Accsys Tech Regulatory News (AXS)

AIM: AXS

Euronext Amsterdam: AXS

27 June 2023

Accsys Technologies PLC

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

Preliminary results for the year ended 31 March 2023

Highlights

· 34% growth in revenue at €162.0m, driven by continuing strong product demand, higher average sales prices and implementation of Energy Price Premium (EPP)

· 6% growth in Accoya sales volumes at 63,344m3:

o  H2 sales volumes of 39,387m3 (H1: 23,957m3), representing growth of 64% on H1, and in excess of our targeted 50% increase

o  Record production levels in Q4 reflecting reactors 1-3 returning to production following Arnhem plant shutdown in April and May and additional production from new fourth reactor from September 2022

· 4% points improvement in gross profit margin to 34%, remaining above target level of 30%

· 120% growth in underlying EBITDA at €22.9m, ahead of previous guidance, reflecting higher revenues and average sales prices offsetting increased raw material costs

·  Strategic growth projects:

o  Arnhem plant - commercial operation of reactor 4 commenced in September 2022, increasing Arnhem capacity by 33% and generating record volume production in Q4; production from the plant ramping up over two years

o  Accoya USA JV - construction of new 43,000m3 plant progressing well but, as previously announced, has experienced some delay and cost inflation; commercial operation now expected mid-2024 

o  The Board has made good progress on the review of the Tricoya (Hull) plant and continues to believe in the underlying economics associated with completing the construction of Hull and will therefore continue to explore financing options to complete the plant's construction, including strategic partners and lending institutions  

Notes

1Underlying EBITDA is defined as Operating profit/(loss) before Exceptional items and other adjustments, depreciation and amortisation, and includes the Group's attributable share of our USA joint venture's underlying EBITDA. (See note 3 to the financial statements).

2 Underlying profit before tax is defined as profit before tax and exceptionals and other adjustments

· Exceptional non-cash item of €86m in relation to Hull impairment and restructure of the Tricoya consortium

· Net debt increased by €16.9m in the year to €44.1m due to the planned investment into Accoya USA (€29m), capex investments of €29.8m into the Arnhem reactor 4 and Tricoya Hull projects (partially offset by a placing in May 2022 which raised net proceeds of approximately €19m), the reduction in the NatWest loan (€9.4m) and EBITDA generation during the year. The Company's net debt to EBITDA ratio has improved significantly on the prior year, now 1.9x (FY22: 2.6x)

· Outlook: The Group has made a good start to FY24, with performance in line with the Board's expectations

Stephen Odell, Executive Chair of Accsys, commented:

"Overall, I am pleased with our performance in FY23. Demand for Accoya and Tricoya has been strong throughout the year as our customers continue to seek products that deliver outstanding performance, durability and sustainability. This has enabled us to substantially offset the wider market pressures from raw materials costs and supply chain disruption through price increases. 

"The year has not been without its challenges, however. In November we announced that while we had taken 100% control of the world-first Tricoya project in Hull, we also put the project into a hold period to assess future capability and funding options. The Board has made good progress on its review, details of which are given in this statement. In addition, while we have made good progress with our USA JV with Eastman, as previously communicated, construction of the plant at Kingsport has seen some delays and cost inflation. Both Accsys and Eastman remain fully committed to delivering the project, which will replicate the proven technology of our successful plant in Arnhem.

"In the coming year we expect to leverage the benefits from greater economies of scale associated with higher production volumes at our plants. FY24 will be a year during which we will implement actions to ensure the future sustainable growth of the business and to drive value creation for our shareholders. These actions include moving towards completion of the Kingsport plant, which will incur higher costs this year as we invest in people and infrastructure in readiness for start-up and making key investments in the core business to support higher volume production. In view of our increased capacity from the expansion of Arnhem and future capacity from Kingsport, and in light of some softening of price and demand in the global construction industry, we are dedicating more resource to our sales and marketing activity globally, particularly in the US, to prepare for a greater level of supply as this project comes online.

"We have made a good start to FY24, with performance in line with our expectations. With our new executive management team in place to drive the business forward in its next phase of growth, we are confident in delivering further financial and operational progress in the coming year, and in the longer-term demand and growth opportunity for Accoya and Tricoya."

Enquiries:

Investor Relations / Analysts: Katharine Rycroft, Accsys Technologies PLC ir@accsysplc.com

Media: Matthew O'Keeffe, Alex Le May, FTI Consulting (UK) +44 (0) 20 3727 1340

Media:  Clemens Sassen, Tessa Nelissen, Huijskens Sassen Communications (NL) +31 (0) 20 68 55 955

Numis Securities (London):  Oliver Hardy (NOMAD), Ben Stoop +44 (0) 20 7260 1000

Investec Bank plc (London): Carlton Nelson, Alex Wright +44 (0) 20 7597 5970

ABN Amro (Amsterdam):  Richard van Etten, Dennis van Helmond +31 20 344 2000

There will be a presentation relating to these results at 10.00am UK time on 27 June 2023. 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/mqfoer93

Phone Participants: for those participants who would like to ask a question live over the phone lines, please register on the following link. You will then be sent a confirmation email with a link to dial-in numbers.

https://register.vevent.com/register/BIb99297a25009481989b9e00d77c9da3f

Accsys Technologies PLC

Executive Chair's Report

Introduction

Accsys has made significant progress in the 2023 financial year as it moves forward with its ambitious plans for growth, despite particularly challenging macro-economic conditions, which include the ongoing war in Ukraine, an energy crisis, rising inflation, supply chain disruption and the pressing need to address climate change. The resilience of our business against this difficult backdrop is testament to the attractiveness of our products, the strength of our business model and the talent and the commitment of our people. 

Overview of the year 

The successful completion and startup of reactor 4 in Arnhem, together with reactors 1-3 returning to production after the plant's shutdown in April and May 2022, has led to 6% growth in volumes this year, and our highest ever volume production in Q4. Demand for our Accoya and Tricoya wood has been strong (and in excess of our capacity) as customers continue to seek products that deliver outstanding performance, durability and sustainability. 

The Company delivered very strong revenue growth for the year, underpinned by strong product demand and increases in average sales prices, despite the production outages linked to the completion of reactor 4 highlighted above. Underlying EBITDA more than doubled year on year, ahead of our original expectations, reflecting the increased average sales prices and an energy price surcharge mechanism which have successfully offset raw material cost increases, including the impact of volatile and elevated acetyl and energy prices in Europe. The core Accoya business is trading well, has momentum and is cash generative after a period of investment made to get reactors 1-4 installed and operating well.

The year has not been without its challenges. In November we announced that while we had taken 100% control of the world-first Tricoya project in Hull, we also put the project into a hold period to assess future capability and funding options. While further work is required to prove the working capabilities of the plant, we have made good progress on this review over the past six months. We have also been assessing the cost to complete the project, developing extensive and detailed work packages in order to do so. This work stream has confirmed our original assessment of the costs to complete the project as up to €35m.

Over the period, we have also continued to sell Accoya to our off-take partners, MEDITE and FINSA, both of which convert Accoya wood into Tricoya and help seed the market. We continue to see good levels of market demand for the product, which reaffirms our view of the long-term market potential for Tricoya. Ongoing discussions with both partners about future arrangements following completion of the plant remain positive. 

We have also been in discussions with certain strategic partners with a view to providing appropriate funding necessary to complete the Hull plant's construction. To date, the Company has been unable to reach acceptable terms with any of these strategic partners. 

