Accsys Technologies PLC (AXS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to Accsys Technologies PLC preliminary results for the year ended 31st of March 2020. [Operator Instructions] I must advise you, the conference is being recorded today, Tuesday, the 23rd of June 2020. I would now like to hand the conference over to your first speaker today, Rob Harris. Please go ahead.

Good morning, and welcome, everyone, to the Accsys Technologies PLC preliminary results presentation for the year ended 31st of March 2020. Thank you for joining us today, and I hope you and your loved ones are all safe and well at these uncertain times. I've now been leading Accsys technologies Plc in my role as CEO for 7 months, and I'm very proud to be presenting these preliminary results today. During my time with Accsys, I've learned that Accsys is a very special company. We have a great strategy, great products, talented people and we are disrupting industries across the world with our sustainable value proposition, and we're winning. As you know Accsys, we are very proud of our successes, and we'd like to show some of the amazing projects from around the world that our products are used in. Not least, to break out the presentation a little with some great photos. Here we have a close up of Accoya wood used as sun screening for the NIWA project in France, just outside Paris. Renowned architect, Kengo Kuma, collaborated with Michel Desvigne to create this residential construction with a reduced carbon footprint and strong natural atmosphere, choosing Accoya for its looks, its performance and its sustainable credentials. Before moving on with our company presentation, if I pause for a moment, for you each to reflect and digest the important disclaimer on the next slide. This is available when you download the presentation. I'll now move to the overview of Accsys. Some of you are very familiar with us as a business but for those of you who aren't, I will give you a very quick overview of Accsys. During this presentation, I do not plan to read off these slides but merely highlight the key messages and takeaways. At Accsys, we combine and apply our proprietary IP, know-how, technology and ingenuity to create new sustainable wood products for use in the built environment. With our distinctive purpose of changing wood to change the world, we're proud to be seen as sustainable and a compelling investment. As many of you know, we were one of the first cohorts of companies awarded the LSE Green Economy mark at the end of 2019. Our products are durable, stable and sustainable, opening new opportunities for sustainable choices in the building materials marketplace. For example, Accoya wood, which is our original and most well-known product is cradle-to-cradle certified gold with a platinum rating for material health, and it also holds many other eco labels and certifications. Today, we have our main operating facility, the Accoya production plant in Arnhem in the Netherlands and are constructing the world's first wood element, a acetylation plant for Tricoya production in Hull in the U.K. This will provide us with a total of approximately 100,000 meter cubed of profitable manufacturing capacity next year, more than doubled from 2 years ago. And we have plans to do the same again by doubling the capacity once again within the next 5 years to 200,000 meters cubed, but more about that later in our presentation. We have our corporate head office in London and also a sales office in the U.S.A. Our products, as you can see on the map, are distributed globally. In fact, you can find them on every single continent across the planet, including Antarctica. Yes, and actually, our durable, stable and sustainable product was used in Hillary's Hut when it was renovated by the Antarctic Heritage Trust in 2017. They used Tricoya panels to replace asbestos, interior walls and ceiling linings. I'll take the next slide, please. Here, in fact, is one of our projects for more exotic locations. This time, Honolulu in Hawaii. This is a stunning private residence, making me actually a little envious I hasten to add as we contemplate the travel restrictions in the new normal COVID world we live in today. Accoya was selected to provide, not just a great finish, but also to withstand the year-round sun and sea air. So let's now push on and provide an overview of our results for FY '20. As before, I don't plan to read off these slides as the slides are available to download. The first thing to say is these are record results for Accsys. Our record for the year ended March 31, 2020. This is the first year, in fact, the first year ever that Accsys is reporting underlying positive EBIT for the group. An increase of nearly EUR 5 million year-on-year and underlying group EBITDA increasing to EUR 7 million. Our underlying revenue grew by 21% year-on-year to EUR 91 million, driven by continued strong demand with sales volumes up 16% and full year benefit of increased manufacturing capacity and higher selling prices, driving growth in both revenue and profit. Our higher volumes, economies of scale and improved product mix increased underlying gross profit by 48%, up to EUR 27.5 million. In terms of business performance momentum, this is now our third sequential half year period of EBITDA growth, and the group is now, as I've already mentioned, also profitable at underlying EBIT level of EUR 1.4 million from a loss of EUR 3.1 million in financial year 2019. Later in this presentation, you will hear from Will Rudge about the positive performance momentum we continue to build. Additionally, during the period, we have delivered a EUR 25 million reduction in net debt to EUR 25.2 million, resulting from proceeds from the December 2019 equity raise, offset by EUR 22 million of strategic investment