Accsys Tech Regulatory News (AXS)

AIM: AXS

Euronext Amsterdam: AXS

28 November 2019 

Accsys Technologies PLC

("Accsys", the "Group" or the "Company")

Interim Results for the six months ended 30 September 2019

Further strategic progress - strong revenue and profitability growth

Accsys, the fast-growing and eco-friendly company that combines chemistry and technology to create high performance, sustainable wood building products, today announces its interim results for the six months ended 30 September 2019.

1 Underlying loss before tax is defined as loss before tax and before Exceptional items and other adjustments. (See note 4 to the financial statements).

2 Net debt is defined as short term and long term borrowings (including lease obligations) less cash and cash equivalents. (See note 12 to the financial statements).

3 H1 FY 20 results reflect the adoption of IFRS 16, which resulted in an increase in Underlying EBITDA by €0.4m and a corresponding increase in depreciation of €0.5m and finance expense of €0.1m. (See note 11 to the financial statements).

Key highlights:

·; Group revenues up by 39% with continued strong demand from existing customers for our Accoya® and Tricoya® products

·; Gross profit up by 83% to €12.8m; gross margins up by 6.9 percentage points to 29.1% as a result of higher sales volumes, an improved product mix and higher selling prices

·; Underlying Group EBITDA of €2.5m (H1 FY19: loss of €1.4m)

·; Cash-flow generated from operations continued to improve with a positive cash inflow for the half of €2.6m (H1 FY 19: €0.7m)

·; Accoya® underlying EBITDA up 171%, to €7.6m (H1 FY19: €2.8m) demonstrating the operational gearing and benefits of the third Accoya® reactor coming on stream. We have passed the milestone of 12 months positive EBITDA trading

Accoya® capacity expansion:

·; Preliminary design and planning progressing well to add a fourth Accoya® reactor in Arnhem:

o Fourth reactor expected to increase capacity by 33% to 80,000m3

o The expansion project is expected to be constructed over the next two years and operational by the end of the financial year ending 31 March 2022

o We continue to have positive discussions with our potential US partner, today confirmed as Eastman Chemical Company, for a possible Accoya® plant to help satisfy increasing global demand

Tricoya® plant build:

·; Demand for Tricoya® panels has remained strong, with Accoya® sales to MEDITE and FINSA up 22%

·; Construction work on the Hull plant continues to progress:

o Expected to be operational in the second half of calendar year 2020

o Accsys' share of the total outstanding project cost to complete the plant is expected to be approximately €12m with the balance expected from our equity consortium partners BP and MEDITE, and an increase in RBS debt funding

o The longer-term profitability of the Tricoya® plant and market opportunity remains unchanged

·; Work progressing with PETRONAS Chemicals Group Berhad on a feasibility study concerning the possible construction of an integrated acetic anhydride and Tricoya® wood chip production plant in Malaysia, with a conclusion likely to come after the Hull Tricoya® plant becomes operational

Separately announced equity fundraise

·; Firm Placing and Placing and Open offer to raise gross proceeds of approximately €46.3m announced today

·; Net proceeds to be used to fund: (i) the design, construction and commissioning of a fourth Accoya® reactor at the Arnhem plant, new chemical storage facilities and new automated wood handling equipment; (ii) Accsys's expected share of additional project costs for the Hull Tricoya® plant; (iii) preliminary evaluation work for a possible Accoya® plant in the US and (iv) general working capital resulting from (i) and (ii) above.

Paul Clegg, Chief Executive commented:

"We have made further progress on our strategy in the half and this is reflected in the strong revenue and profit growth, and enhanced margins we have announced today.

"Demand for our sustainable, high-performance products continues to exceed supply, and our plans to increase capacity are on track. Our third reactor at Arnhem is operating at capacity and we are planning to construct a fourth reactor to meet the continued demand for Accoya®. This expansion will be supported by the equity capital raise we have launched today. Alongside this, our Tricoya® plant in Hull is on schedule to be operational during H2 CY2020; this will be the first plant of its kind ever constructed and we continue to view this as a highly exciting market. Internationally, we are making good progress with potential partners both in the USA and Malaysia.