In view of the strong market dynamics underpinning Tricoya, the Board of Accsys continues to believe in the underlying attractive economics and margins associated with completing the construction of Hull and therefore will continue to explore funding options to support the plant's construction, including strategic partners and lending institutions. Absent the availability of third-party funding, the Company will use modest levels of internally generated cash to maintain the plant and progress certain pre-construction works. The Board will continue to engage with stakeholders in respect of Hull and its future prospects. Despite its belief in the future potential for Tricoya, the Board is clear that the base Accsys business must not be compromised to find a solution for Hull. In the meantime, we will continue to work with our partners to further develop the Tricoya market using Accoya, including exploring the expansion of dedicated capacity for greater volume production within our existing facilities.

We have made good progress with our Accoya USA JV with Eastman. However, as previously communicated, the project has experienced some delays and cost inflation. Both Accsys and Eastman remain fully committed to delivering the project, which will replicate the proven technology of our successful plant in Arnhem.

FY23 has been another important year for customer relationships, during which we have had to manage inflationary cost increases through higher prices, ongoing disruption to supply chains post the COVID-19 pandemic and our own production capacity limit in the face of strong customer demand. We are grateful to our customers for their continued support and have engaged in regular dialogue with them as we navigate these challenging market conditions.

During the year Accoya's high level of performance and sustainability was recognised in various prestigious global industry awards. Accolades include the EmiratesGBC 'Green Building Product of the year' and the 'Best of Products' award from The Architect's Newspaper, USA for Accoya Color Grey. We have been delighted to see Accoya installed and specified on some flagship architectural projects from London to Rome to the Red Sea, including Google, where Accoya has been specified on its new HQ 'landscraper' building in Kings Cross, London.

Summary of financial performance

Accsys delivered revenues of €162.0m, a 34% increase on the FY22, reflecting continuing strong demand for our products, higher average sale prices and the implementation of an Energy Price Premium to mitigate higher gas prices.

Underlying EBITDA was €22.9m, an increase of 120% on the prior year, and ahead of our previous market guidance of nearly doubling last year's EBITDA of €10.4m.

Group gross margin increased by 4% to 34%, aided by the higher average sales prices outlined above. Underlying profit before tax increased by €9.7m to €11.0m. Statutory loss before tax was €67.1m.

Net debt increased by €16.9m in the year to €44.1m due to the planned investment into Accoya USA (€29m), capex investments of €29.8m into the Arnhem reactor 4 and Tricoya Hull projects (partially offset by a placing in May 2022 which raised net proceeds of approximately €19.0m), the reduction in the NatWest loan (€9.4m) and EBITDA generation during the year. 

Strategic update

Accoya

During the period we were pleased to complete the expansion of our plant in Arnhem which adds a new 20,000 cubic metres reactor, enabling the site's maximum annual capacity to increase to 80,000 cubic metres.

As previously reported, we experienced some unexpected delays in the final installation, tie-ins and supply of certain equipment for reactor 4, which resulted in an unexpected second shutdown across the plant in April and May 2022. In addition, during the commissioning and testing period in June 2022, we identified a number of defects to equipment which were repaired over the following eight weeks.

As a result, reactor 4 commenced commercial operation in September 2022. Further work on optimising reactor 4 - to reduce cycle times and deliver more capacity - is planned for the coming year. In addition, investment in new stacking technology is ongoing which will provide efficiency improvements across the plant's work centres.

North America represents the largest potential regional market for our product. Under our joint venture with Eastman, a world leader in the production of acetyls, we are building an Accoya plant in the USA with an initial approximate 43,000 cubic metres capacity at Eastman's Kingsport, Tennessee site. Under the joint venture, Accsys holds a 60% interest and Eastman a 40% interest.

We have made good progress with the construction of the plant, which commenced in April 2022. Key milestones include the completion of ground works, ongoing steelwork and main warehouse construction, installation of the reactors on site, placement of multiple large sub-contracts and procurement of more than 80% of major equipment. As we move towards completion of the plant, we will increase our investment in people and infrastructure in readiness of start-up and as a result, the project will incur higher costs in the coming year. As announced in May, the project has experienced some delays and cost inflation, which is being experienced throughout the construction industry. Both joint venture partners continue to be fully engaged in delivering this strategically important project, which will replicate the proven technology of our successful plant in Arnhem. In line with our group commitment to Health & Safety, this has been established as a key priority at the site and by the 2023-year end we were able to celebrate over 150,000 hours worked with only one minor first aid injury. 

Our 50,000 square foot Accoya Color manufacturing plant in Barry, Wales, has increased our ability to convert Accoya wood into Accoya Color - a product which combines the benefits of Accoya wood with colour all the way through the wood from surface to core. The site has a maximum capacity of 12,500 cubic metres per annum. During the year we made operational improvements to the site which have enabled us to increase production by 140% to 4,010 cubic metres. More importantly, this will allow us to further increase future production in FY24 and to support growing customer demand.

Accoya Color's unique proposition is proving to be very attractive to customers in our target markets, particularly in the decking category where the surface-to-core grey colour requires less maintenance to retain over the long term. In addition to the product's existing markets of Germany, Switzerland, Austria and the US, Accoya Color was launched this year into the new markets of Australia, New Zealand and France.

Accoya Color generates a higher gross profit per cubic metre than Accoya and will enhance our product margins over time. As we increase our Accoya production capacity, we continue to expect increased Accoya Color sales in the medium term. 

At the end of FY23, Accsys launched a new UK national advertising campaign, "Lasts a Lifetime", highlighting the high performance of Accoya wood to homeowners. The campaign launched with a commercial on Sky TV targeting a subset of the homeowner market audience, supported by digital advertisements running through the European spring months.

Tricoya

Accsys and its former consortium partners in Tricoya UK Limited (TUK) have been building the world's first Tricoya plant in Hull. In November 2022 Accsys agreed with its partners - Ineos, MEDITE, BGF and Volantis - to acquire 100% ownership of the plant and the Tricoya group entities (Tricoya Technologies Limited and TUK), in exchange for 11.9m new shares in Accsys, representing 5.74% of its issued share capital at that date. Ineos and MEDITE remain commercial partners with Accsys, retaining their respective acetyls supply and acetylated wood chip off-take agreements. The reorganisation gives Accsys the option to take the Tricoya Hull Project forward on its own terms and to benefit from 100% of the long-term returns from Tricoya, including any future licencing in respect of the global Tricoya market opportunity.

At the same time, the Company announced the restructuring of the debt arrangements between TUK and NatWest, resulting in the principal debt being reduced by €9.4m to €6.0m with a new seven-year term, and no capital repayments during this period.

The Company stopped site activity in November, placing the project into a hold period to mitigate the risk of weaker economics on start-up (due to the high and volatile acetyls raw material prices in Europe) and to allow the Board time to assess the economics and capability of the plant and its potential returns on investment.

While further work is required to prove the working capabilities of the plant, we have made significant and positive progress on this review over the past six months. Please see further details on progress with the Board's review in the Executive Chair's Report.

Building organisational capability

We are making good progress in developing our people and organisational capabilities to manage growth. Post the year end, the Company boosted its expertise in the areas of large capital project management, cost management and financial forecasting through the appointments of Dr. Jelena Arsic van Os as CEO and Steven Salo as CFO, both of whom have significant experience in these areas. As we increase our manufacturing output, we are strongly focused on strengthening our manufacturing expertise and leadership. Key senior management appointments during the year include a Group Manufacturing and Projects Director, a newly created role which will support Accsys as we expand our operations and develop our global reach. Management has also been strengthened by the appointments of new Managing Directors of Tricoya UK and Accoya Color.

