable. We have managed our overhead and corporate costs during the first half of the year, including a reduction in senior staff and board salaries during the key COVID period, and this has helped partially offset increased headcount. In the second half of this financial year, we do expect tricoia costs to increase ahead of the Hull plant starting up as we build up the operating team in Hull. We also expect our other overhead costs to increase marginally looking forward as we resume our plans to invest in our organizational capability. The next slide explains our global sales distribution and how this has supported our resilient sales performance during the COVID period. The chart on the right helps explain the impact we saw at the start of the year due to COVID. We saw a drop of orders in April, in particular, in U. K. And North America, due to the disruption in our other regions to stimulate additional sales, in particular, in mainland Europe, the Nordic region, while also increasing sales to our Tricoia partners. This helped our sales to recover quickly following our maintenance stop in May and by the Q2 sales were at the levels we had anticipated prior to COVID. Looking at the left hand pie chart. As a reminder, the Tricoia segment of 28% represents the sales of lower priced decoia to our tricoia partners, Medite and Finza. This volume is expected to transfer to the tricoia plant in Hull next year, and this will free up capacity in Arnhem for full price to coia sales. Also as a reminder, we started selling directly to customers in the rest of Europe region from 1st April 2020, having previously agreed the early termination of the SIRDI arrangements, including the end to discounted prices. The next slide provides some further details on how our EBITDA improvement was generated from €2,500,000 on the left hand side to €4,300,000 on the right hand side. €2,500,000 of this improvement was due to higher average sales prices, and this is split broadly between the end of the 3rd year discount that I just mentioned, an increase in the sales price for materials sold to our coir customers and the effect of price increases to our coir customers from 1st January 2020. This was partially offset by a €1,400,000 reduction due to the lower sales volume being the temporary reduction in sales in Q1 due to COVID. It is very important to note, we have not seen such an impact with the current wave of lockdowns. For raw material costs, while the raw wood prices increased marginally compared to last year, this was more than offset by a reduction in cetyl prices, which have benefited from lower gas prices. Looking ahead, we do anticipate a marginal increase in both wood and acetyl prices, and we have implemented a further sales price increase to our customers from November this year to account for this. The next slide looks at our strong cash flow generation. This sets out the movement to net debt for the 6 month period. The overall reduction of €8,900,000 reflects our ambitions to have maintained as robust balance sheet as possible during the COVID uncertainty and to preserve our ability to complete our key expansion projects for which we raised equity this time last year. There are a number of elements to highlight. Firstly, the Ocoia business and its improved profitability now generates significant cash inflow, the €9,600,000 generated in the 6 month period. Next, while the Tricoia, Corporate and R and D segments have partially offset this, we do anticipate the Tricoia segment to generate positive returns following the whole plant start up next year. We continue to invest an €8,300,000 of the €9,800,000 CapEx in the period related to the progress made with the Hull plant, although this was partially offset by CapEx accruals in the period. We've also very carefully managed our working capital during this period, and that's resulted in the €4,200,000 reduction spread broadly across inventory receivables and payables. It's worth noting we've had no bad debts in this period. And while we haven't carefully managed our working capital, we do expect this decrease to partially reverse in the second half of the year, including as we prepare for the additional capacity becoming available in Arnhem following the whole plant start up and as we build up our inventory of higher priced material. The $3,200,000 reduction you can see is due to the Surdia termination fee, which was recorded at the end of last year in the income statement, but has been reflected as a non cash item in the current financial period and a reduction to our ongoing loan arrangement with Surdia. In addition, the group issued €2,600,000 of new equity to our Tricoia consortium partners, reflecting additional funding for the Tricoia consortium and principally to fund the whole plant construction. Therefore, overall, driven by a combination of good Ocoya cash performance and the profit and working capital initiatives that Rob explained, we closed the period with net debt of €16,300,000 The final chart or the financial part of this presentation sets out a longer term trend, the previous 4 years of underlying EBITDA for our Coia segment, reflecting the manufacturing income but excluding any license