"The second half of the year has started well and we remain on track to deliver on full year expectations."

There will be a presentation relating to these results at 10:00 GMT on 28 November 2019. The presentation will take the form of a webcast and conference call, details of which are below:

Webcast link (for audio and visual presentation):

Click on the link below or copy and paste ALL of the following text into your browser:

https://edge.media-server.com/mmc/p/2jp2vu8b

Conference call details (audio only presentation - do not use in conjunction with the webcast link):

Confirmation Code: 2195588

Local - United Kingdom: +44 (0) 2071 928 000

National free phone - United Kingdom: 0800 376 7922

Local - Amsterdam, Netherlands: +31 (0) 207 143 545

National free phone - Netherlands: 0800 024 9557 

Ends

For further information, please contact:

Chief Executive's statement

Introduction

I am pleased to report results which demonstrate further momentum in profitable growth together with continued progress in respect of our strategy to develop production capacity to support the increasing demand for our sustainable products, Accoya® and Tricoya®.

Our Accoya® plant in Arnhem has been operating at capacity levels throughout the period and into the second half of the financial year. We have progressed the initial planning for the further expansion of the plant and are pleased to also announce today an equity capital raise with the majority of the proceeds to be used to fund this 33% expansion in capacity.

As previously announced, the Tricoya® plant construction in Hull, the first of its kind in the world, has been challenging and is now expected to be operational in the second half of 2020 calendar year. However I am happy with the progress now being made with engineering almost complete and construction work substantially progressed. Part of the net proceeds from today's announced capital raise will be used to fund Accsys's share of the cost overruns resulting from the delay in completion of the plant, with our Tricoya® consortium partners also expected to fund their share.

We continue to make good progress with Eastman Chemical Company ("Eastman") and PETRONAS Chemical Group in respect of new Accoya® and Tricoya® plants in the USA and Malaysia respectively. Whilst these projects are still at the feasibility stage, they are important given the lead time taken to construct new plants and in considering our expectation for continued sales growth and our understanding of the substantial market opportunity globally.

The strong environmental credentials of our products support our continued belief that we are changing wood to change the world. We are pleased to have recently been confirmed as among the first cohort of companies to be awarded London Stock Exchange's new Green Economy Mark, a clear endorsement of our green credentials for investors.

In October this year Accsys announced that Rob Harris had been appointed as CEO with effect from 20th November. Rob, who formally joins the Board as a director tomorrow, 29th November 2019, brings deep operational and leadership experience in the chemicals industry, a skillset which will help deliver its growth strategy over the coming years. As mentioned previously I will remain on the Board until 31 December 2019 allowing for a smooth transition and wish Rob all the best for the future.

Summary of results

Total revenue for the six months ended 30 September 2019 grew by 39% to €44.0m (H1 FY19: €31.6m) driven by a 32% increase in Accoya® sales volumes to 28,113 cubic metres compared to the same period last year. We also benefited from sales price increases implemented at the start of the 2019 calendar year as well as an improvement in the sales product mix.

Group underlying EBITDA of €2.5m compares to a loss of €1.4m for the same period last year with the improvement due to higher sales volumes and higher gross margin from Accoya® manufacturing. Gross profit increased by 83% to €12.8m, driven by the higher volumes and the gross manufacturing margin increasing to 28.6% from 20.7% as a result of price increases, improved sales product mix and due to the economies of scale resulting from operating the third Accoya® reactor. Gross margins continue to be impacted by the proportion of sales used for the production of Tricoya® ahead of the Hull plant being completed, although the proportion decreased marginally from 25% to 24% of the total volume sold in the period.