We rely on the skills, experience and commitment of our people to meet our business goals and to that end, are committed to investing in their careers. During the year we increased the number of training and development opportunities for our colleagues around the group, providing 8,579 total training hours in FY23, representing 32.5 training hours per colleague. This year's performance is an increase of 526 hours on the prior year and 4,619 hours since FY21. Together with new leadership training programmes and talent mapping, this is an ongoing process to ensure we have the right skills and talent in place to grow our business effectively.

Innovation & Technology 

We conduct regular strategic reviews of our engineering and technology capabilities and other actions to drive improved delivery of capital and innovation projects. This has led to the creation in FY22 of a Global Engineering Centre and Project Management Office, and further development of our R&D function. During the year we increased our skills and talent in key areas including project and portfolio management in addition to engineering, wood (modification) science and analytical capabilities.

Our R&D team is focused on both process and product innovation which impact the short, medium and long-term future of the business. With production capacity recently expanded in Arnhem, process optimisation and reliability remain core areas of focus. Our R&D team works closely with our Sales & Marketing teams to understand evolving consumer needs and to assess where innovation can meet those needs.

To build resilience and mitigate risk in our supply chain our R&D and Supply Chain teams have been exploring alternative wood species to Radiata pine. The properties of Radiata pine from certain regions make it well suited to our proprietary acetylation process. It is also fast growing and available from certified sources, making it a sustainable choice. However, we want to broaden our wood supply, both in terms of species and source location to de-risk our operations as we grow.

This year we were pleased to see positive results from long-term trials of Accoya made from fast growing Taeda pine from Argentina and Uruguay with ideal growing conditions and forestry practices and mills that can meet our requirements. For example, Accoya cladding made from Taeda has been used to clad the Starbucks building in Wakefield, UK. Installed in 2020, it has shown the same durability and performance as Radiata pine. Being able to source Taeda from South America also makes it an ideal option for supply to the Kingsport, Tennessee plant. Over the coming year we will be continuing this work with the view to beginning official commercial production of Accoya with Taeda.

Intellectual Property

Accsys continues to invest in developing and protecting its valuable portfolio of intellectual property and confidential information. Our technology covers not only the physical equipment and engineering that underpins our manufacturing and production, but also the processes and methodology we follow in our supply and production chain: from the way we source our wood, through our wood modification process, to the way we market and sell Accoya and Tricoya. 

Accsys' holds c.388 patent family members covering 28 distinct inventions in 45 countries with 75% of the patent family members now granted. The core technologies associated with our current and future plants for the production of Accoya and Tricoya wood products are protected by using a combination of patenting and branding and trade secrets to maintain our differentiation in the marketplace and interest to potential licencing partners. Our principal trademark portfolio covers our Accoya and Tricoya brands, the Trimarque device and the Accsys company name, protected by registrations in over 60 countries.

ESG

With its stated purpose of 'Changing wood to change the world', Accsys is committed to growing and operating its business in a responsible and sustainable way. Aligned with our values and business strategy, our ESG framework outlines 10 key material issues and impact areas on which we are primarily focused.

Having completed Stage One of our 2020 sustainability strategy roadmap, we are now in Stage Two and are focused on establishing specific development plans, including setting Science Based Targets (SBTs) to reduce our emissions intensity per cubic metre of Accoya produced.

Building on our commitment to transparency, Accsys participated for a second consecutive year in the S&P Global Corporate Sustainability Assessment. Accsys scored 43/100 - an improvement of five points (13%) on the prior year, placing the Company in the top quintile in the 'Paper & Forest Products' industry category.

Through our expanding safety programme which includes increased monitoring, a defined strategy and increasing awareness, we are building a stronger safety culture across the organisation. During the year the Company rolled out a number of dedicated safety learning programmes and initiatives, including a Health & Safety month in February 2023 which gave our colleagues the opportunity to participate in group discussions on safety improvement, training sessions and guest speaker events.

During the year we completed a Board performance evaluation and internal review which complements our three-yearly cycle of external evaluations. The results of the evaluation confirmed the individual and collective commitment and effectiveness of Directors. The evaluation also supports the Board in understanding areas of focus as part of its continuous improvement.

Health & Safety (HSE)

Health & Safety is a top priority for the Board and for Accsys, and the Board-level HSE Committee established in 2022 has helped support the Board's focus on this key area. Accsys has set 'Zero Harm' as a key target for our operations and is committed to developing best practice HSE across the Company.

During FY23 we held regular safety briefings for all colleagues and have issued monthly communications to encourage greater awareness of safety. As awareness around safety grows, we have seen corresponding improvements in key HSE performance metrics. During the year we introduced a digital version of our safety observation card, submissions of which grew from 1,060 in FY22 to 1,316 this year. In addition, we have maintained our momentum in leadership safety tours, holding almost 700 tours over the year. We are pleased to report that our Total Recordable Incidence Rates improved from 5.2 to 3.6 per 200,000 hours worked. Our Lost Time Incident Rate per 200,000 hours worked, however, increased from 0.52 to 0.96 (versus our target 0.5).

Energy & Climate Change

Our approach to Energy & Climate includes a focus on energy efficiency and process optimisation, assessing the carbon impact of our products and integrated climate considerations and activities (e.g. risks and opportunities) across multi-functions across the business.

We are innovating to minimise our environmental impact across our operations, in accordance with our Climate Change Policy, whilst sourcing our raw materials responsibly. In 2023 we established a steering committee at our Arnhem site to focus on carbon intensity reduction per cubic metre of Accoya produced. Additionally, we are using our Scope emissions data to set carbon reduction targets in alignment with the Science Based Targets Initiative (SBTi).

Society & Communities

Accsys has developed a more structured approach to charitable and community support and its environmental impact through tools such as charitable giving and colleague engagement. During the year our colleagues chose three official charity partners to support. In total Accsys pledged total donations of €72,219 towards charitable activities as well as participating in our chosen charities' missions through a number of activities, events and presentations. 

In January we organised a colleague volunteering day with our charity partner Trees4All. Accsys colleagues were invited to join volunteers from across The Netherlands to plant trees in the Groene Woud, NL. The day resulted in around 2,000 trees going into the ground and gave our colleagues the opportunity to give back to the local community and learn about reforestation.

A one-off donation was also approved by our Charities Committee to support the Turkey/Syria Earthquake appeal in support of several colleagues who had relatives and friends in affected areas.

Sustainable & Quality Products

We are committed to a more sustainable world and use abundantly available wood sources, certified as sustainable by the Forest Stewardship Council® (FSC®). Our commitment to responsible sourcing and manufacturing is recognised by leading accreditation bodies. This year we achieved Cradle to Cradle® (C2C) gold certification for Accoya Color Grey, as well as being awarded 'Platinum' level (the highest level) for both 'Material Health' and 'Water Stewardship'. Our core product, Accoya has held C2C certified status since 2010. C2C certified is the global standard for products that are safe, circular, and responsibly made. Accoya wood is one of the very few building products to have acquired C2C certification on the stringent Gold-level. This represents very high standards of sustainability, alongside the recognised high performance and durability credentials of the brand.

Capital Raise

In May 2022 the Company completed a €19m net capital raise from shareholders to support the completion of current capital projects and increase working capital and cashflow headroom. We extend our thanks to shareholders for their continuing support and investment in Accsys.