in property, plant and equipment, primarily relating to the Tricoya plant in Hull. Our balance sheet remains robust, even now, due to the decisive and swift mitigating actions and management interventions during the COVID-19 pandemic. These actions were effectively implemented, and we have been successful in preserving our valued resources through what I think are almost officially known now as challenging times, the COVID-19 pandemic, but more on this later. It is also very noteworthy that as Accsys grows and as we learn to adapt and manage our growing pains, our focus on HSE has improved. I'm very pleased that we have maintained and developed our commitment to safety throughout this period and, in fact, recorded a 50% improvement in lost time incident rate for the second half of the year compared to the first half. We are heading a good way. Reflecting also in this period, we also commenced a detailed engineering design and procurement phases for the further expansion of the Arnhem plant, with the addition of a fourth reactor and a subsequent planned addition of 33% new capacity. The Hull Tricoya plant construction substantially progressed during FY 2020. However, this has been and continues to be a bumpy road. And although we have managed to continue construction throughout the entire COVID-19 pandemic, wrestling with government guidelines and social distancing to ensure the safety and well-being of our colleagues, we have suffered a delay due to the pandemic. At this time, I can tell you that the whole Tricoya plant is now anticipated to be operational in the fourth quarter of this financial year 2021. We are also now seeing good signs of recovery and improvement in our most effective markets as the world adapts, working practices changes and restrictions are eased. Before we take a more detailed look at the financials, I'll briefly start with an update on our current operation and how we are managing or to be more accurate, proactively managing the impacts of the COVID-19 pandemic on our business and the markets we are targeting for our growth. The first thing to say is that our priority is to ensure and will remain no harm to our people and to protect their well-being. Secondly, for COVID-19, we needed to act responsibly with all the resources available to us. Thirdly, and specifically, we had and still have, I hasten to add, a good balance sheet. We have taken measures to protect this and tightly and incisively manage our cash flows to protect this valued resource. Cash is key and long live the king in Accsys. Fourthly, we set out to ensure that we maintained our compelling strategic options and choices, not knowing how long this pandemic would or could last. And finally, we need to be flexible, responsive and reliable to customer demand. As the situation developed, we scoped out contingency plans for a range of scenarios for how things could develop. We've developed and implemented mitigating actions across the entire business. We adapted our manufacturing operations and supply chains to better balance supply and demand not knowing if or when the demand or supply would return to normal. We also temporarily implemented salary reductions for the Board, the senior management and other senior staff, making appropriate use of the U.K. and Netherlands job retention schemes where possible. We reduced third-party costs, put nonessential hiring on hold and increased our focus on the proactive management of working capital. We moved with pace to establish safe working procedures across our sites to protect our valuable workforce and I'm delighted to say that during this period, we successfully maintained operational activity during this turbulent time, and to date, our colleagues well-being has been successfully protected. April saw the most substantial impact on sales with a 43% decrease in Accoya sales compared to the same period last year as our customers and their customers were impacted by the restrictions put in place to curb the pandemic. Working with great agility and flexibility, we were able to scale down production for a short period of time to operating 1 reactor at Arnhem as we sold off excess inventory and necessarily and rapidly scaled down our costs. This was followed by a quick scaling back up to 3 reactors as we realized new sales opportunities. We have learned a lot about customer responsiveness, flexibility and reliability during this time. At Arnhem, we have also undergone our planned annual maintenance stock during this time. This is earlier than scheduled, making the most of reactor downtime, and I'm pleased to say we are now operating and producing on all 3 reactors in Arnhem again as customer orders have increased. With our annual maintenance shutdowns behind us, this now gives us a clear runway to better satisfy customer demand. And it is stimulated by our sales professionals as we return to the new normal and our demand grows. Encouragingly, we have and are seeing orders increasing again in recent weeks. We are managing our business day by day, week-by-week and month by month, and we continue to progress our strategic priorities and growth initiatives though obviously taking care with all decisions as there's still ongoing uncertainty around the progress of the COVID-19 situation and its impacts. Our ambition and priorities remain to maximize EBITDA and preserve the capital raised in 2019 to fund our expansion projects. During this turbulent period, Accsys has traveled on a bumpy road, and I believe we have emerged fitter and stronger than before. It is worth saying that we remain confident in the long-term growth prospects for both Accoya and Tricoya and their attractiveness in the market. And now we'll take a closer look at our record results for the year as I hand over to Will Rudge, our FD, please.