Net debt increased to €59.3m at 30 September 2019 from €50.1m as at 31 March 2019. The increase in net debt was principally due to the expenditure on the on-going construction of the Tricoya® plant in Hull together with the adoption of IFRS 16. We generated positive cash from operating activities of €2.6m for the six month period compared to €0.7m in the same period last year.

Accoya® - Global performance

Revenue from the sale of Accoya® increased 43% to €40.2m in the first half of the year compared to the equivalent period in the previous year. The increase was attributable to a 32% increase in Accoya® volumes sold together with the benefit of a price increase implemented in January 2019.

Demand has continued to exceed production capacity during the period and we have continued to manage this by allocating available volumes between our customer base.

Sales of Accoya® to our Tricoya® licensees for the production of Tricoya® panels increased by 22%, with the lower than average increase reflecting the allocation to balance the significantly above average increase of 49% in the last financial year.

The increase in sales volumes in other countries reflects the higher available production volumes in the period compared to last year given the additional capacity of the third reactor. The first half of the year also included an annual maintenance shut down which was completed successfully, consistent with previous years and as planned this resulted in no production being possible for half a month. Sales volumes in Benelux grew below the overall average, in part due to the deferment of a number of larger projects. As such we are working to reduce our reliance on and exposure to construction project timing in this region.

We implemented a price increase effective from January 2019 which addressed anticipated higher raw material costs but also benefitted gross manufacturing margins in the period. Margins also benefitted from the economies of scale resulting from operating the third reactor at full capacity. The combined effect was to increase the manufacturing gross margin from 20.7% to 28.6% and in turn, the Accoya® segment profit from operations increased by 303% to €5.3m.

The improvement in gross margins was achieved despite a significant proportion of our sales continuing to be sold at discounted prices, with 46% of Accoya® sold in the period to Cerdia or for Tricoya®, compared to 48% in the same period last year. This situation is expected to continue to improve, in particular with the start-up of the plant in Hull such that we remain of the view that gross Accoya® manufacturing margins of at least 30% are achievable in the medium to longer term.

We have progressed the planning for the further expansion of the Arnhem plant through the addition of a fourth Accoya® reactor and are pleased to announce the proposed funding today to be able to complete this next stage of our growth strategy.

The addition of the fourth reactor will increase the production capacity by 33% to 80,000 cubic metres, enabling Accoya® revenues of €120m to be achievable over the medium term. The project will include adding additional chemical storage which is necessary as we handle the higher volumes and will enable us to operate the plant more efficiently. In addition, in order to handle the higher volume of wood, we plan to invest in new automated wood handling equipment noting our existing stacking machine is now 10 years old. The total cost of this expansion is expected to be approximately €26m. The project will involve detailed engineering and equipment procurement followed by the construction itself. A period of commissioning will be required ahead of the fourth reactor becoming operational, which is planned by the end of the financial year ending March 2022.

Looking further ahead, we are working with Eastman Chemical Company ("Eastman") to evaluate the feasibility of jointly constructing and operating an Accoya® wood production facility in North America (the "Project"). Eastman is the world's largest producer of acetic anhydride, the key chemical used in the production of acetylated wood. By establishing a production plant in the USA, Accsys would be able to provide increased volumes of locally-produced Accoya®, supply new customers and improve logistical efficiency in the region. A decision as to whether or not to proceed with the next stage of the Project is expected to be taken by each party following conclusion of the evaluation, and subject to entering into legally binding agreements, during the course of 2020.

Tricoya® 

Construction work on the Tricoya® plant in Hull as part of our consortium with BP and MEDITE has continued to progress throughout the period. The previously reported delay has been disappointing and resulted in a slow-down in work over the period with €5.5m invested in the site compared to €18.3m in the same period last year. We continue to expect the plant to be operational in the second half of calendar year 2020 with the issues concerning engineering and related works being addressed and work now accelerating on site.

Construction on site is advanced in most areas of the plant, with the additional works associated with the acetylation tower being a key focus. Construction is expected to be complete by mid-2020 with a period of commissioning to follow ahead of start-up.