Board Update

The Board's composition brings depth and a range of experience to Accsys, both supporting and challenging the Executive team in the execution of the Company's strategy. Post the year end there has been considerable change, with Rob Harris, Accsys' Chief Executive Officer, stepping down after three years, and Will Rudge deciding to leave the Company after 12 years as Chief Financial Officer.

Rob Harris is succeeded by Dr Jelena Arsic van Os, who will join the Board as CEO on 1 July 2023, at which point I will return to my prior role as independent Non-Executive Chair of Accsys. Jelena has over 20 years' experience in senior executive leadership roles in large-cap multinational companies and has a proven track record in transforming and driving complex businesses, delivering on profitable growth targets and successfully delivering large capital projects. We are grateful to Rob Harris and wish him success in his future endeavours.

Will Rudge is succeeded by Steven Salo, who joined Accsys on 1 April 2023. Steven brings significant experience in senior financial leadership roles, executing high-value corporate and business development transactions, and driving and shaping businesses for profitable growth. We take this opportunity to thank Will Rudge for staying on to support Accsys and transition his responsibilities to Steven and wish him all the best with the next step in his career.

Post the year end, in May 2023 we announced that as they reach the end of their nine-year terms, Sue Farr and Sean Christie, who chairs the Audit Committee, will step down from the Board at the conclusion of the AGM in September 2023. In addition, due to increases in his executive commitments, Alexander Wessels, who chairs the Company's Remuneration Committee, will also step down from the Board at the upcoming AGM at the end of his current three year term. 

The Board is seeking to appoint two new high-quality and experienced independent Non-Executive Directors, with the intention of one acting as Chair of the Audit Committee, and the second as Chair of the Remuneration Committee. The search for both these roles is well underway and the Company plans to give further updates ahead of the AGM in September.

The Board would like to thank Sue and Sean for their significant contribution to Accsys over the last nine years and for the support and guidance they have given to newer members of the board. The Board also thanks Alexander for his invaluable input to Accsys over the last three years through his experiences as a CEO. We look forward to adding two new high-quality Non-Executive Directors to the Board in due course as we look to deliver on Accsys' significant potential. 

Outlook

In the coming year we expect to leverage the benefits from greater economies of scale associated with higher production volumes at our plants. FY24 will also be a year during which we will implement actions to ensure the future sustainable growth of the business and to drive value creation for our shareholders. These actions include moving towards completion of the Kingsport plant, which will incur higher costs this year as we invest in people and infrastructure in readiness for start-up and making key investments in the core business to support higher volume production. In view of our increased capacity from the expansion of Arnhem and future capacity from Kingsport, and in light of the softening of price and demand in the global construction industry, we are dedicating more resource to our sales and marketing activity globally, particularly in the US, to prepare for a greater level of supply as this project comes online.

We have made a good start to FY24, with performance in line with our expectations. With our new executive management team in place to drive the business forward in its next phase of growth, we are confident in delivering further financial and operational progress in the coming year, and in the longer-term demand and growth opportunity for Accoya and Tricoya.

Stephen Odell

Executive Chair

26 June 2023

Accsys Technologies PLC

Finance Review

Introduction

Accsys has delivered a good performance in the year, with 34% revenue growth and a 120% increase in Underlying EBITDA to €22.9m, driven by increased sales prices and strong ongoing demand for our products.

Net debt increased by €16.9m in the year to €44.1m due to the planned investment into Accoya USA (€29m), capex investments of €29.8m into the Arnhem reactor 4 and Tricoya Hull projects (partially offset by a successful placing in May 2022 which raised net proceeds of approximately €19m), the reduction in the NatWest loan (€9.4m) and EBITDA generation during the year.

In November 2022 Accsys agreed to acquire full ownership of the Tricoya entities, including the Tricoya Hull plant from its consortium partners for a consideration in Accsys shares (valued at €9.5m). At the same time, the debt facility between TUK and NatWest was restructured, resulting in the principal debt being reduced to €6m, with a new seven-year term and no capital repayments during this period.

Following these events, an impairment assessment was required to be performed under IAS 36 (Impairment of Assets) on the Tricoya segment's gross assets with an impairment loss of €86m being recognised as a non-cash exceptional item. The calculated impairment was impacted by:

1) A previously reported increase in the capex to complete the construction of the Tricoya Hull plant of €35m, commencing in 2 years;

2) A higher pre-tax WACC rate (used for the discount rate) increasing by 3.0% to 13.5%, principally due to higher market interest rates; and

3) A decrease in the production volume forecast for the plant to 24,000MT (from 30,000MT).

Statement of comprehensive income

Group revenue increased by 34% to €162.0m for the year (FY22: €120.9m), driven by continuing strong market demand for Accoya and Tricoya and an increase in average sales prices during the year and prior year implemented to address rising raw material costs. An energy price premium (surcharge) was also successfully added to customer sales prices in H1 to offset a significant increase in acetyl costs.

Accoya sales volumes increased 6% to 63,344m3 following the successful commissioning and operation of reactor 4 in September 2022. We have continued to see strong underlying demand for Accoya across our regions and with our Tricoya panel manufacturing partners. The FY23 regional sales trend on a year-on-year basis reflects a 10% increase in sales volumes in North America where we continue to increase marketing, sales, and allocation of product volumes available to customers as we develop this market ahead of our US capacity expansion.

Sales volumes increased by 18% to our Tricoya customers (MEDITE and FINSA) following a drop in allocation in FY22. These sales to MEDITE and FINSA for the manufacture of Tricoya panels are used to develop the market for Tricoya products and represent 24% of Accoya sales volumes (FY22: 22%).

Other Revenue, which predominantly relates to the sale of our acetic acid by-product, increased by 21% to €16.8m (FY22: €13.9m) due to higher acetic acid sales volume following the ramp up of production from reactor 4 in Arnhem. Accsys' sales of its acetic acid by-product back into the same acetyls market continued to act as a partial hedge to the higher acetic anhydride costs. The net acetyls cost increased by 19% compared to the prior year.

Raw wood input costs were moderately higher although more stable than the wider lumber market as we purchase appearance-grade wood under long-term supply contracts with many of our partners.

Cost of sales increased by 26%, on 6% higher sales volumes and higher cost of raw materials, primarily in higher raw wood and acetic anhydride costs.

Group gross profit of €55.2m was 53% higher than the prior year (FY22: €36.0m) and gross profit margin increased 4% to 34%.

Underlying other operating costs (excluding depreciation and amortisation) increased from €25.4m to €31.6m. This is due to Tricoya's ongoing running costs being treated as operating expenditure in the second half following the introduction of Tricoya UK's hold period and increased legal, insurance and staff costs during the year.

Depreciation and amortisation charges increased by €2.1m to €8.3m following commercial production from reactor 4 in September 2022.

Underlying finance expenses increased €0.3m to €3.2m following the interest on Tricoya UK's NatWest facility not being capitalised post the introduction of the hold period for Tricoya UK and a full year of interest cost on the De Engh €10m loan which was entered into March 2022.

An impairment loss (exceptional item) of €86.0m has been recognised in the year relating to the Tricoya segment. The calculated impairment is described in the Introduction and has been recognised as a non-cash exceptional item.

In regard to the Tricoya Consortium reorganisation completed during the year, the following exceptional items have been recognised:

- €1.5m expense for advisory fees incurred;

- €9.4m income related to the restructuring of the NatWest loan, decreasing the principal debt from €15.4m to €6m; and

- €1.4m expense related to the value recovery instrument provided to NatWest, allowing NatWest to recover up to approximately €9.4m, on a contingent basis, depending on the profitability of the Tricoya Hull plant once operational (see note 23).