income. As you can see, AXA is delivering continued profitability improvement year on year. We previously said that we believe that 30% gross margin was achievable, and this set of results confirms we've now achieved this for 12 months. The notable increase in financial year 2020 reflected a step up resulting from the benefit of the 3rd of coir re enter coming on stream in Arden. The remaining improvements we've seen in profitability over the period are largely due to higher average prices, resulting from the price increases that we've successfully implemented. We will continue to target further improvements in profitability to benefit from additional capacity. Firstly, next year, the Tricoia planted hull, freeing up capacity in Arnhem for higher priced Sequoia sales as well as the potential higher margins that the whole plant itself can generate. And secondly, with the completion of the 4th Sequoia reactor in Arnhem by the end of year ending March 2022, with the latter also enabling us to target operating efficiencies associated with economies of scale we have historically seen from adding incremental production capacity. And with that, I will pass back to Rob. Many thanks, Will. I'll now take you through an overview of our business and our segments in more detail. But first, I'd like to just pause on this photo, please. Here we have the Minnesota State Capitol Building in the USA. Like the Swiss Alps, Minnesota also gets pretty cold, about 12 Fahrenheit in winter or about 10 Degrees Celsius negative. This was part of a US272 million dollars restoration project at the Capitol building and its 242 windows. It's worth remembering at this point that our products aren't just for new construction, they're also for refurbishment. About 30 years ago, the windows in this building have been replaced with aluminum or to be correct, aluminum, and they had really deteriorated and started to fail quite badly. Our Acoya was chosen to restore the windows to their original wooden glory, better even, we believe. Some of the sash windows there are 2 meters by 4 meters tall. So you really don't want windows of that size getting stuck. Choosing a coir means that the windows will both look great and perform well for years to come at this historic building in Minnesota. As I mentioned earlier, I joined Access as CEO last November. From my 1st 12 months as CEO, there are 3 key things that really define for me what is true of Access and our long term opportunities. Firstly, we have a truly world leading sustainable product and technology. We create performance wood products through our unique proprietary and protective technology. Secondly, we have a significant market opportunity. We sit today at production and sales of just around 2% share of our own self defined achievable market of 2,600,000 meters cubed per annum. And thirdly, we have a clear global growth strategy. Our plan to increase production capacity 5x by 2025 is underway, with a number of strategic development projects in progress to deliver this. I will now shift gear for a moment and move to our products, AKOIA and TRICOIA. There is a lot to digest on this busy slide, so I'll walk you through it from left to right. Please bear with me. To understand our growth opportunity, firstly, you need to understand our products. Starting on the left hand side of this slide, we have unique proprietary and protected technology, which we use to create high performance wood in 2 main products. On the left hand side, you can see that we use a process called acetylation. We use acetic anhydride, which is actually a bit like very strong vinegar and transforms the properties of the wood by changing the cell structure so that it no longer absorb water. We're essentially boosting nature. It is world leading, and we are the only company to successfully commercialize a settleation for wood in this way. We strongly protect our IP through patents and other means. What we produce is wood that has superior performance. If you can now look at the center of this slide, our wood building products match or outperform other products in 3 key dimensions. It is more durable, it lasts far longer and is more resistant to deterioration. It is more stable because it does not absorb as much water. Our wood building products do not swell, shrink and warp like most woods do. Finally, our products are sustainable. We use fast growing softwood from FSC certified sources, and we effectively lock away carbon for decades, while new generations of trees grow. As you can see here, we have a range of green certifications for our products such as FSC and Cradle to Cradle Gold certified and in fact platinum and rating for material health. There's a full list of these certifications and accreditations on our AQUOYA website. We have 2 key products you can see on the right, Acoya and Tricoia. Acoya is our solid timber product, planks essentially. It is a high performance material and it's a durable, sustainable substitute for not just hardwoods such as teak or oak, but also for metals, plastics and other synthetic construction materials. We currently produce a coir at our plant in the Netherlands. Tricoir is essentially a satillated wood element