The delay has resulted in costs for the project now forecast to be approximately €28m higher than initially expected with an increase in both the capital costs and associated project overheads increasing as a result of the additional time. This additional cost is to be funded between the Tricoya® consortium partners and RBS, with Accsys's share expected to be approximately €12m.

Reflecting that this is the first plant of its type, we continue to expect the plant to ramp-up production to full capacity over approximately three years following start-up. Once at capacity, a gross margin of approximately 40% is expected to be achievable. This is higher than the Accoya® plant gross margin due to lower wood input costs and a higher level of automation resulting from the continuous process in Hull.

Demand for Tricoya® panels by our licensees, MEDITE and FINSA, continued to be strong with demand being limited by the allocation of production capacity from the Arnhem plant. Sales volumes increased by 22% to 6,620 cubic metres in the period, with the majority of this continuing to be sold to MEDITE. MEDITE have also committed to purchase a minimum of 40% of the production of the Hull plant, allowing for a ramp up, and we anticipate the vast majority of the Hull plant output to be sold to MEDITE and FINSA. The plant is anticipated to be EBITDA break-even when operating at approximately 40% of its capacity.

We are also progressing the feasibility study which is being undertaken with PETRONAS Chemicals Group Berhad concerning the possible construction of a Tricoya® plant in Malaysia, with a conclusion likely to come after the Hull Tricoya® plant becomes operational. In addition, the Hull site construction has been planned in a way which allows for further expansion.

Intellectual property

Accsys has increased its patent portfolio in the recent period to a total of 329 patent family members, in over 40 countries. The number of granted patents has increased to 167, which includes patents relating to key technologies in various countries throughout the world. By using a combination of patenting and know-how we continue to invest in the generation and protection of core technologies associated with the Arnhem plant expansion and the Tricoya® plant, as well as on complementary technologies for use with Accoya® and Tricoya® wood products.

Our principal trademark portfolio covers our brands Accoya®, Tricoya®, the Trimarque device and Accsys®, protected by registration in over 60 countries, with recent trademark activity focused on increasing the strength of those brands.

Accsys continues to maintain an active watch on the commercial and IP activity of third parties to ensure its IP rights are not infringed, and to identify any IP which could potentially hinder our commercial activity.

Outlook

Accsys is now very well positioned to take advantage of its sustainable products and substantial market opportunity, with an estimated 2.6 million cubic metres of annual sales ultimately being possible.

These results coupled with the Firm Placing and Placing and Open Offer launched today mark an exciting and important milestone for the Company and we expect to build upon the 12 months of positive EBITDA trading with real momentum across the Group.

The second half of the financial year has started well and we expect this to benefit from production at capacity levels as well as further improvement to our sales product mix. We are targeting further improvement to gross margins over the medium term with the anticipated benefit from the Hull plant becoming operational, enabling an increase of higher priced sales to replace the volume currently being sold to our Tricoya® licensees.

The expansion of the Accoya® plant by the addition of a fourth reactor and completion of the Hull plant will enable Accsys to significantly increase its sales over time targeting Group revenues of €160m over the medium term.

While the significant increase in production capacity enables us to grow to meet increasing demand, we believe it is essential to plan for the next phase of expansion and we will continue to develop the discussions concerning potential new manufacturing plants in USA and Malaysia.

Paul Clegg

Chief Executive

28 November 2019

Financial Review

Statement of comprehensive income

Group revenue increased by 39% to €44.0m for the six months ended 30 September 2019 (H1 FY19: €31.6m). Accoya® segment revenue increased by 40% to €43.7m with revenue from Accoya® wood increasing by 43% to €40.2m, largely as a result of higher sales volumes and higher average selling prices. Included within Accoya® wood revenue are sales for the manufacture of Tricoya® panels, which increased by 30% to €6.8m (H1 FY19: €5.2m).