Thank you, Rob, and good morning, everybody. I start off with the financial highlights page. I think Rob has touched upon some of these already. I think they do represent our best set of results. What we can see here is a 16% increase in our sales volumes driven by repeat business with demand for our products remaining strong throughout the period. It was enabled by the third Accoya reactor commencing operation partway through the prior year and with sales really limited by production capacity for much of the financial year, with COVID-19 only impacting sales in the final month in March. The 21% increase in underlying revenue is higher than the 16% increase in volumes due to the price increases, with us having implemented price increases on the 1st of January each year for our Accoya customers as well as changes in our sales product mix. Overall, this helped drive the 48% increase in our gross margin. And that, in turn, enabled the significant improvement in EBITDA and EBIT, which Rob mentioned before. Worth noting, this is our third sequential half year period of EBITDA growth. And ultimately, the EBIT positive figure of EUR 1.4 million is a relative milestone for Accsys as well. The figures you can see in front of you are underlying results. They exclude exceptional items. And most notably, in this period, we recorded EUR 3.2 million of exceptional revenue. And this represented the fee payable by Cerdia, relating to the early termination of our commercial agreements with them. This is something we announced back in February as very much is planned and ultimately reduces our net debt from the 1st of April. The net debt, therefore, at the end of 31st of March 2020 was EUR 25 million. And that decrease, as Rob said, was largely due to the issue of new equity in December, offset by the capital investment in Hull. And we'll look at that in a bit more detail in a couple of slides. If I can ask to move on to the next slide, please, which sets out our segmental income statements, a summary of them anyway. Here, just to remind you, we set out the key segments that we report. The Accoya business, the Tricoya business, and for simplicity, we've combined the R&D and corporate segments together here. What this shows and highlights is that the group's increased profitability is all being driven by the Accoya business. The Accoya segment has shown a 130% increase at an EBIT level, driven by a 51% increase in gross profit while the other operating costs increased by only 16.5%. The Tricoya segment remains in its pre-operating phase. The costs there will continue to increase in the next -- over the next financial year as we recruit the remainder of the team there. It's just over half the operating team having been recruited so far to support activities such as commissioning ahead of the plant start-up at the end of the new financial year. The R&D costs remained stable, therefore, we saw an increase in some corporate costs and this is due to higher staff costs, principally, including [ sub one ], relatively one-off staff costs as well as training, recruitment and IT costs, we continue to increase our organizational capabilities to support our future growth. However, it's worth noting, we don't expect such costs to increase significantly as we continue to move forward. And as a result, overall, we expect there to be a significant increase in the group's overall profitability, opening the start-up of the Hull plant and when that segment turns into a profit-generating segment in its own right. If I can move on to the next slide, please, which just goes into a bit more detail about our revenue. Our revenue, first of all, increased in all regions, in all geographies around the world, as shown in the bottom right-hand chart. On the pie chart on the left-hand side, I think it's important, again, to highlight the 2 segments at the bottom of this chart, which together make up 48% of our total sales volumes for the year that we just reported. Half of this was sales to our licensee Cerdia. And so from 1st of April 2020, so into the new financial year, we have been successfully now selling directly to Cerdia's former customers following that early termination of our license agreement and other commercial agreements with Cerdia. This early termination also enabled the orderly transition of customers to us but importantly, it's also brought forward our ability to sell at nondiscounted prices in what is a key region for us covering much of mainland Europe and Scandinavia. The remaining 24% represents the ongoing supply of what is lower grade Accoya material to our Tricoya licensees, MEDITE and FINSA, principally to MEDITE in the period. This is also at reduced prices, reflecting that it is a lower grade. I think following the delay of the Hull plant as a result of COVID-19, those sales are now expected to continue for the whole of this new financial year, it was longer than we had previously anticipated. But following this, we still continue to expect those sales to transition to the Hull plant. And that will free up that 24% of capacity in the Arnhem Accoya plant to be able to sell material to our normal Accoya customers at higher prices. I can move on to the next slide, please, on profitability. The improvement in profitability, as we said before, is all driven by the Accoya business, and the 2 charts here are focused on the Accoya segment. The gross manufacturing margin has increased to 30% for the year, an increase compared to 23% last year. This resulted from a number of items, most significantly, the benefit of the economies of scale from operating the expanded 3 reactor plant for the full financial year, noting that a number of our costs in the Arnhem site are fixed or only partly variable. In addition, we implemented price increases to all our Accoya customers from January 2019 and again from January 2020. While our raw material costs remained relatively steady over the past financial year, we saw some marginal increases in raw wood prices with the cost of acetyls marginally decreasing towards the very end of the financial year. Importantly, that 30% gross margin, which we've highlighted before as being effectively a target, is a margin which we continue to believe remains absolutely achievable over the longer term. The chart on the right-hand side, I think, really highlights the benefit of the economies of scale again. This is looking at the underlying EBITDA margin of the Accoya segment, increasing to 19% compared to 11% a year before. And I think ultimately, this helps reinforce our decision to progress the further expansion of the Arnhem plant by the addition of a fourth reactor, which will, again, we expect to generate further economies of scale and potential improvements in our profitability. If I can move on to the next slide, please, which is the net debt chart. At the end of the year, we had EUR 25.2 million of net debt, and this consists of EUR 57 million of loans and EUR 5 million worth of lease liabilities, offset by EUR 37.2 million of cash and much of that cash has, as I'm sure you're aware, been earmarked to fund our expansion plans. The slide has had picture in the key moves during the financial year. So we started at EUR 50.1 million and ending at that EUR 25.2 million. We recorded EUR 2.4 million of operating cash flow, which is an increase compared to only EUR 300,000 a year before. And that operation cash flow is largely attributable to the EBITDA contribution from the Accoya business, which was EUR 16.9 million. And that, in turn, was offset by EUR 2.8 million worth of preoperating cost of the Tricoya business, EUR 7.1 million for R&D and corporate costs. And a EUR 5.4 million of cash utilized to fund increased working capital in the period. In addition to that, we paid EUR 2.4 million worth of interest in the period on our loans as well as recognizing EUR 3.1 million worth of lease liabilities. And this is an accounting entry really only at almost a noncash entry. And under IFRS 16, which is accounting for leases, we have effectively brought a number of our operating leases onto our balance sheet. More significantly, you can see in the middle of the chart, the EUR 22 million worth of CapEx invested in the period. The majority of this EUR 18.7 million was the investment in the Hull site, which has continued to progress throughout the financial year. But then this has been offset by the issue of new shares, most significantly to Accsys' shareholders in December 2019, with EUR 43 million net of fees being issued as a result of the placing and open offer which was completed in December and a further EUR 9.2 million issued to our Tricoya Consulting Partners MEDITE and BP which is to fund their share of the Hull plant cost overruns that were identified last year. Looking a little bit forward, net debt is expected to increase while the Accoya is continued to expect to generate significant positive cash returns, we will also continue to invest with the completion of the Tricoya plant in Hull at the remainder of this financial year and the further expansion of the Accoya plant in Arnhem, which Rob will come on to in a bit more detail in a moment. However, there will be a reduction of EUR 3.2 million at the 1st of April, resulting from the offset of the Cerdia termination fee against the loan facility that we have with Cerdia, which is otherwise ongoing. Working capital is also expected to marginally reduce over the next year, noting we ended the financial year ending March 31, 2020, with relatively high inventory levels as we started to see the impact of COVID-19, and there, we do expect to partially reduce this over the next few months. And with that, I will hand back to Rob.