or more commonly known, wood chips. We sell and license to partners who create wood panel products like MDF. Tricoia panels have quite revolutionary qualities in the MDF place and against other products. Like Acoia, Tricoia is able to perform in wet and humid conditions where traditional MDF simply can't. It also opens quite amazing new possibilities to replace the use of other materials in outdoor or wet indoor environments. Our panel producing partners use TRICOIA chips in place of traditional feedstocks and create a much higher performance product as a result, making it highly value enhancing throughout the entire supply chain. We have been successfully seeding the market by chipping some of the ocoia we produce, while we build our 1st dedicated tricoia plant in Hull in the UK. Together, we target 4 main product categories where our products have the strongest and most direct competitive advantages as a substitute material. These categories are windows, doors, decking and cladding or siding, as it is known in the U. S. The first thing to say on this slide is there is a significant global growth opportunity for our products. Most directly, we operate within the global wood production industry. Over 800,000,000 cubic meters of lumber and engineered panel wood products are produced annually. Yes, over 800,000,000 cubic meters. However, the characteristics of our product also mean they compete as substitutes with adjacent non wood construction materials such as concrete, PVC or aluminum. So the global market we operate in is well in excess of the 800,000,000 Within this global market, AXIS is focused on where our products have the most compelling competitive advantages and where there is the most significant demand for a better substitute. We are not typically competing with cheap mass produced interior doors that you might find in big box do it yourself stores, for example. We are targeting where customers want a high quality, high performance product and the added value of better sustainability and product life cycle, I. E. Simply put, products with a longer lifespan and lower maintenance costs. These characteristics will make it the preferred choice of many manufacturers and then consumers. Importantly, we are not having to build a market for our product. Our market opportunity is one of realizing and accessing significant latent demand that already exists. And we are doing this through awareness, penetration and supply, offering a product that is simply a better alternative. We can break our market down further by looking at specific markets we focusing on, either geographically, where our main focus is in Europe, North America and Asia Pacific or by product category, where the characteristics of the product are most compelling as a substitute. Through these funnels or filters, we have estimated an achievable market for our products of over 2,600,000 cubic meters per annum for Tricoia and Acoya together. Last year, we sold just under 60,000 cubic meters. This means we currently have just around about 2% market share. So you can see that the size of the market potential and growth opportunity for our products from where we stand now is really significant. And hence, this big market opportunity requires a clear strategy to extract this latent value for AXIS. AXIS is proud to have a clear purpose, changing wood to change the world and to be a company that is led by its purpose. We do that by acting in accordance with our values and have a strategy aligned with our purpose. We have redefined our values this year. We are ambitious. We actually believe the world really depends on us. We respect and value all our stakeholders, and we are truly committed to safety, quality and sustainability. To achieve our goals and deliver our purpose, we have a 4 pillar strategy. Simply put, we will focus on growing demand for our products, practicing manufacturing excellence, further developing our technology and in building the organizational capability necessary to deliver this growth. In line with this strategy, we have set a target to grow our production capacity by 5x by 2025. We want to reach 200,000 meters cubed equivalent annual production capacity, having started from 40,000 meters cubed in 2019. Let's turn now to our segments and some of the highlights from the first half of this year and how Access is currently on track in actually doing what we said we would do. Acoya has had a very good and very resilient first half, delivering a manufacturing margin in excess of our previous 30% target, up 4.90 basis points year on year, and 21% underlying EBITDA growth for the segment is also a very strong result. Will has mentioned some of the impacts of the COVID lockdowns in April. What we saw was particular disruption to some of our downstream customers. What has been so impressive is the speed with which Acoya sales bounced back, thanks to the underlying and pent up demand. This resulted in a swift recovery through the subsequent months in those markets. We saw this good growth notably in the DAC region and the Nordics, but COVID restrictions had less impact. Our teams rapidly switched focus and efforts as product plans for the UK in particular was