An exceptional foreign exchange gain of €1.4m was recognised related to US dollars held as cash for investment into Accoya USA, which were invested into the joint venture in the first half. Following the May 2021 capital raise, the amount raised to invest into Accoya USA was translated into US dollars and held in cash, ensuring that foreign exchange movements did not decrease the amount raised below the future US dollar investment into Accoya USA. This treatment did not meet the requirements for hedge accounting under IFRS 9, Financial Instruments, and therefore the foreign exchange gain on the revaluation of the US dollars has been accounted for in Finance Expenses as an Exceptional item.

In the prior year, redundancy costs of €0.1m were recognised in relation to the purchase of assets in Barry, UK and €1.6m early termination costs related to the refinance of the Group debt facilities in October 2021, with both classified as exceptional items.

No other adjustments have been recognised in the current year, which were previously also excluded from underlying results. These other adjustments related to foreign exchange differences on the US dollar cash pledged to ABN Amro for the Letter of Credit provided to First Horizon Bank ('FHB') as part of the Accoya USA funding arrangements and pound sterling loan notes repaid in the October 2021 Group refinance. See note 5 for further details.

Underlying profit before tax increased by €9.7m to €11.0m (FY22: €1.3m). After taking into account exceptional items (including the impairment loss) and other adjustments, loss before tax amounted to €67.1m (FY22 profit: €1.7m).

The tax charge increased by €1.8m to €2.8m (FY22: €1.0m).

Underlying earnings per share increased to €0.05 per share (FY22: €0.01 per share). A statutory loss per share was recognised of €0.19 per share (FY22: profit of €0.01 per share).

Cash flow

Cash flows generated from operating activities before changes in working capital increased by €11.3m to €22.7m (FY22: €11.4m), reflecting continued good operational cash flow generated by our plant in Arnhem.

Inventory levels increased by €9.6m during the year with higher raw material levels held due to the ramp-up of the fourth reactor, which increases production capacity by 33% but which was also partially impacted by the delay in start-up of reactor 4 and the long lead time for raw material purchases from New Zealand. Inventory balances started to decrease in H2 and are expected to continue to decrease further in the next financial year.

In May 2022 Accsys completed a successful placing for an issue of shares in the Company, raising net proceeds of approximately €19.0 million which have been used to strengthen the Group's balance sheet, increase liquidity headroom and provide additional working capital and fund additional costs to complete Arnhem's expansion project.

At 31 March 2023 the Group held cash balances of €26.6m, a €15.5m decrease in the year, attributable to construction costs relating to the Arnhem plant expansion project (€7.9m), Tricoya Hull project (€20.1m), the planned investment into Accoya USA (€29m) and the increase in inventory referred to above. This was partially offset by the placing, €10.0m of proceeds from loans (explained further below), and cash flow generated from operating activities. When adjusting for the cash pledged for the Letter of Credit provided to FHB of $10.0m (see note 30), and in the prior year adjusting for the remaining cash raised in the May 2021 equity raise to be invested into Accoya USA, Adjusted Cash increased during the year to €16.8m (see note 30).

Financial position

Plant and machinery additions of €21.4m (FY22: €41.0m) consisted of the construction of reactor 4 in Arnhem and the Tricoya plant in Hull.

Trade and other receivables increased to €18.1m (FY22: €16.9m), primarily due to higher sales following the ramp up of reactor 4. 

Trade and other payables decreased €4.0m to €25.9m (FY22: €29.9m), with a decrease in accruals following the completion of the Arnhem expansion project and the decrease in activity on the Tricoya plant in Hull.

Amounts payable under loan agreements increased to €65.9m (FY22: €64.0m) due to the drawdown of €5.0m on the ABN Revolving credit facility and €5.0m on the Tricoya NatWest €17.2m facility, capitalisation of interest on the Tricoya NatWest loan before the Tricoya NatWest facility was restructured, decreasing the principal debt from €15.4m to €6.0m.

Net debt increased by €16.9m in the year to €44.1m (FY22: €27.2m) due to capex investments of €29.8m, investment into Accoya USA (€29m) and the increase in inventory partially offset by the successful placing (net proceeds of €19.0m), cash flow generated from operating activities and the restructuring of the Tricoya NatWest facility, decreasing the principal debt on the facility by €9.4m to €6.0m.

Going concern

The 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 assessed the Group's trading forecasts, working capital requirements and covenant compliance for the foreseeable future under a base case scenario, taking into account the Group's financial resources including the current cash position and banking and finance facilities which are currently in place (see note 30 for details of these facilities). The Directors have also assessed a severe but plausible downside scenario with reduced sales volumes and lower gross margin, also reflecting the possible impact of volatile raw material costs.

These forecasts indicate that in order to continue as a going concern the Group is dependent on achieving certain operating performance measures relating to the production and sales of Accoya wood from the plant in Arnhem with the collection of on-going working capital items in line with internally agreed budgets. In both scenarios, the Directors have assumed no commitment will be made to complete the construction and start-up of the Tricoya plant in Hull until appropriate funding arrangements have been put in place.

The Directors' have taken into account the reorganisation of the Tricoya consortium and restructuring of its bank debt completed in November 2022 which resulted in Accsys becoming the 100% owner of the Tricoya Hull plant and the commitment to fund ongoing working capital during the hold period. The Directors' have also considered the possible amount and timing of capital expenditure required to complete the Accoya plant in the USA, noting that notwithstanding that the construction project benefits from certain contractual measures in place with the lead construction contractor, Accsys has committed to fund its 60% share of cost overruns, should they arise.

The Directors believe there are a sufficient number of alternative actions and measures within the control of the Group that can and would be taken in order to ensure on-going liquidity including reducing/deferring costs in some discretionary areas as well as larger capital projects if necessary. The Directors believe that while some uncertainty always inherently remains in achieving the budget, in particular in relation to market conditions outside of the Group's control, under both the base scenario and severe but plausible downside scenario, there is sufficient liquidity and covenant headroom such that there is no material uncertainty with respect to going concern and have prepared the financial statements on this basis.

Steven Salo

Chief Financial Officer

26 June 2023

Accsys Technologies PLC

Consolidated statement of comprehensive income for the year ended 31 March 2023

The notes on form an integral part of these financial statements.

* See note 5 for details of exceptional items and other adjustments.

Accsys Technologies PLC

Consolidated statement of financial position at 31 March 2023

Registered Company 05534340

The financial statements were approved by the Board of Directors on 26 June 2023 and signed on its behalf by

Stephen Odell

Steven Salo Directors

The notes form an integral part of these financial statements.

Accsys Technologies PLC

Consolidated statement of changes in equity for the year ended 31 March 2023

Share capital is the amount subscribed for shares at nominal value (note 25).

Share premium account represents the excess of the amount subscribed for share capital over the nominal value of these shares, net of share issue expenses. Share issue expenses comprise the costs in respect of the issue by the Company of new shares.

See note 26 for details concerning Other reserves.

Non-controlling interests relate to the previous investment of various parties into Tricoya Technologies Limited and Tricoya UK Limited. The Group purchased the remaining shareholding in the Tricoya entities in the year (see notes 27 and 28).

Foreign currency translation reserve arises on the re-translation of the Group's USA subsidiary's net assets which are denominated in a different functional currency, being US dollars.

Accumulated losses represent the cumulative loss of the Group attributable to the owners of the parent.

The notes form an integral part of these financial statements.

Accsys Technologies PLC

Consolidated statement of cash flow for the year ended 31 March 2023

The notes form an integral part of these financial statements.

