Ladies and gentlemen, thank you for standing by, and welcome to the Accsys Technologies PLC Interim Results Presentation for the six months ended 30 September 2019. At this time, all participants are on a listen-only mode. If you need operator assistance at any time, please press star and zero. I must advise you that this conference is being recorded today, Thursday 28th November 2019. I now hand the conference over to your first speaker today, Mr Paul Clegg, Chief Executive Officer. Please go ahead, sir.
Good morning, everybody. Thank you for joining us today for the interim results presentation for the six months leading up to September the 30th, 2019. As you may have seen, we have also announced a firm placing and a capital raise of EUR 46 million, which we will address as use of proceeds later. I would also remind everybody to look at the disclaimer as an important document before we continue. Right. Assuming that you've had a chance to read the disclaimer, the first slide on the deck is very well-touched-up pictures of your executive team. I want to take this opportunity to introduce you to my successor, Robert Harris, who was basically Chief Officer Designate, and will take over progressively, through to the end of this year, when I will be stepping down.
We're very happy to have Robert joining the company, and I wish him all the success in the future. If I can now turn to slide three to give an overview of the company. I'm just reminded, before I say this, that as we are in a capital raising period, which will end with an AEGM on the 20th of December, we are not able to take any Q&A after this presentation. Clearly, if there are questions on anything, I would direct you to the relevant banks and brokers, or if there are pressing questions, we will endeavor to answer them offline. Just to go over to the overview of Accsys.
As I hope, and as I see that most of you are familiar with the company, but just as a brief reminder, Accsys is a company that combines chemistry technology and its ingenuity to create a new sustainable wood product for the built environment. The products that we produce are highly sustainable, highly stable, and very durable. We are well certified as far as sustainable ratings are concerned, both Cradle to Cradle Gold and Platinum for health, along with many other eco labels and certifications. Most recently, we're proud to be part of the first cohort of companies awarded the London Stock Exchange Green Economy Mark that was announced on October the 11th.
Again, just to articulate the pictures, we have an operating plant in Arnhem, where we produce at a capacity of 60,000 cubic meters, and we are building a chip acetylating plant in Hull with our partners, which we'll come onto later in the presentation. I will now turn it over to Will Rudge, who will go through the interim results, and I'll be back later with further comments.
Good morning, everybody. The next page sets out an overview of our interim results for the six months to September 2019. We reported strong performance for the first half of the year, with the group revenue increasing by 39%, driven by 32% increase in volumes. This has led to a group EBITDA increasing to a positive position of EUR 2.5 million compared to a loss the same period last year, EUR 1.4 million. This also means a 12-month period of positive EBITDA. This has been driven by the Accoya business and benefits of our third reactor, and associated economies of scale. We've also benefited from price increases, which have implemented from January 1st, and that has together enabled our gross margin increase to 29.1%, up from the 22.2% same period last year.
Demand for Tricoya panels has continued to remain strong, with Accoya sales to Medite and FINSA in total up by 22% during this period. Going into the second half of the year, importantly, it continues to be a very positive start to the second half of the year, with our customers remaining on an allocation process. If I can move on to the following page or the page after that with the financial highlights in a little bit more detail. The 39% increase in group revenue driven by the 32% increase in sales volumes, that equates to 28,113 cubic meters of Accoya sold in the period. In addition, within group revenue, there is licensing income.
Licensing income was EUR 0.2 million lower than the previous period as a result of expected changes and differences in our arrangements with our license partners. Other revenue also increased to EUR 3.5 million within that total, which continues to predominantly relate to sales of acetic acid, increased compared to the prior year, given our higher production levels. The increase in revenues has helped lead to an 83% increase in our gross profits to EUR 12.8 million. Ultimately, as I said before, this has enabled the group to move to underlying EBITDA positive position, both for the half year and for the last 12 months in total. Net debt has increased to EUR 59.3 million compared to EUR 50 million at the start of the financial period.
This is principally due to the CapEx incurred mainly relating to the Hull plant, as well as adoption of IFRS 16 lease accounting standard, which added EUR 3 million to our net debt position. However, cash flow generated from operations has improved to a positive inflow of EUR 2.6 million for the period, compared to only EUR 0.7 million for the same period last year. Moving on to the next page. This sets out a summary of our segmental analysis between the three segments that we report. The Accoya, representing all of our Accoya business and revenues generated from our Arnhem site. The Tricoya segment, which reflects all of our Tricoya business, including the Hull operations which are under construction, and R&D and corporate we have combined here. The Accoya business, as you can see, there's a significant improvement in the EBITDA and underlying EBIT increasing by 300% to EUR 5.3 million.