Licence revenue of €0.3m (H1 FY19: €0.5m) was reflected in our Tricoya® segment, with the licence fee attributable to our Accoya® licensee, Cerdia International Gmbh ('Cerdia') reflected in the prior year period of €0.5m, not contracted to reoccur this year.

Other revenue of €3.5m (H1 FY19: €2.5m) predominantly relates to the sale of acetic acid an increase on the prior year period given higher production levels and higher average acetic acid prices.

Gross margin increased from 22% to 29% compared to the prior year period, with the Accoya® manufacturing gross margin increasing from 21% to 29%. These increases were driven by the significantly higher volumes sold in the first half (as compared to H1 FY19) following the ramp-up of Reactor 3 in H2 FY19, with sales volumes up 32% on the prior year period. Average selling prices were also higher in the period following price increases implemented from the start of January 2019.

Underlying other operating costs excluding depreciation and amortisation, increased from €8.4m to €10.3m. This increase was largely due to higher underlying staff costs which increased by €1.4m including costs associated with the change in CEO announced in the period. The increase was also due to higher recruitment and training fees (€0.4m) and higher third party sales & marketing costs (€0.2m).  This increased cost was partially offset by the implementation of the IFRS 16 'Leases' standard, which had the effect of decreasing operating costs by €0.3m. See note 11 to the financial statements.

Average headcount increased by 21 compared to the prior year period, with the increase predominantly attributable to an increase in Arnhem operations staff following the commissioning of the third Accoya® reactor and recruitment of the first phase of staff for the Hull Tricoya® plant.

Depreciation charges increased in the period compared to the prior year following the completion of the third reactor, the purchase of the previously leased Arnhem land and buildings (both occurring towards the end of HY1 FY 19) and the implementation of the IFRS 16 'Leases' standard from the beginning of this financial year. See note 11 to the financial statements.

Underlying finance expenses increased to €1.8m (H1 FY19: €1.4m) due to interest payable on our loan with Cerdia no longer being capitalised following the completion of the third Accoya® reactor, and to a smaller extent, the inclusion of finance charges related to the implementation of the IFRS 16 'Leases' standard.

Other adjustments for the period include a foreign exchange gain of €0.6m (HY1 FY19: €0.2m) on loans held in pounds sterling with BGF & Volantis and foreign exchange differences on cash held in pounds sterling, which is used primarily to act as a cash flow hedge against future sterling project expenditure on the new plant being constructed in Hull. The effective portion of the cash flow hedge is recognised in Other comprehensive income.

The prior year period included €1.2m of exceptional expenses and other adjustments. See note 4 to the financial statements.

Underlying loss before tax decreased by €2.3m to €2.2m (H1 FY19: €4.5m). After taking into account exceptional items and other adjustments, loss before tax decreased by €3.8m to €1.6m (2018: €5.4m).

The tax charge of €0.1m compares to the tax credit of €1.0m in the prior year period, with the difference principally due to the prior year period reflecting a prior year adjustment which did not reoccur in the current period.

Cash flow

Cash flow generated from operating activities of €2.6m compared to €0.7m in the prior year period, which reflects the improving operational cash flow being generated by the Group.

At 30 September 2019, the Group held cash balances of €3.3m, representing a €5.6m decrease in the period from 31 March 2019. The cash decrease in the period is largely attributable to investments in tangible fixed assets of €6.5m, primarily reflecting the construction progress made on our Tricoya® plant in Hull. A drawdown of €2m on the Tricoya® RBS facility assisted with funding this investment during the period. Loan repayments (including rolled up interest) & interest payments of €2.7m occurred during the period, with repayments commencing to BGF, Cerdia, ABN AMRO & Bruil borrowings in H2 FY19.

Financial position

Plant and machinery additions of €6.5m (H1 FY19: €23.2m) in the period largely consisted of the construction of the Tricoya® plant build in Hull (€5.5m), with the prior year period including construction on the third reactor and Tricoya® plant build in Hull. Net additions of €9.8m were made in the prior year period as a result of the purchase of the land and buildings in Arnhem.