Thank you, Will. Before bringing us back to the strategic update and growth initiatives, if we can just look at this slide with Accsys in action and another example of our pride in Accsys. The men building in Madrid, in Spain was renovated recently and makes extensive use of Accoya wood on both the exterior, facade and as can be seen here rather fetching interior. The architectural firm and on studio chose our product for the durability, stability and sustainability, coupled with the atmosphere in feeling that wood services create. During the last 7 months, I've certainly enjoyed my role in Accsys, and I'm very proud of even having the opportunity to present these trophy projects that businesses won like the men building in Madrid. I would now like to take you through our strategic update and growth initiatives, which, despite the bumps in the road from the COVID-19 pandemic, I'm delighted to say we are still on track. And retain our compelling growth options by utilizing our strong balance sheet, which, as I mentioned earlier, has been largely protected to date during this outbreak. I'll take the next slide, please. The strategic update and growth initiatives can be summarized around the Arnhem plant expansion, progression of Hull, development of our marketing strategy, ESG, or in other words, environmental, social and governance strategy and importantly, rolling this all up into our outlook. The Arnhem expansion. We currently have a CapEx investment of EUR 26 million planned and on track offset our previous commitments. We are progressing the expansion with the fourth reactor and a new chemical storage facility. This will consume EUR 22 million of CapEx. We have now committed to the EPCM contractor, the engineering, procurement, construction and management partner who will be supporting us on this project. We are also in the planning stage for a new wood stacker and automated handling equipment, which would consume around about EUR 4 million of CapEx. During this time, we have spent considerable time adopting lessons learned from previous projects, both good and bad. This expansion project is now progressing well and within previous committed time lines. Furthermore, our agreed milestones and timing of capital commitment is being diligently monitored in light of the continued COVID-19 uncertainty. We will adapt if needed, and I'm not afraid to do so. So what does this really mean? Well, the front-end engineering and design work has now been completed and contractors selected. The project is progressing within the time lines of our original commitments, and we have adopted many lessons learned from previous projects. It's also worthy of note that our Reactor 3 expansion was at capacity within 9 months. This additional capacity is very much needed despite Hull also coming onstream. Expansion of the fourth reactor at Arnhem will add about 33% capacity, giving us an initial nameplate capacity of 80,000 meters cubed. It enables further growth from our loyal customers and provides us the ability to target new customers and stimulate demand, which we have held back on recently. This required investment is a total of around about EUR 26 million for the new reactor, chemical handling and automated wood stacker. As you know, we successfully installed Reactor 3, very close to budget. Reactor 4 is a copy-paste of Reactor 3 with some improvements. The chemical storage and automated wood handling will allow for more efficient wood handling and productivity. We'll be able to do more flexible running of the reactors, and it will require limited additional staff. Our 30% gross margin target, as you have seen in our results in Will's presentation, is possible, and we remain confident we will achieve this. We anticipate a 3-year payback for this capital investment with potential upside, even when this is based on our assumption of a 2-year ramp up compared to only 9 months with the Reactor 3. We are pushing on with confidence and pace with clear stage-gate decision-making to ensure if COVID-19 returns and provides additional uncertainty, we have the scope to react to this risk, manage events and preserve our cash and future options. I'll take the next slide, please. For Tricoya, in Hull, our plant has progressed. Construction work at Hull substantially progressed during financial year '20. We have invested circa EUR 60 million to date and anticipate a total build cost of circa EUR 90 million, including the project overrun. However, we do anticipate a delay due to COVID 19. We have maintained construction activity on the site during the entire pandemic period, as proposed at significantly reduced rates for nearly 3 months. Since the middle of May and in accordance with U.K. government guidelines, we currently have a full complement of contractors on-site. This is in the region of 160 contractor personnel engaged in this construction project. Our contractors and our own personnel are working within the constraints of social distancing. The disciplines involved are mechanical, electrical and civil engineering. Just imagine the challenges in installing electrical wiring in your own home, utilizing social distancing measures. So please understand that when I sound delighted that we once again have a full complement of the personnel on-site, unfortunately, their productivity will be understandably reduced as we protect the health and well-being. However, as we learn and government guidelines change, productivity will no doubt improve. We currently expect to be operational from the first quarter of the calendar year 2021 compared to our previous indication of the fourth quarter of calendar year 2020. Please also note that the overall design and targeted output remain unchanged. We still anticipate 40% gross margins at capacity. And this plant is the first plant of its type anywhere in the world and that future plants will benefit from the learnings and design work at Hull. There is also room on the Hull site for additional expansion as we move forward and further grow the Accsys business. So shifting gear to our customers, market demand and development of our marketing strategy. Can I take the next slide, please? As Accsys grows and our products and value proposition prove their appeal and time and time again in the marketplace, we are also evolving our marketing strategy. We are expanding our production capacity and are coupling this with growing both awareness and demand for our products to match the increased supply. For us, this often takes the form of accessing latent demand, our products are favorable substitute for many other building materials. So our challenge is to make sure people know that we offer this high-performing sustainable choice. As you can see from the infographic here, our financial year 2020 sales of Accoya and Accoya to use -- to make Tricoya represented only around 2% of our total market estimation for our products. So currently, we are seeking a small percent of a very large market opportunity. While we continue to focus on our priority markets and support our B2B, business-to-business marketing, we are also expanding our reach into the consumer and end-user space. Our business-to-business strategy has been very successful. For example, with the Accoya approved manufacturers program, we are training our customers' customer, not just how to use Accoya, but also building their strong networks of brand advocacy and happy ambassadors for the Accoya brand. There