no longer going to move during the initial lockdown. The improved margin result is also reflective of our improved average selling prices achieved through both price increases and in retaking direct sales across Europe and, of course, good cost management. We've increased focus and resources in North America to bolster sales and marketing, increasing our distribution there as we build our market presence in this target region. We reached record U. S. Sales in October amid record global sales overall in October, as I mentioned before. Operationally, as we touched on our full year results, safety is an area of prime focus for the Axis organization. We are increasing our safety resources, our performance monitoring and our reporting. For example, we recorded 12 months for that loss time incident for staff in Arnhem from October 2019 to October 2020. Moreover though, and very sadly, one of our haulage contractors' employees sustained an LTI during the period. We have also begun commercial sales of a coia color in selected regions. This is a new product we've developed that offers something the market hasn't seen before, but already wanted. Our product is colored throughout the wood, not just the surface, which is actually unique in the market when combined with the other qualities of Aquoya. We've seen continuing strong demand for Aquoia and this has continued into the second half of this financial year. So where are we heading with Acoya strategically? Acoya is a fantastic business. It's cash generative with a good 30% plus margin. We have been successfully using our proprietary technology for some time. And today, we are capacity constrained and currently cannot make enough to meet obvious market demand. So we are expanding our capacity and progressing our plans to grow across the world. Firstly, we are adding capacity at our existing Arnhem plant by adding a 4th reactor after adding a third in 2019. This will increase production capacity by 33 percent to a total of 80,000 cubic meters, and we estimate a 3 year payback on this 4th reactor. In the period, our R4 plans, as we call the project, moved forward with the EPCM contract being entered and key long lead time borders placed, including the reactor itself. Furthermore, we are improving our efficiency with equipment such as a new wood stacker, new automated handling equipment and increasing our chemical storage capacity. We are now in the process of attaining the necessary permit required to start construction. There have been some broader issues in processing permit application in the Netherlands, but we are currently on track with our plans for R4 to be operational by March 2022. Secondly, our international growth. North America is a large potential market for Akoya. To fully realize its potential, we are progressing our plans towards building an Akoya production facility in the U. S. In August 2020, we announced the formation of a joint venture with Eastman Chemical Company, one of the world's biggest producers of anhydride, previously referred to as strong vinegar, to progress our plans for an Acoya plant there. We are designing the plant to produce an initial capacity of 40,000 meters cubed with the potential to add further capacity to that in the future. Investment evaluation has been progressing in the period, and this includes site specific engineering planning, detailed CapEx estimates and JV funding options. We are aiming to make a decision on investment and related funding for the U. S. Sequoia plant in the first half of the calendar year twenty twenty one. Turning to Tricoia. As you know, we are building the world's 1st Tricoia plant at Hull, so we can really bring Tricoia fully into the market in a larger and stand alone way. The plant construction has made good progress in the period, and we are on track as we approach target completion in Q1 of next year. As we last updated construction was impacted by COVID-nineteen during the initial more severe UK lockdown. But since that initial disruption, the work on-site has accelerated. We continue to work with the lead contractor to ensure construction work is completed as quickly and as safely as possible. We have increased on-site staff to ensure good progress. In October, the top three floors of the 9 floor acetylation tower were lifted into place. This was an important milestone, as I mentioned, and this effectively marked the end of the heavy construction work on the site, with now mainly just the mechanical and electrical work left to follow. It's also good to state here that our whole work is continuingly presently has not been affected by the more recent second UK lockdown. Once construction is complete, commissioning activities will follow. Once the plant goes live, we expect to see the benefit of additional capacity from the 1st part of the new financial year. As previously discussed, we plan for a gradual 3 year ramp up to full capacity. This is the world's first technology and a different process to how we operate Arnhem as Tricoia will be a continuous production process, whereas Ocoya is a batch process. The operational ramp up will let us learn and modify the new technology as needed. We expect to reach breakeven