Trade and other receivables increased to €10.4m (H1 FY19: €9.2m) principally due to higher sales in the period, but partly mitigated by a decrease in prepayments and VAT receivable.

Inventory levels remained reasonably stable in the period at €15.9m (H1 FY19: €16.2m), driven by an increase in finished goods following the ramp-up of the third reactor in H2 FY19, increasing our production capacity by 50%, offset by a decrease in raw materials following higher than optimal levels in the prior year. Levels of Accoya® inventory remain low, with the finished goods balance representing approximately three weeks of sales.

The decrease in trade and other payables to €19.0m (H1 FY19: €22.1m) is primarily due to timing of construction payments in relation to the Hull plant construction.

The Group has implemented the IFRS 16 'Leases' standard with effect from 1 April 2019. On adoption of the new standard, the Group recognised €2.2m of right of use assets and €2.2m of lease liabilities. The impact on the Consolidated interim statement of comprehensive income in the period has been to increase underlying EBITDA by €0.4m, increase depreciation by €0.5m and increase interest expense by €0.1m. Comparative information for the prior year has not been restated. See note 11 to the financial statements.

Amounts payable under loan agreements increased to €57.6m (H1 FY19: €54.1m). The first €5m of the Tricoya® RBS €17.2m (€14.6m net) facility was drawn down during the past year, as anticipated, in conjunction with funding the ongoing construction of the Tricoya® plant in Hull. The drawdown was partially offset by scheduled repayments on other loans over this period. 

Net debt increased by €9.2m in the period to €59.3m due to Capex investment of €6.5m, reflecting the continued construction progress on the Hull Tricoya® plant and the adoption of the IFRS 16 'Leases' standard, with leased liabilities increasing by €3.0m during the period.

Risks and uncertainties

As described on page 33 to 37 of the 2019 Annual report, the business, financial condition or results of operations of the Group could be adversely affected by a number of risks. The Group's systems of control and protection are designed to help manage and control risks to an appropriate level rather than to eliminate them.

These specific principal risks and related mitigations (as described in the 2019 Annual report) as currently identified by Accsys' risk management process, have not changed significantly since the publication of the last Annual Report.

These risks relate to the following areas:

Health, Safety & Equipment; Manufacturing; IT; Sale of Products; Licensing/Partnering; Supply of raw materials; Finance; Protection of Intellectual Property & trade secrets; Litigation & disputes; Personnel; Governance, Compliance & Law and Investor & Public relations.

Going concern

These condensed consolidated financial statements are prepared on a going concern basis, which assumes that the Group will continue in operational existence for the foreseeable future, and at least 12 months from the date these financial statements are approved.

As part of the Group's going concern review, the Directors have reviewed the Group's trading forecasts and working capital requirements for the foreseeable future. These forecasts indicate that, in order to continue as a going concern, the Group is dependent on the achievement of certain operating performance measures relating to the production and sales of Accoya® wood from the plant in Arnhem and eventually, of Tricoya® chips from the new plant in Hull, with the collection of on-going working capital items in line with internally agreed budgets.

The Directors have considered the internally agreed budgets and performance measures and believe that appropriate controls and procedures are in place or will be in place to make sure that these are met.

The Group is also dependent upon certain banking and finance facilities which are in place. In addition, the Group is dependent upon part of the net proceeds from the Firm Placing and Placing and Open Offer in order to fund its share of liabilities relating to the completion of the construction of the Hull Plant, which is expected to be operational in the second half of calendar year 2020.