The Tricoya EBITDA loss of EUR 1.1 million remains relatively consistent with last year. This reflects the Hull plant still in its pre-operating phase, ahead of the plant becoming operational in the second half of the 2020 calendar year. The small amount of licensing income reflects our arrangements with license partners in the Tricoya business. The corporate cost and R&D segment, there is an increase in corporate and R&D cost there. This includes some one-off costs in the period. Going forward, we expect those costs only to increase marginally and certainly not in proportion with our sales as we expect sales to continue to grow. If I can ask you to move on to the next page. This looks at an analysis of revenue in a little bit more detail.
I think importantly to note that the pie chart on the left-hand side, 46%, which represents the two segments at the bottom of the pie chart there, continue to be sold at either lower or discounted prices. Over the next 18 months, we expect that to change, first of all, with the Hull plant turning on in the next 2020 calendar year. Secondly, with changes to our licensing arrangements. We also expect that to change such that those discounted and lower price segments will be removed over that next 18-month period. Excluding sales to Tricoya, the remaining Accoya sales I would highlight grew by 35% compared to the same period last year. The bar chart on the right-hand side shows that we continue to have a good geographical split of revenues. All of our customers are on allocation.
The one point I would notice within the rest of world segments, that's the one area which we have not seen a revenue increase because we have not targeted those customers. Given all of our customer base are on allocation, we continue to target our loyal customers and to ensure the continued repeat business that we have been able to achieve so far. If I can ask you to move on to the next page, which looks at the profitability. At this stage of the business, this solely focuses on the Accoya business and the Accoya manufacturing margin, which you can see has improved significantly compared to the same period last year. Moving from 20.7% to 28.6%. We've previously set out that we expect a 30% gross manufacturing margin to be achievable. We are on track to deliver that 30% gross margin.
I would also emphasize in the first half of this year, consistent with previous periods, we have also carried out our annual maintenance stop, which involves our entire site in the Netherlands for the plant closing down for approximately 2 weeks. Looking forwards in particular, also taking into account the 46% of volumes which are on discounted lower prices, we continue to believe that 30% gross margin is on track to be achieved. If I can ask you to move on to the next page, which looks at our movement in net debt, and is perhaps the best summary of our balance sheet position. The net debt has increased from EUR 50.1 million at the 1st of April to EUR 59.3 million. The light green box sets out the cash contribution, which has been achieved by the Accoya business.
Offsetting this, there are operating costs for the Tricoya business at EUR 1.1 million, which as I said earlier, is in its pre-operating phase, and the R&D and corporate costs. Other movements and interest paid, which is all met by the Accoya EBITDA contribution. In addition to that, net debt has increased ultimately because of the CapEx investments, EUR 6.5 million. That predominantly relates to the investment that we have made in the Hull site for the Tricoya plant during the period. Finally, a EUR 3 million increase relating to the adoption of IFRS 16 for leases. For those of you not familiar with IFRS 16, this is a new accounting standard which all companies had to adopt.
What it does is it means that there were a number of operating leases which effectively had previously been off balance sheet and are brought onto the balance sheet consistent with the way we have treated finance leases in the past. That's a one-off increase in our net debt in the period. If I can ask you to move on to the next page 12, which looks at strategic investment for further profitable growth, initially I will pass back to Paul.
Thanks, Will. I think that what this chart is trying to show is our total production growth over the next period that we are planning and that in part, the funding from the capital raise will be used for. I'm going to direct you to the bar graph, and you can see that the progression from the second half of 2018, we had two reactors in Arnhem, 40,000 cubic meters. The third reactor turned on in the second half of 2019, delivered on budget, and is now at full capacity. The third blob or bar, which is the light green, is the description of the Hull plant, and that would be an equivalent of 40,000 cubic meters of panel. The fourth blob or bar graph is the planning for the fourth reactor, which would add another 20,000 cubic meters.