on EBITDA at around 40% capacity. I would also like to reiterate, we have a measured production ramp up plan. When we turn the key to start up the world's first Tricoia plant, we don't expect it to behave like a Mercedes car actually. It will likely cough and splutter a bit, but we will learn quickly with the great team we are building at Hull. We will adapt and focus on the delivery of our promised ramp up plan. For Tracoya, we continue to expect that the gross margin of approximately 40% should be achievable. This is higher than Akoya because of the wood input costs, and there will be a high level of automation in the Tracoya continuous process compared to the Akoya batch process. We are also exploring the opportunity to expand Tricoia production into Malaysia. We've continued our feasibility study with Petronas Chemicals Group for the construction of Tricoia plant in Malaysia. As we have stated previously, we will make the decision to progress with the plant after Hull is operational to ensure that we capture learnings from this hull plant into this Malaysian plant design. I would now like to shift gears to spend just a couple of minutes on ESG and specifically, AXIS' approach to sustainability. We are delighted to be publishing our new sustainability report this morning, and this slide illustrates AXIS' ESG framework. It is fully aligned with our purpose, which you can see here in green. It is fully dovetailed for the United Nations Sustainable Development Goals, the colored boxes below. Within our purpose, changing wood is what we do, which you can see here in green on the left hand side of this slide. And to change the world is why we do it, which you can see in green on the right hand side of this slide. Under our purpose, in the gray boxes, there are 10 material issues we have identified through our ESG research, engagement and strategy work this year. These are aligned with what we do as a business, the 5 on the left and how we make an impact, the 5 on the right. And we show here the relevant UN Sustainable Development Goals in the colored boxes, which align to each of our issues. For each of these 10 material issues we have developed and we keep evolving, detailed internal plans and roadmaps. Considerable progress has been made, whether that is starting with better data gathering, monitoring and management or indeed establishing baseline metrics to create ambitious but attainable targets or indeed more immediate actions and initiatives that are already improving how we work, increasing our positive impact on the world around us. We are actually making excellent progress but recognize we have lots to do. So how did we get to our new ESG framework? And what are some highlights from today's sustainability report? Firstly, we need to consider the sustainability of our products. Sustainability is intrinsic to our business and a core competitive advantage for our products. In short, industries are under pressure to decarbonize. Our products are sustainable solution to move the industry to lower carbon. Secondly, we have looked at how we as a company act and operate sustainably. We engaged a specialist sustainability consultancy to help us deliver our strategy this year. We completed a materiality assessment, which included extensive research and the stakeholder engagement process. Our 10 material issues, these were listed on the previous slide and are discussed in-depth in our report, are the important impact areas that are most relevant and important to us as an organization. And actually, most importantly, now confirmed as the most relevant and important to our broader stakeholder community. In our report under these ten issues, we have identified over 30 themes and goals and developed action plans to deliver these goals. Today's report overall includes a significant expansion in our ESG disclosure. We are publishing over 5x more ESG data and baselines, which I can actually trust you agree is a great step forwards and upwards for access and indeed our planet. Some of the highlights from the report are that in terms of our environmental and ecological impact, we have reduced our carbon dioxide equivalent intensity per cubic meter of a coir by about 6% year on year. And then our total CO2 equivalent impact for the full year 2020 is a negative 48,000 tons, with over 53,000 tons of carbon dioxide equivalent being locked into our products compared with 5 tons of net emissions. There was a wide range of information in the report, including the S, the social and G, the governance as well. I hope you all may find time to go through it. So looking back at what we've covered this morning, I will now summarize and open up the session for questions. Access has made excellent progress in the first half of the year and delivered some excellent results today. We are in a strong financial position and remain firmly on the path of increasing profitability as our business grows in scale. These excellent results are against the backdrop of COVID-nineteen, with Axis being able to deliver over 70% growth in underlying EBITDA, highlighting the resilience of our business model. Furthermore, we have continued to make significant progress on our growth