is an opportunity to build demand at the end-user level so that consumers go to their local joinery already wanting Accoya. And we are expanding our B2C, business-to-consumer, marketing efforts to reach into the market at this level, primarily through both highly accessible and more targeted digital channels. This includes the launch of the new Accoya website and brand strategy that focus on inspiration, product applications and a best-in-class where to buy section that can now connect end users to the right distributor or end product manufacturer for their location and project. Please take a look at www.accoya.com. With this approach, we will generate both push from the business that use Accoya and pull in the people who would choose and live with Accoya in their homes for decades to come. We will also continue to support our Tricoya panel manufacturing partners as they market the panels for sale. I'll take the next slide, please. Shifting gear into ESG, environmental, social and governance. As I mentioned before, our purpose is changing wood to change the world, with our products giving the world a choice to build sustainably. The world is generally beginning to recover from the initial impacts of COVID-19, and already, there is a strong notion to build back better, and we believe we can help with that, and we can help with just that. We are understandably proud of the sustainability of our product, but we know that there is more we can do in the ESG space as a business. We have a strong belief that we have a collective social responsibility to use and develop our technology to tackle climate change and prevent pollution. This lies at the very core of our business, and we are determined to improve how we monitor, assess and address environmental, social and government issues and impacts. To ensure we approach this in the right way, we have recently commenced a review of our ESG strategy with the assistance of an expert outside partner. We're pleased to be able to share some initial findings from our ESG materiality assessment in the upcoming annual report. And we'll be both developing our strategy and publishing more information about this as the year progresses. I would now like to turn to our outlook before finishing up with Q&As. As previously described, we have in the main preserved our balance sheet and growth optionality through COVID to date. Our rapid response to the pandemic means that in the main, we have successfully preserved our resources and, hence, our strategic options, and we are ready to deploy in the right way and at the right time. I've also explained that our expansion of Arnhem is progressing and is on track as per our previous commitments. I have also explained that remains uncertainty on Hull, and we anticipate operations in the first quarter of calendar year 2021. Our strategic priorities, project planning and actions are towards our ambition of delivering 200,000 meters cubed of total annual production within 5 years. As you can see on the right-hand side of this slide, that's a rather substantial increase from 40,000 meters cubed in 2018 and our current level of around 60,000 cubic meters. To do this, we are progressing the fourth reactor project from our Arnhem plant with considerable engineering and design work completed already, as I've previously mentioned. Construction in Hull has resumed with new work in protocols, and we look forward to bringing that online in the fourth quarter of the financial year 2021. I would now like to highlight that we continue to advance our international expansion projects. The Accoya plant in the U.S.A. with Eastman's and specifically the Tricoya plant in Malaysia with PETRONAS. So how does this ambition of growing from around 60,000 cubic meters per year today to around 200,000 cubic meters really add up? If I could take a minute to walk you through the chart on the right-hand side of this slide. The first bar is the current capacity of 60,000 cubes at Arnhem on Accoya. This moved from 40,000 cubes in 2018, adding 20,000 cubes in the second half of 2019 with a third reactor. The next uptick is the addition of the Hull facility in the first quarter of the calendar year 2021 with an additional 40,000 cubes of capacity. Shortly after, we anticipate a fourth reactor at Arnhem with an additional 20,000 cubes coming on stream, likely to be in the first quarter of calendar year 2022. Additionally, as I previously referenced, we are progressing both options in the U.S. and in Malaysia. The U.S.A. is anticipated to produce 40,000 cubes of Accoya initially. The time line on this project is on completion of forming the joint venture, we expect about 6 months for design work and then somewhere between 18 and 24 months for construction. So we're looking at somewhere between 2 and 2.5 years to have that plant operational from today. Our Malaysian plant for Tricoya is planned to produce 40,000 cubes. And at this stage, we target for that coming on stream in 2023. Although both the U.S.A. Accoya and Malaysia Tricoya are still prospective, we continue to advance our international expansion projects and discussions. During COVID-19, both partners for these projects have reconfirmed their commitment to working with Accsys and advancing, as I previously described. USA Accoya was naturally slowed as our partner, Eastman Chemical, dealt with their own COVID challenges. They have since fully reengaged, and we are progressing the drafting of both JV and license agreements. PETRONAS in Malaysia continues to be very keen, and it has even offered access support with commissioning of Hull, they fully recognize and support that would be appropriate to progress with engineering design for the plant in Malaysia until the Hull facility is commissioned. In the meantime, they are assessing utilities and land commitments, et cetera, to advance this project. I hope this gives you a further flavor of how we intend to build our future and grow to 200,000 meters cube of capacity within 5 years. Finally, I'll just reiterate briefly about COVID-19. We are seeing increased and increasing orders again following the interruption to our customers' business in April, and we will continue to manage our costs and production in an appropriate and responsible way. We are continuing our growth strategy and progressing our strategic initiatives. In summary, we've had record results for FY '20. We've had a robust response and taken tough decisions to navigate COVID-19. There have been bumps in the road, specifically for Hull commissioning, but things are progressing positively. Our business growth drivers and fundamentals remain intact. We have strong demand from our chosen markets, and this continues. And we have successfully protected our compelling strategic growth options with realism, specifically the fourth reactor at Arnhem, the U.S.A. and Malaysia options I've just described. Finally, if I can move to the final slide, which is Accsys in action. Finally, we come back to the U.K. for this project. A great example of where we have engaged with and supported a social endeavor by providing funding and Accoya wood to this charity-designed community-focused cycle friendly cafe. Construction was finished and the cafe opened late last year, and you can see how they've made a great use of our products for the decking and cladding. That brings the presentation to a close. So I'd now like to open up the call for questions, please. Thank you.