That, in summary, is that from 2018 to 2022, we would increase our production capacity from 40,000 cubic meters to 120,000 cubic meters. A significant increase, all to meet a very robust demand for both Accoya and Tricoya. In addition to which, we have two feasibility studies progressing at the moment, one in the U.S. with our partner, Eastman Chemical, to produce a replica of Arnhem, and that feasibility study will read out sometime at the end of next calendar year. Secondly, with Petronas, our Malaysian partner, where we're looking at a feasibility study, which will also read out and give us options at the end of next year. This does not include a description that both Hull and Arnhem could be expanded further.
Very good expansion possibilities and optionality for the company in the future, which we're very excited about as we continue to develop the markets. Will?
Finally on this page, as Paul mentioned earlier, we have also today announced an equity capital raise by way of a firm placing, a placing and open offer under which we are expecting to raise EUR 43 million net of fees. The proceeds are expected to be invested, as we set out here, firstly, to enhance and expand the Arnhem Accoya plant, of which EUR 26 million is to be invested. Secondly, to complete the construction of the Tricoya plant, and we'll come onto a little bit more details, EUR 12 million is to be used to fund Accsys's share of the Tricoya consortium's additional costs required to complete the plant. Thirdly, EUR 1.5 million to fund the preliminary work which Paul just described for the U.S. project, for the potential Accoya plant.
Then finally, EUR 3.5 million to fund working capital relating to the first two items in recognition of the expectation of our continued growth in revenues and the related increase in inventories resulting from that. We can look at the next page, which looks at a little bit more detail as to the first of those items. First of all, we denote the third reactor in Arnhem was completed in July 2018. That was the first stage of our planned expansion of the Arnhem site, increasing the facility to 60,000 cubic meter capacity. That was at full capacity within nine months following the completion of the plant. The fourth reactor, which we are planning now, and other enhancements to the Arnhem site, will increase the production capacity by a further 33% to 80,000 cubic meters approximately.
This will enable the further growth from both the existing loyal distributor base and the repeat business that we've seen, as well as providing the greater flexibility for targeting new customers. The EUR 26 million required investment in Arnhem is broken down into two key areas. Firstly, EUR 20 million for the design, construction, and commissioning of the fourth reactor itself. This compares to approximately EUR 23 million for the third reactor. Secondly, EUR 6 million for further enhancements to the site. Firstly, new chemical storage, which will be about EUR 2 million. Secondly, wood stacker and automated wood handling equipment, which will be approximately EUR 4 million. Both of these are required in order to be able to operate the expanded site, but will also enable further efficiency and operations to be potentially achievable once the expanded site is operating.
As I said before, the gross margin target of 30% continues to be on track to be achieved. We expect to target improved operating margins from the further economies of scale, which should be achievable with the expanded site. The fourth reactor payback, after allowing for a two-year assumed ramp-up in operations to capacity following the completion of the plant, is a three-year period. The timeline we set at the bottom, just to put a bit more perspective as to what we have to do in the next period of time, sets out that we will start the FEED, which is the front-end engineering design work, in the new year. The physical construction of the plant would follow after the engineering design has been largely completed. That wouldn't be until the second half of the new financial year, which means from September 2020.
The wood stacker and the automated handling equipment would become operational at some point in the first half of the FY 2022 financial year, before ultimately the fourth reactor itself becomes operational by March 2022. As I said earlier, that we're then assuming a two-year ramp-up in production, although that does contrast with only the nine months required to get the third reactor up to full capacity.
I would just add that the increase in chemical storage and the addition of the wood handling and the stacker is very important for improving efficiencies, but also very important to make sure that we maintain and continue to improve the safety environment of our plant. As it is to be understood that moving 80,000 cubic meters actually means that we're moving at least 160,000 cubic meters around the plant, and that's about 160,000 tons of annual movement. Safety is extremely important, and we're very keen to make sure that we continue to improve that.
Moving on to the next page, looking at the whole plant progress. To date, approximately EUR 54 million has been invested on the site by TVUK, which is Tricoya Ventures UK, one of the consortium entities which is constructing the site. The engineering is almost complete. The construction on the site is very substantially progressed. We've previously reported some issues concerning the civil engineering and those works. That has been addressed. However, the delay in construction has resulted in additional forecast costs resulting from that, in particular with the lead contractor as well as our project team and other related activities all being required for a longer period of time. However, the plant is now expected to be operational in the second half of next calendar year, so the calendar year 2020.