plans and strategic developments. There is continued strong market demand for our products within our large potential market. Actually also really proud of the work our team has put into the launch of our expanded ESG report today. I would also like to thank you, our investors and other stakeholders on the call today, who were generous enough with their time in that process. We have built the right structure and ESG foundations on which to grow sustainably in the years to come. Turning to our outlook. Looking ahead, as you know, we don't provide specific full year revenue and margin guidance, but we have seen a good start to the second half of our financial year with continuing strong market demand with our production facilities continuing to be at capacity level. We had record sales levels in October and good demand continues in November without the same disruption experienced in the 1st series of COVID lockdowns across the world. Like every company, we remain mindful of the uncertainty and disruption that COVID-nineteen can bring. However, we also feel confident in our ability to manage this, and we remain agile from the changes already made and lessons learned in the first half of our financial year. In the second half of this financial year, we are further applying spending to support our growth agenda. We therefore will continue to exercise diligent cost and margin control. We expect a marginal increase to our cost base as we resume some initiatives and spending to support our growth. Looking further ahead, we know we can deliver further gains profitability as we benefit from the economies of scale as new capacity comes online. Revenue wise and longer term, in line with our 5x capacity growth plan, we will achieve revenue growth as we increase this capacity and our new construction projects complete and ramp up. To conclude, as I complete my 1st year as CEO of Axis, I'm confident in the long term growth opportunities ahead of us and in our ability to execute our strategy to capture them. With that, thank you for your kind attention, and we'll now take your questions. Thank Sir, your first question comes from the line of Christian Georges from Numis. Please go ahead. Your line is open. Thank you very much and congrats guys on obviously what's been a cracking half. I've got 3 questions if that's okay. First of all, I just wanted to touch on the Acquire manufacturing margin, which is very impressively above 30%. And clearly, that includes some lower priced sales for conversion to Chacoya, etcetera. Just wondering where you think or there's any update on where you think that margin can get to perhaps post the 4th react ad? The second one was just on price increases and perhaps your approach to price increases from here. Is it balancing, I suppose, seeding the market just more generally, and this is in Acoya? And keeping one eye on cost inflation, just how you sort of think of that as a business? And then my final one is just in regards to Tricoia, just where you are in terms of licensees, because obviously Medite signed up where Pfizer is and the conversations with them. And just sort of perhaps if there's any other interest, if you've got any more capacity post those 2. Thank you. Okay. Good morning, Chris. It's Will. I'll start the response to the first question, and then I'll pass back to Rob for the second, if that's all right. So Ocoya margin, and where do we expect that to be post 4th reactor and looking forward, noting that some of our sales to date have also been for the purpose of TRICOIA. We set out that we anticipated a 30% gross margin was achievable long term a little while ago. We have achieved that, which is great. I think it's right to assume we don't anticipate any significant steps up in our COIA gross margin looking forward. I think there's the possibility and the potential for small very small further increases as we turn on the 4th reactor, but not to assume anything significant. I think where the real advantage and potential opportunity lies is the economies of scale we get really below the gross margin line as well. So while we will add incremental revenue and gross contribution, our other operating costs below the gross margin line are not expected or anticipated to increase significantly at all when we add that additional incremental capacity to the plants in Arnhem. Where we have the opportunity to increase our gross margin a fraction is how is with the additional things like the new wood handling equipment and stacker. We're still in the process of working through that. And so we can't really provide any guidance as to whether there will be a benefit from that or not. But that's where the opportunity lies over that period of time. I hope that answers that particular question. I'll pass over to Rob for the pricing. Yes. Thanks, Will. That's great. Thanks, Will. In terms of our pricing strategy, it's worth saying this is an evolving strategy for AXIS. During the first half of this year, we've been very focused on how we understand the real value in the supply chain from a geographical perspective, from a sectorial perspective, so whether it's windows, doors, decking or siding and from a segmental perspective. And