[Operator Instructions] The first question from the phone comes from Christen Hjorth from Numis.

Just 3 for me, really, if that's okay. First of all, maybe in the short term, clearly, there has been some geographic differences in terms of sales and lockdowns, et cetera. Assuming that continues in terms of demand profile, how easy is it to shift products to different geographies? And I'm probably thinking more if the U.K. remains tougher, just in practice, how easy is that? The second one, I think you sort of touched on, but I just want to confirm in regards to Eastman. I mean from here, what exactly are the hurdles that need to be met before, I think, everyone's ready to sign up a formal agreement. And then just the third one, very exciting potential opportunities in the U.S. for Accoya plant and also in Malaysia for a Tricoya plant. Clearly, as you mentioned, it has been a bit of a bumpy road in Hull. It has been the first plant of its kind. But would you expect that because you've got a working Accoya facility and by that stage, a working Tricoya facility that the risks of building facilities in the U.S. and Malaysia would be much lower? And I assume the cost would be lower as well without having the overruns. So those are the 3 for me, if that's okay.

Okay. Thank you, Christen. Maybe I'll kick off with that, Will, and maybe you could chip in where necessary. The first question around -- we have seen quite significant differences in geographical impacts of COVID-19. As you've alluded to, the market -- geographical market that has been the large -- taking the larger hit is the U.K. What this has encouraged us to do is to shift geographies in terms of supply chains into those markets and stimulate additional demand for our products, which we know was there but we didn't have that additional capacity. By shifting that geographical focus, we've managed to really build on successes in Central Europe to sell larger quantities of Accoya. And subsequently, it's one of the main reasons that we've been able to get production at Arnhem back to full capacity. The second thing that we've done to adapt to those changes where some of our core markets, like the U.K. and also the U.S., to some extent, slowed more dramatically due to the different guidelines within those countries, we've actually shifted channels of how we access the market. And where we had a strategy to further promote into the consumer end of the market, we've accelerated that in some markets. And now we've actually had Accoya being used and placed in big boxes in certain countries of the world for direct access by the consumer. Your second question around Eastman and the hurdles. Actually, the program we had prior to COVID remains intact. Our partner at Eastman had to slow quite considerably with their own challenges around managing the COVID situation. The hurdles that we see at the moment are getting back on track with full commitment to completing the joint venture agreement and the license agreement, and we now have commitment from the Chief Exec of Eastman to do that, and we're progressing that quickly. Once we've got that done, we'll then move into a phase of detailed engineering where we've ring-fenced cash on our balance sheet to complete that. That was part of our previous equity raise. And then we'll look in parallel to that to funding of that project. Finally, your question around Malaysia and further expansion. Do we see benefits by copy-paste of these facilities? Yes, we are learning a huge amount on the scale-up of these production facilities, and we expect to see those benefits flow through to both capital and operational costs. The position that you alluded to around Hull, would we see a reduced risk to when we try and replicate that into Malaysia? Our simple position is here, and it's in full and deep collaboration with PETRONAS is we want to get Hull commissioned and operational before we commit to doing the detailed design in Malaysia. And exactly to your point, Christen, to reduce the risk in the scale of that technology in a different geography in the world. So hopefully, that addresses those questions. I don't know, Will, if you want to add a thing to that?