If the Firm Placing and Placing and Open Offer were not to proceed, the Group would need to obtain appropriate alternative financing within a short timescale in order to be able to fund its share of TVUK's liabilities. It is not certain that the Group would be able to obtain any such alternative financing on commercially acceptable terms, or at all. Consequently, if the Firm Placing and Placing and Open Offer did not proceed and the Group is unable to obtain alternative financing, the Company would not be able to fund its share of the costs of completing the construction of the Hull Plant. In turn, due to the Hull Plant being a material asset of the Group and a key element of the Group's growth strategy, this would give rise to a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. The condensed consolidated financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

The Directors have today announced a proposed Firm Placing and Placing and Open Offer which is underwritten by Numis, Investec and NIBC. Therefore on the basis that the resolutions to be proposed at the General Meeting on 20 December 2019 will be passed, the Directors believe that the going concern basis is the most appropriate on which to prepare the financial statements.

William Rudge

Finance Director

28 November 2019

Directors responsibility statement

The Directors confirm to the best of their knowledge that:

·; the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

·; the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and 

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

Angus Dodwell

Company Secretary

28 November 2019

Consolidated interim statement of comprehensive income for the six months ended 30 September 2019

The notes set out on pages 16 to 34 form an integral part of these condensed financial statements.

* See note 4 for details of exceptional items and other adjustments.

Consolidated interim statement of financial position at 30 September 2019

The notes set out on pages 16 to 34 form an integral part of these condensed financial statements.

Consolidated interim statement of changes in equity for the six months ended 30 September 2019

See note 10 for details concerning other reserves.

Non-controlling interests relates to the investment of various parties into Tricoya Technologies Limited and Tricoya Ventures UK Limited (note 6).

The notes set out on pages 16 to 34 form an integral part of these condensed financial statements.

Consolidated interim statement of cash flow for the six months ended 30 September 2019

The notes set out on pages 16 to 34 form an integral part of these interim financial statements.

Notes to the financial statements for the six months ended 30 September 2019

1. Accounting policies

General Information

The principal activity of the Group is the production and sale of Accoya® solid wood and exploitation of technology for the production and sale of Accoya® wood and Tricoya® wood chips via the Company's 100% owned subsidiaries, Titan Wood Limited, Titan Wood B.V., Titan Wood Technology B.V., Titan Wood Inc., our 76.1% owned subsidiary, Tricoya Technologies Limited and 46.2% owned subsidiary, Tricoya Ventures UK Limited (collectively the 'Group'). Manufactured through the Group's proprietary acetylation processes, these products exhibit superior dimensional stability and durability compared with alternative natural, treated and modified woods as well as more resource intensive man-made materials.

The Company is a public limited company, which is listed on AIM in the United Kingdom and Euronext in the Netherlands, and is domiciled in the United Kingdom. The registered office is Brettenham House, 19 Lancaster Place, London, WC2E 7EN.

The condensed consolidated interim financial statements were approved on 28 November 2019. These condensed consolidated interim financial statements have been reviewed, not audited.

Basis of accounting

The Group's condensed financial statements in these interim results have been prepared in accordance with IFRS issued by the International Accounting Standards Board as endorsed by the European Union, in particular International Accounting Standard (IAS) 34 "interim financial reporting" and the disclosure and transparency rules of the Financial Conduct Authority. The financial information for the six months ended 30 September 2019 and the six months ended 30 September 2018 is unaudited. The comparative financial information for the full year ended 31 March 2019 does not constitute the Group's statutory financial statements for that period although it has been derived from the statutory financial statements for the year then ended. A copy of those statutory financial statements has been delivered to the Registrar of Companies and which were approved by the Board of Directors on 24 June 2019. The auditors' report on those accounts was unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 March 2019.

Accounting policies

The accounting policies adopted are consistent with those of the previous financial year except as described below:

·; The Group changed its accounting policies as a result of adopting the IFRS 16 'Leases' standard which became effective from 1 April 2019. See note 11 for further details.

·; Taxes on income in the interim periods which are accrued using the effective tax rate that would be applicable to the expected total annual profit or loss.

Going concern

These condensed consolidated financial statements are prepared on a going concern basis, which assumes that the Group will continue in operational existence for the foreseeable future, and at least 12 months from the date these financial statements are approved.