what I mean by the segmental is the actual channel or route to market. We see considerable differences across the world for each of the geographies, sectors and segments that we're targeting in terms of pricing. So at this stage, our strategy is to really test the glass ceiling on these prices and to manage the and optimize the margin where we can as we grow, reeling in the benefits, as Will has described, around potential for margin enhancement through economies of scale. Turning to your third question, Christian, the point around TRICOIA. Clearly, we have one very involved offtake partner in terms of Medite, who's also a shareholder in the consortia. And we have a second committed Octave partner in terms of FINSA. Both those companies are anxiously awaiting for us to start up the production in Hull, and they remain confident in the opportunity in the market to take that material from us and grow with us as we ramp up according to the ramp up plan we previously described. So from that perspective, the offtake appears at this time pretty robust. I mean, it's worth adding, Christian, on that point. We anticipate between FINZ and MEDI, them taking the vast majority of the output of the whole plant. So we're not anxiously looking for additional licensees to support that output. We want to maintain the option to generate some additional production capacity to seed additional markets. And I think the really the next focus is around whether we can develop that opportunity with Petronas in Malaysia for the potential joint venture for plants there. And as with the arrangement we have with Medite and Tricoi and Hull, we would anticipate there being a license arrangement associated with that joint venture arrangement in Malaysia. Indeed, as there has also been put in place with the joint venture arrangement we have for Akoya with Eastman and the joint venture we have agreed with them in North America. Okay, sure. Thank you. Very clear. Thanks, Chris. Thank you, Will. Sir, no question at this moment. Please continue. It's Sarah Ogilby here, Head of Investor Relations, Axis. We've got a couple of questions that have come through the webcast. We're conscious of time, so we'll just take a couple. And any that we don't get through, we can pick up back with you directly. We have a question from Toby Sorentin from Edison around Acoya Color. Is there likely to be any significant price point difference with Acoya Color? I'll take that one. I think, Toby, yes, absolutely, there will be. Koya Color will be at a higher price point. There are additional costs associated with this manufacturer. I think that's important to note. And we are at the early stages of rolling it out and have relatively limited or very limited production volumes available. But it will be a higher price point. And that's quite an exciting potential opportunity for us. But at this stage, I'd say it's cautious early days, but we're excited about the prospects. We have another question from Tom Rand at Investec. For the U. S. Expansion with Eastman, what do you see as the various funding options for the JV to fund the build of this plant? Good morning, Tom. What we are exploring with Eastman is the potential to put in place project debt finance or similar directly into the joint venture in North America. And we will be working with a 3rd party debt adviser to support that process over this next period of the project. That, in some ways, is similar to what we have done in Tricoir. But I think important to note the difference to Tricoir is that this joint venture in North America is for an is for an existing technology, where we're duplicating the technology that we have successfully already extended in Arnhem. And we're also going to be working in a market which is already developed. We're already selling Accio into the North American market very successfully. So there is an opportunity for slightly higher level of debt funding in that joint venture in North America. But that is still to be determined exactly what can be achieved there. There would then be a balance of funding required from both Eastman and Axis in our as our respective equity joint venture owners. And again, that's something which we will have to determine exactly what that quantum is depending on the outcome of the debt discussions. And I think that's when it's an important part of the next stage. And as we complete the site specific engineering study that Rob referred to earlier, which includes the provision of a very detailed CapEx estimate and greater certainty as to the risk of construction that we'll have there, if any, that will all play into that investment decision that we said that we are looking to make towards the end of the second half of next calendar year. Thank you, Will. That's great. Thank you, Tom. I think that's actually all we have time for today in terms of schedule. I think we've run a little bit over. But thank you, everyone, for their interest and attention today and for the questions. And we look forward to working with you in the future. So thanks again for your time. And goodbye. Thank you. This concludes our conference for today. Thank you for participating. You may now all disconnect.