Accsys Technologies PLC

Notes to the financial statements for the year ended 31 March 2023

1. Accounting Policies

General Information

The financial information set out in these preliminary results does not constitute the company's statutory accounts for the years ended 31 March 2023 or 31 March 2022. Statutory accounts for the year ended 31 March 2022 have been filed with the Registrar of Companies and those for the year ended 31 March 2023 will be delivered to the Registrar in due course; both have been reported on by the auditors. The auditors' report on the Annual Report and Financial Statements for the year ended 31 March 2022 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. The auditors' report on the Annual Report and Financial Statements for the year ended 31 March 2023 is unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

Basis of accounting

The Group's financial statements have been prepared under the historical cost convention (except for certain financial instruments and equity investments which are measured at fair value), in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. In addition, the financial statements are also prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and the Dutch Financial Markets Supervision Act.

Going Concern

These 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 assessed the Group's trading forecasts, working capital requirements and covenant compliance for the foreseeable future under a base case scenario, taking into account the Group's financial resources including the current cash position and banking and finance facilities which are currently in place (see note 30 for details of these facilities). The Directors have also assessed a severe but plausible downside scenario with reduced sales volumes and lower gross margin, also reflecting the possible impact of volatile raw material costs.

These forecasts indicate that, in order to continue as a going concern, the Group is dependent on achieving certain operating performance measures relating to the production and sales of Accoya® wood from the plant in Arnhem with the collection of on-going working capital items in line with internally agreed budgets. In both scenarios, the Directors have assumed no commitment will be made to complete the construction and start-up of the Tricoya® plant in Hull until appropriate funding arrangements have been put in place.

The Directors' have taken into account the reorganisation of the Tricoya consortium and restructuring of its bank debt completed in November 2022 which resulted in Accsys becoming the 100% owner of the Tricoya® Hull plant and the commitment to fund ongoing working capital during the hold period. The Directors' have also considered the possible amount and timing of capital expenditure required to complete the Accoya® plant in the USA, noting that notwithstanding that the construction project benefits from certain contractual measures in place with the lead construction contractor, Accsys has committed to fund its 60% share of cost overruns, should they arise.

The Directors believe there are a sufficient number of alternative actions and measures within the control of the Group that can and would be taken in order to ensure on-going liquidity including reducing/deferring costs in some discretionary areas as well as larger capital projects if necessary. The Directors believe that while some uncertainty always inherently remains in achieving the budget, in particular in relation to market conditions outside of the Group's control, under both the base scenario and severe but plausible downside scenario, there is sufficient liquidity and covenant headroom such that there is no material uncertainty with respect to going concern and have prepared the financial statements on this basis.

Exceptional Items

Exceptional items are events or transactions that fall outside the ordinary activities of the Group and which by virtue of their size or incidence, have been separately disclosed in order to improve a reader's understanding of the financial statements. These include items relating to the restructuring of a significant part of the Group, impairment losses (or the reversal of previously recorded exceptional impairments), expenditure relating to the integration and implementation of significant acquisitions and other one-off events or transactions, such as re-financing of Group borrowings. See note 5 for details of exceptional items.

Business combinations

Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Group as if they formed a single entity. Inter-company transactions and balances between Group companies are therefore eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated statement of financial position, the acquirer's identifiable assets, liabilities, and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained.

As allowed under IFRS 1, some business combinations effected prior to transition to IFRS, were accounted for using the merger method of accounting. Under this method, assets and liabilities are included in the consolidation at their book values, not fair values, and any differences between the cost of investment and net assets acquired were taken to the merger reserve. The majority of the merger reserve arose from a corporate restructuring in the year ended 31 March 2006 which introduced Accsys Technologies PLC as the new holding Company.

The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling

interests and any consideration paid or received is recognised within equity attributable to Accsys Technologies PLC.

When the Group ceases to consolidate or equity account for an investment because of a loss of control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss.

Revenue from contracts with customers

Revenue is measured at the fair value of the consideration receivable. Revenue is recognised to the extent that it is highly probable that a significant reversal will not occur based on the consideration in the contract. The following specific recognition criteria must also be met before revenue is recognised.

Manufacturing revenue

Revenue is recognised from the sale of goods at a point in time and is measured at the amount of the transaction price received in exchange for transferring goods. The transaction price is the expected consideration to be received, to the extent that it is highly probable that there will not be a significant reversal of revenue in the future. Revenue is recognised when the Group's performance obligations under the relevant customer contract have been satisfied. Manufacturing revenue includes the sale of Accoya wood, Tricoya panels and other revenue, principally relating to the sale of acetic acid.

Licensing fees

Licence fees are recognised over the period of the relevant agreements according to the specific terms of each agreement or the quantities and/or values of the licensed product sold. The accounting policy for the recognition of licence fees is based upon satisfaction of the performance obligations set out in the contract such as an assessment of the work required before the licence is signed and subsequently during the design, construction and commissioning of the licensees' plant, with an appropriate proportion of the fee recognised upon signing and the balance recognised as the project progresses to completion. The amount of any cash received but not recognised as income is included in the financial statements as deferred income and shown as a liability.

Finance income

Interest accrues using the effective interest method, i.e. the rate that discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.

Finance expenses and borrowing costs

Finance expenses include the fees, interest and other finance charges associated with the Group's loan notes, credit facilities and leases, which are expensed over the period that the Group has access to the loans, facilities and leases.

Foreign exchange gains or losses on the loan notes are included within finance expenses.

Interest on borrowings directly relating to the construction or production of qualifying assets are capitalised until such time as the assets are substantially ready for their intended use or sale. Where funds have been borrowed specifically to finance a project, the amount capitalised represents the actual borrowing costs incurred. Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings of the Group during the construction period. The capitalisation of borrowing costs is suspended during extended periods in which it suspends active development of a qualifying asset.

Share based payments

The Company awards nil cost options to acquire ordinary shares in the capital of the Company to certain Directors and employees. The Company has also previously awarded bonuses to certain employees in the form of the award of deferred shares of the Company.

In addition the Company has established an Employee Share Participation Plan under which employees subscribe for new shares which are held by a trust for the benefit of the subscribing employees. The shares are released to employees after one year, together with an additional, matching share on a 1 for 1 basis.

The fair value of options and deferred shares granted are recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and is charged to the consolidated statement of comprehensive income over the vesting period during which the employees become unconditionally entitled to the options or shares.

The fair value of share options granted is measured using a modified Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest only where vesting is dependent upon the satisfaction of service and non-market vesting conditions.

Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options which eventually vest. Market vesting conditions are factored into the fair value of the options granted. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Dividends

Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by the shareholders at an annual general meeting.

Pensions

The Group contributes to certain defined contribution pension and employee benefit schemes on behalf of its employees. These costs are charged to the consolidated statement of comprehensive income on an accruals basis.

Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date together with any adjustment to tax payable in respect of previous years. Current tax includes the expected impact of claims submitted by the Group to tax authorities in respect of enhanced tax relief for expenditure on research and development.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for:

· the initial recognition of goodwill;

· the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination;

· differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. Recognition of deferred tax assets is restricted to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

Foreign currencies

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (the functional currency). For the purposes of the consolidated financial statements, the results and financial position of each Group company are expressed in Euro, which is the functional currency of the parent Company, and the presentation currency of the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currencies are recognised at the rates of exchange prevailing on the date of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in profit or loss in the period in which they arise.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average monthly exchange rates prevailing in the month in which the transaction took place. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in the foreign currency translation reserve. Such translation differences are reclassified to profit and loss only on disposal or partial disposal of the overseas operation.