As part of the Group's going concern review, the Directors have reviewed the Group's trading forecasts and working capital requirements for the foreseeable future. These forecasts indicate that, in order to continue as a going concern, the Group is dependent on the achievement of certain operating performance measures relating to the production and sales of Accoya® wood from the plant in Arnhem and eventually, of Tricoya® chips from the new plant in Hull, with the collection of on-going working capital items in line with internally agreed budgets.

The Directors have considered the internally agreed budgets and performance measures and believe that appropriate controls and procedures are in place or will be in place to make sure that these are met.

The Group is also dependent upon certain banking and finance facilities which are in place. In addition the Group is dependent upon part of the net proceeds from the Firm Placing, Placing and Open Offer in order to fund its share of TVUK's liabilities relating to the completion of the construction of the Hull Plant, which is expected to be operational in the second half of calendar year 2020.

If the Firm Placing and Placing and Open Offer were not to proceed, the Group would need to obtain appropriate alternative financing within a short timescale in order to be able to fund its share of TVUK's liabilities. It is not certain that the Group would be able to obtain any such alternative financing on commercially acceptable terms, or at all. Consequently, if the Firm Placing and Placing and Open Offer did not proceed and the Group is unable to obtain alternative financing, the Company would not be able to fund its share of the costs of completing the construction of the Hull Plant. In turn, due to the Hull Plant being a material asset of the Group and a key element of the Group's growth strategy, this would give rise to a material uncertainty which may

cast significant doubt about the Group's ability to continue as a going concern. The condensed consolidated financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

The Directors have today announced a proposed Firm Placing and Placing and Open Offer which is underwritten by Numis, Investec and NIBC. Therefore on the basis that the resolutions to be proposed at the General Meeting on 20 December 2019 will be passed, the Directors believe that the going concern basis is the most appropriate on which to prepare the financial statements.

2. Segmental reporting

The Group's business is the manufacturing of and development, commercialisation and licensing of the associated proprietary technology for the manufacture of Accoya® wood, Tricoya® wood elements and related acetylation technologies. Segmental reporting is divided between corporate activities, activities directly attributable to Accoya®, to Tricoya® or research and development activities.

Accoya® 

Revenue includes the sale of Accoya®, licence income and other revenue, principally relating to the sale of acetic acid and other licensing related income.

All costs of sales are allocated against manufacturing activities in Arnhem unless they can be directly attributable to a licensee. Other operating costs include depreciation of the Arnhem property, plant and equipment together with all other costs associated with the operation of the Arnhem manufacturing site, including directly attributable administration, sales and marketing costs.

See note 4 for explanation of Exceptional Items and other adjustments.

Average headcount = 128 (H1 FY19: 117)

The below table shows details of reconciling items to show both Accoya® EBITDA and Accoya® Manufacturing gross profit, both including and excluding licence and licensing related income, which has been presented given the inclusion of items which can be more variable or one-off.

Tricoya®

Revenue and costs are those attributable to the business development of the Tricoya® process and establishment of Tricoya® Hull Plant.

See note 4 for explanation of Exceptional Items and other adjustments.

Average headcount = 18 (H1 FY19: 10), noting a substantial proportion of the costs to date have been incurred via recharges from other parts of the Group or have resulted from contractors.

Corporate

Corporate costs are those costs not directly attributable to Accoya®, Tricoya® or Research and Development activities. This includes management and the Group's corporate and general administration costs including the head office in London.

See note 4 for explanation of Exceptional Items and other adjustments.

Average headcount = 20 (H1 FY19: 19).

Research and Development

Research and Development costs are those associated with the Accoya® and Tricoya® processes. Costs exclude those which have been capitalised in accordance with IFRS. (see note 7).

See note 4 for explanation of Exceptional Items and other adjustments.

Average headcount = 10 (H1 FY19: 9).

Total