Yes, just on the cost, Christen. I think worth noting a couple of things on the cost of the U.S. plant, I think important to note, it's -- you can't compare it, for example, to the EUR 22 million we have earmarked for the fourth reactor. That is an expansion project. Clearly, when building a new site on a new site in the U.S., there is a lot of other infrastructure work required. So it's not as simple as just taking EUR 22 million or EUR 26 million and doubling it. There are other costs associated with warehousing and infrastructure associated with a new site on top of that. And clearly, part of this next stage is to -- as we do that detailed engineering is to refine and come up with the more precise capital estimate but it hopefully gives you an indication. And for the Malaysian plant, the other key point to note, the proposed -- one of the proposed key differences between the Malaysian opportunity and what we've done at Hull is around what we've, I think, returned the key team unit. So rather than piping in acetic anhydride as we are -- we'll be doing at Hull, we would be constructing a key team unit which would enable us to manufacture our own acetic anhydride and then recycle it. That is a reasonably sizable capital investment. However, it clearly changes the return profile of the investment as well given the acetyl is the most significant raw material cost going into the Tricoya production process.

[Operator Instructions] We do have a couple of questions here on the phone -- sorry, on the web. I'll read out the first question. What is your understanding of the current position of your inbound supply chain capability, wood and chemicals?

Rob, shall I take that one?

Sure.