While there have been delays and additional costs are forecast, they do not relate to the core design or technology of the plant and the longer term profitability expectation for the plant remain unchanged, and that means that it continues to be expected a 40% gross margin from the plant once it nears its capacity level. As a reminder, that is expected to be a targeted capacity of 30,000 metric tons of Tricoya chips to be produced from the plant. We've recruited the first employees on the site, and we're building that up over the next period of time up to a team of 31, who will also be assisting with the planning and the commissioning of the startup of the plant.
Also as a reminder, we have designed the site to allow for a modular design, and the site allows for further expansion at a later date. The next page sets out the details of the additional costs. The additional forecast project costs are a total of EUR 28 million, which includes an appropriate contingency, allowing for the fact that there's still some work to be completed. Accsys' share is approximately EUR 12 million, the balance of the EUR 28 million is therefore expected to come from our Tricoya consortium partners, including BP and Medite, as well as an increase of the RBS finance debt facility we have in place, all of which continue to remain very supportive for the project as a whole. Medite and FINSA are expected to utilize the vast majority of the capacity of the Hull plant as it ramps up in operation.
As a reminder, Medite has an offtake agreement under which they are committed to purchase and TVUK is committed to sell a minimum of 40% of the output of the plant on a ramp-up basis, with further rights to take 60% of the output. We also have a license agreement with FINSA and together, Medite and FINSA, as I said, are expected to take the vast majority of the capacity of the Hull site as it ramps up production. Ultimately, we continue to expect the Hull plant to achieve an EBITDA break-even level at approximately 40% of its capacity. We have allowed for a three-year ramp-up as we've continued to do following the start-up of the plant, that 40% capacity level could be assumed to be achieved at some point in the second year. With that, I'll move on to the next page.
Will, I'll give you a chance to have a drink of water. If we can go on to the chart of further international expansion opportunities, this is really fleshing out what I said earlier. There are two feasibility studies that we have embarked upon. One, and the first, is in the U.S., which is to build and operate, under certain circumstances, an Accoya plant with a partner who we've been in discussions with for some time, the Eastman Chemical Company. We're very excited about the U.S. It's clearly a very significant market opportunity, and it is already showing very healthy sales growth to date. The U.S. is of particular interest because of the demand side, but it is also a very advantaged acetyl site. We have a lot of work to do, specific site engineering, economic valuation, and hence the need for funding at this stage.
The investment decision is not really going to be likely for another 12 to 18 months. In addition to that, we have been working, as previously announced, with Petronas in Malaysia to build a replica of the Tricoya chip plant up in Hull. Again, that we're making good progress with the feasibility study. Again, it'll take 12 or 18 months before we have a readout of the options for the company and, to be very clear, we need to make sure that the whole plant is operating stably as it's the first of its kind before we make any further decisions. If I can ask you to then turn over and go back to Will.
I think this is a summary page. I think really to highlight that we believe we're very well positioned for ongoing growth. Ultimately, these results set out there is strong demand for Accoya and Tricoya, both and from our loyal customer base, albeit that they're remaining on an allocation system at this time. The investment in Arnhem will increase our capacity by 33% and improve further the efficiency and lead us to target the 30% gross margin. The whole construction is expected to be completed with the plant operation the second half of next calendar year, 2020 calendar year, enabling us to target what we believe is an initial global market in excess of 1.6 million cubic meters per annum, as well as the 40% gross margin that we talked about before.
Looking further ahead, we're very excited about the feasibility plans, which are progressing well, as Paul explained, in the U.S. and Malaysia to underpin longer term growth potential. Finally, as a reminder, we continue to invest in R&D, reflecting the fact that we believe we have a platform technology, and further product developments will potentially lead to further growth.
Thank you, Will. With that, I think that we will close this meeting. Again, just to remind all those listening that we are announced the capital raise, the prospectus will be released, and if you do have questions, please go to your banks or brokers who will help you with any further information. It only remains for me to thank all shareholders who are on the line for all of your support over the years. I will look with interest as an interested shareholder in the future development of the company, which I believe is extremely well-positioned to continue its strong growth and with this equity funding announced today is well capitalized. With that, I think we will close this meeting. Thank you all very much.
Thank you.
Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.