Foreign exchange hedging

The Group has adopted IFRS 9 hedge accounting in respect of the cash flow hedging instruments that it uses to manage the risk of foreign exchange movements impacting on future cash flows and profitability.

The Group has prospectively assessed the effectiveness of its cash flow hedging using the 'hedge ratio' of quantities of cash held in the same currency as future foreign exchange cash flow quantities related to committed investment in plant and equipment. The Group has undertaken a qualitative analysis to confirm that an 'economic relationship' exists between the hedging instrument and the hedged item. It is also satisfied that credit risk will not dominate the value changes that result from that economic relationship.

At the end of each reporting period the Group measures the effectiveness of its cash flow hedging and recognises the effective cash flow hedge results in Other Comprehensive Income and the Hedging Effectiveness Reserve within Equity, together with its ineffective hedge results in Profit and Loss. Amounts are reclassified from the Hedging Effectiveness Reserve to property, plant and equipment once construction has been completed or Profit and Loss when the associated hedged transaction affects Profit and Loss. Further details are included in note 5.

Government grants

Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with the attached conditions. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset they are credited to a deferred income account and released to the statement of comprehensive income over the expected useful life of the relevant asset on a straight line basis.

Goodwill

Goodwill arising on the acquisition of a subsidiary undertaking is the difference between the fair value of the consideration paid and the fair value of the identifiable assets and liabilities acquired. It is capitalised, and is subject to annual impairment reviews by the Directors. Any impairment arising is charged to the consolidated statement of comprehensive income. Where the fair value of the identifiable assets and liabilities acquired is greater than the fair value of consideration paid, the resulting amount is treated as a gain on a bargain purchase and is recognised in the consolidated statement of comprehensive income.

Joint venture

The Group has entered into a joint venture agreement with Eastman Chemical Company, forming Accoya USA LLC. The Group applies IFRS 11 for this joint arrangement, and following assessment of the nature of this joint arrangement, has determined it to be a joint venture. Interest in the joint venture is accounted for using the equity method, after initially being recognised at cost.

Further details concerning the Accoya USA LLC joint venture with Eastman Chemical Company are included in note 29.

Other intangible assets

Intellectual property rights, including patents, which cover a portfolio of novel processes and products, are shown in the financial statements at cost less accumulated amortisation and any amounts by which the carrying value is assessed during an annual review to have been impaired. At present, the useful economic life of the intellectual property is considered to be 20 years. 

Internal development costs are incurred as part of the Group's activities including new processes, process improvements, identifying new species and improving the Group's existing products. Research costs are expensed as incurred. Development costs are capitalised when all of the criteria set out in IAS 38 'Intangible Assets' (including criteria concerning technical feasibility, ability and intention to use or sell, ability to generate future economic benefits, ability to complete the development and ability to reliably measure the expenditure) have been met. These internal development costs are amortised on a straight line basis over their useful economic life, between 8 and 20 years.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment charged. Cost includes the original purchase price of the asset as well as costs of bringing the asset to the working condition and location of its intended use. The capitalisation of costs is suspended during extended periods in which it suspends active development of a qualifying asset. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset, except freehold land, over its expected useful life on a straight line basis, as follows:

Plant and machinery These assets comprise pilot plants and production facilities. These facilities are depreciated from the date they become available for use over their useful lives of between 5 and 20 years

Office equipment Useful life of between 3 and 5 years

Leased land and buildings Land held under a finance lease is depreciated over the life of the lease

Freehold land Freehold land is not depreciated

Impairment of non-financial assets

The carrying amount of non-current non-financial assets of the Group is compared to the recoverable amount of the assets whenever events or changes in circumstances indicate that the net book value may not be recoverable, or in the case of goodwill, annually. The recoverable amount is the higher of value in use and the fair value less cost to sell. In assessing the value in use, the expected future cash flows from the assets are determined by applying a discount rate to the anticipated pre-tax future cash flows. An impairment charge is recognised in the consolidated statement of comprehensive income to the extent that the carrying amount exceeds the assets' recoverable amount. The revised carrying amounts are amortised or depreciated in line with Group accounting policies. A previously recognised impairment loss, other than on goodwill, is reversed if the recoverable amount increases as a result of a reversal of the conditions that originally resulted in the impairment. This reversal is recognised in the consolidated statement of comprehensive income and is limited to the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised in prior years. Assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units) for purposes of assessing impairment. 

Leases

To the extent that a right-of-control exists over an asset subject to a lease, a right-of-use asset, representing the Group's right to use the underlying leased asset, and a lease liability, representing the Group's obligation to make lease payments, are recognised in the consolidated statement of financial position at the commencement of the lease.

The right-of-use asset is measured initially at cost and includes the amount of initial measurement of the lease liability, any initial direct costs incurred, including advance lease payments, and an estimate of the dismantling, removal and restoration costs required in terms of the lease. Depreciation is charged to the consolidated income statement so as to depreciate the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The lease term shall include the period of an extension option where it is reasonably certain that the option will be exercised. Where the lease contains a purchase option the asset is written off over the useful life of the asset when it is reasonably certain that the purchase option will be exercised.

The lease liability is measured at the present value of the future lease payments, including variable lease payments that depend on an index and the exercise price of purchase options where it is reasonably certain that the option will be exercised, discounted using the interest rate implicit in the lease, if readily determinable. If the implicit interest rate cannot be readily determined, the lessee's incremental borrowing rate is used. Finance charges are recognised in the consolidated statement of comprehensive income over the period of the lease.

Lease expenses for leases with a duration of one year or less and low-value assets are not recognised in the consolidated statement of financial position, and are charged to the consolidated income statement when incurred. Low-value assets are determined based on quantitative criteria.

The Group has used the following practical expedients permitted by the standard:

- The use of a single discount rate to a portfolio of leases with reasonably similar characteristics

- Reliance on previous assessments on whether leases are onerous

- The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

Inventories

Raw materials, which consist of unprocessed timber and chemicals used in manufacturing operations, are valued at the lower of cost and net realisable value. The basis on which cost is derived is a first-in, first-out basis.

Finished goods, comprising processed timber, are stated at the lower of weighted average cost of production or net realisable value. Costs include direct materials, direct labour costs and production overheads (excluding the depreciation/depletion of relevant property and plant and equipment) absorbed at an appropriate level of capacity utilisation. Net realisable value represents the estimated selling price less all expected costs to completion and costs to be incurred in selling and distribution.

Fair value measurement

Assets and liabilities that are measured at fair value, or where the fair value of financial instruments has been disclosed in notes to the

financial statements, are based on the following fair value measurement hierarchy:

- level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

- level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and

- level 3 - inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

Specific valuation methodologies used to value financial instruments include:

- the fair values of foreign exchange contracts are calculated as the present value of expected future cash flows based on observable yield curves and exchange rates; and

- other techniques, including discounted cash flow analysis, are used to determine the fair values of other financial instruments

Financial assets

Financial assets and financial liabilities are recognised in the Group's consolidated statement of financial position when the Group becomes party to the contractual provisions of the instrument.

Financial assets are initially measured at fair value and in the case of investments not at fair value through profit or loss, fair value plus directly attributable transaction costs.

Except where a reliable fair value cannot be obtained, unlisted shares held by the Group are classified as fair value through other comprehensive income and are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in other comprehensive income, with dividends recognised in profit or loss. Where it is not possible to obtain a reliable fair value, these investments are held at cost less provision for impairment.