Our understanding is very simple. Our inbound supply capability. And I assume this is relating to COVID -- as there is COVID disruption, our inbound supply chain for chemicals has been uninterrupted, our chemicals come from BP in Hull or from our supplier in Switzerland, and that has continued uninterrupted. There was some disruption with New Zealand mills on the wood side. However, that has been relatively short term and has been lifted and did not disrupt our own production levels as we had a sufficient amount of inventory to see us through that short-term disruption period. And I think if I can move at that, I can see there's another question. Could you please broadly outline the CapEx levels and timing for the next couple of years? And how is the handover from Cerdia and European markets progressing? I think if I touch upon CapEx levels for the next 2 years for FY '21, I'm expecting total CapEx to be just under EUR 30 million and similar to FY '22, for Hull, we're expecting EUR 15 million or so for the -- in FY '21. And EUR 10 million in FY '22, although really that's a timing point. And it depends on how the final payments on contracts sit on either side of the year-end, given the delay we talked about earlier. And then for the rest of the group, which is primarily the Arnhem expansion and ongoing CapEx in Arnhem, about EUR 14 million in FY '21 and about EUR 18 million in FY '22. And I can see there's a third question from the same person. How is the handover from Cerdia and the European markets progressing? I mean I think I touched upon that earlier. It's progressed very well indeed. I think the advantage of doing the earlier termination agreed very smoothly with Cerdia, effective the 1st of April enabled us to plan that transition such that the customers in that region had uninterrupted supply. I think we've known who those customers are. We've been supporting Cerdia with marketing throughout the last few years. So it's enabled a very smooth transition. I mean indeed, the ability to sell directly to customers in that region, I think has probably been a particular benefit to us in this COVID period when we've been able to reprioritize some of our sales efforts into that region to help offset the reductions in other regions that we have seen.

There are a couple of more web questions. The next one over the web is, could you give some color on Accoya capacity utilization currently and how you see that increasing over the rest of the year?

Okay. Yes. I think in terms of the Arnhem facility capacity utilization, we're currently running at 100%. We have all 3 reactors running. We took advantage of the initial downturn of COVID in April to bring forward annual shutdown, as I mentioned in the presentation, to allow us to get that essentially out of the way, such that when the demand starts to come back, we have a completely clear runway in terms of supply. So we're currently running all 3 reactors at 100% capacity. We will continue to monitor this, and we've learned how to be very responsive to bring that facility down if we need to, reactor by reactor, and then ramp it back up. But as we're looking forward, we're certainly starting to see our demand profiles increasing and our plan is to -- for as long as we can run those facilities at 100% capacity.

The next web question, have you engaged in direct Accoya sales in Asia as the marketing exclusive agreement with diamond wood expires and becomes nonexclusive?

Yes. I'll take that one. At this point, no, we have not done that. I think our priority has been focused on our core geographies in Mainland Europe, U.S.A., U.K. We continue to have our pre-existing customers who we continue to serve in other parts of Asia where we have been serving them for the last 2 years, including -- and including [indiscernible] in particular. But at this point, there's been no change there.

[Operator Instructions] The next web question, it would be helpful to see some financial figures associated with the outlook time line, particularly sales, revenue and EBIT?

If I touch upon that one. I think historically, we've not given detailed financial forecasts associated with our outlook, in particular, on a profitability basis. I think as those of us -- you've known us for a while, it's not always a precise science predicting our profitability. But I think what we hope as we've shown you today is a clear direction of travel. And the ability to extrapolate the profit that is you can -- that can be generated from our existing operations. I think from a sales revenue perspective, the EUR 90 million from 3 Accoya reactors can be extrapolated up to EUR 120 million for 4 Accoya reactors. And I think previously, we've said that the Hull plant is expected to have revenue of at least EUR 40 million per annum once it's at a full capacity. And the Malaysian Tricoya plant at this point, that would be a similar best estimate.

The next web question, how much of the 43% sales drop in April was due to the annual maintenance shutdown?

Yes. I'll take that one. The original plan was to do the annual maintenance shutdown in May. So principally, that drop was driven by the lack of demand from the marketplace. What I mean by that is, actually, although the customers still wanted the product and the demand while the latent demand is still there, it wasn't possible for us to get the products to the customers. So this was all driven by COVID at that time. So we saw a dislocation in our supply chains through the distributors that we've been using. So our position around May is we've completed the shutdown. And hence, as I described, we brought the plant back to 100% capacity.

[Operator Instructions] There are no further questions over the phone at this stage. And no further questions over the web either, please continue.

Okay. I think that concludes the presentation from Accsys today. Delighted to present the results we've had, how we've preserved our future growth options. And thank you for your questions and look forward to speaking with you again in the future. Thank you very much.

Thank you very much, everyone. Have a good day.

Thank you very much. That does conclude the conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.