Loans and receivables, which comprise non-derivative financial assets with fixed and determinable payments that are not quoted on an active market, are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Trade and other receivables

Trade receivables are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest rate method, less allowance for impairments. The Group has elected to apply the IFRS 9 practical expedient option to measure the value of its trade receivables at transaction price, as they do not contain a significant financing element. The Group applies IFRS 9's 'simplified' approach that requires companies to recognise the lifetime expected losses on its trade receivables. At the date of initial recognition, the credit losses expected to arise over the lifetime of a trade receivable are recognised as an impairment and are adjusted, over the lifetime of the receivable, to reflect objective evidence reflecting whether the Group will not be able to collect its debts.

Cash and cash equivalents

Cash and cash equivalents in the consolidated statement of financial position comprise cash at bank and in hand and short-term deposits, including liquidity funds, with an original maturity of three months or less. For the purpose of the statement of consolidated cash flow, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Cash and cash equivalents includes cash pledged to ABN Amro as collateral for the $20million Letter of credit provided to FHB. See note 30.

Financial liabilities

Other financial liabilities

Trade payables and other financial liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Loans and other borrowings are initially recognised at the fair value of amounts received net of transaction costs and subsequently measured at amortised cost using the effective interest method.

Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any noncash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs.

Financial guarantee contracts

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued.

The liability is initially measured at fair value, which is determined based on the present value of the difference in cash flows between the contractual payments required under the FHB borrowing (provided to the Company's joint venture - Accoya USA) and the payments that are estimated to be required without the guarantee being provided by Accsys to FHB. To calculate the fair value of the guarantee, the present value calculation is then weighted by the probability of the guarantee being called by FHB.

Where guarantees in relation to loans or other payables of associates are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.

Share capital

Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group's shares are classified as equity instruments.

Segmental Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Executive Officer. The Chief Executive Officer is responsible for allocating resources and assessing performance of the operating segments and has been identified as steering the committee that makes strategic decisions.

Alternative Performance Measures

The Group presents certain measures of financial performance, position or cash flows in the Annual Report and financial statements that are not defined or specified according to IFRS (International financial reporting standards). These measures, referred to as Alternative Performance Measures (APMs), are prepared on a consistent basis for all periods presented in this report.

The most significant APMs are:

Net debt

A measure comprising short term and long-term borrowings (including lease obligations) less cash and cash equivalents. Net debt provides a measure of the Group's net indebtedness or overall leverage.

Underlying EBITDA

Operating profit/(loss) before Exceptional items and other adjustments, depreciation and amortisation and includes the Group's attributable share of our USA joint venture's underlying EBITDA. Underlying EBITDA provides a measure of the cash-generating ability of the business that is comparable from year to year.

Underlying EBIT

Operating profit/(loss) before Exceptional items and other adjustments and includes the Group's attributable share of our USA joint venture's underlying EBIT. Underlying EBIT provides a measure of the operating performance that is comparable from year to year.

Net Debt / Underlying EBITDA

Net debt divided by trailing 12-month underlying EBITDA. A measure of the Group's net indebtedness relative to its cash-generating ability.

Accoya Manufacturing margin

Accoya segmental underlying gross profit excluding Accoya underlying licence revenue and marketing services expressed as a percentage over Accoya segmental total revenue excluding Accoya underlying licence revenue and marketing services. Accoya Manufacturing margin provides a measure of the profitability of the Accoya operations relative to revenue.

Adjusted Cash

Cash & cash equivalents less restricted cash and cash raised through an equity raise to be invested into Accoya USA Joint Venture. See note 30.

2. Accounting judgements and estimates

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Accounting estimates

Goodwill

The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated above. The recoverable amounts of cash-generating units have been determined based on value in use calculations. These calculations require the use of judgements in relation to discount rates and future forecasts (See note 15 & 16). The recoverability of these balances is dependent upon the level of future licence fees and manufacturing revenues. While the scope and timing of the production facilities to be built under the Group's existing and future agreements remains uncertain, the Directors remain confident that revenue from own manufacturing, existing licensees, new licence or consortium agreements will be generated, demonstrating the recoverability of these balances.

Intellectual property rights (IPR) and property, plant and equipment

The Group tests the carrying amount of the intellectual property rights and property, plant and equipment whenever events or changes in circumstances indicate that the net book value may not be recoverable. These calculations require the use of estimates in respect of future cash flows from the assets by applying a discount rate to the anticipated pre-tax future cash flows. Within this process, the Group makes a number of key assumptions including operating margins, production volumes, discount rates, terminal growth rates and forecast cash flows. Additional information is disclosed in note 15 & 16, which highlights the estimates applied in the value-in-use calculations for those CGUs that are considered most susceptible to changes in key assumptions and the sensitivity of these estimates. The Group also reviews the estimated useful lives at the end of each annual reporting period (See note 15 & 16). The price of Accoya® wood and the raw materials and other inputs vary according to market conditions outside of the Group's control. Should the price of the raw materials increase greater than the sales price or in a way which no longer makes Accoya® competitive, then the carrying value of the property, plant and equipment or IPR may be in doubt and become impaired. The Directors consider that the current market and best estimates of future prices mean that this risk is limited.

Valuation of value recovery instrument ("VRI")

These calculations require the use of estimates in respect of future cash flows and by applying a discount rate to the anticipated future cash flows. The same future cashflows modelled in Property, plant and equipment testing are used for this calculation. Additional information is disclosed in note 16 & 23.

Accounting judgements

In preparing the Consolidated Financial Statements, management has to make judgments on how to apply the Group's accounting policies and make estimates about the future. The critical judgements that have been made in arriving at the amounts recognised in the Consolidated Financial Statements and the key sources of uncertainty that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities in the next financial year are discussed below:

Financial asset at fair value through profit or loss

The Group has an investment in listed equity shares carried at nil fair value as a reliable fair value cannot be obtained since there is no active market for the shares and there is currently uncertainty around the future funding of the business. The Group makes appropriate enquiries and considers all of the information available to it in order to determine the fair value (See note 18).

New standards and interpretations in issue at the date of authorisation of these financial statements:

New standards, amendments and interpretations

The following amendments to Standards and a new Interpretation have been adopted for the financial year beginning on 1 April 2022:

• Onerous Contracts - Cost of Fulfilling a Contract - Amendments to IAS 37;

• Annual Improvements to IFRS Standards 2018-2020;

· Reference to the Conceptual Framework - Amendments to IFRS 3;

· Deferred Tax related to Assets and Liabilities arising from a Single Transaction - amendments to

IAS 12; and

• Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2.

The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.

New standards, amendments and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 31 March 2023 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

3. 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. Revenue also includes sales of lower visual grade Accoya to Tricoya customers for the purposes of producing Tricoya® panels as a temporary work-around until the dedicated Tricoya Hull plant is operational.

All costs of sales are allocated against manufacturing activities in Arnhem and in Barry (Wales) unless they can be directly attributable to a licensee. Other operating costs include all costs associated with the operation of the Arnhem and Barry manufacturing sites, including directly attributable administration, sales and marketing costs. 

See note 5 for explanation of Exceptional items and other adjustments.

Average headcount = 175 (2022: 162)

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.

Other operating costs include pre-operating costs for the Tricoya® Hull Plant.

See note 5 for explanation of Exceptional items and other adjustments.

Average headcount = 23 (2022: 36), 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 5 for explanation of Exceptional items and other adjustments.

Average headcount = 33 (2022: 37)

Research and Development