Accsys Technologies PLC (AXS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to Accsys Technologies PLC interim results presentation for the 6 months ended September 30, 2020, conference call. [Operator Instructions] I must advise you that this conference is being recorded today, 30th of November 2020. I would like to hand the conference over for our speaker today, Robert Harris, the CEO. Please go ahead, sir.

Good morning, and welcome, everyone, to the Accsys Technologies PLC interim results presentation for our half year to September 2020. I'm Rob Harris, CEO of Accsys. Thank you for joining us today, and hope you and your loved ones are all safe and well at this challenging time with the COVID pandemic. As you know, at 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 the least to break up the presentation a little today. So before we start, I'd just like to pause for a moment on this mountain picture and explain what you are seeing here. This is Accoya wood decking in the Swiss Alps. It's over 2 kilometers above sea level and has to withstand the snow, the freezing temperatures and a lot of ski boots. I think it's a really great photo because it shows the wide opportunities for our products and why it's in demand, a beautiful product with best performance even in harsh and extreme environments. We have the usual disclaimers that I know will be familiar to you. In terms of this morning's agenda, I'm going to give you an initial overview of the results. Then Will Rudge, Accsys' Finance Director, is going to take you through the financials in more detail. And then finally, I'll talk through our 2 product segments in a little more detail and recap on our strategy and outlook. The first half of the year has been a dynamic 6 months for Accsys, and I think it's fair to say for companies across all sectors and actually for all of us personally. Our reporting period runs from the 1st of April to the 30th of September, so these results cover the time from the initial peak of COVID lockdowns in Europe through to the end of the summer. Firstly, despite this backdrop, I'm very pleased and proud to be reporting an excellent set of financial results this morning. We have achieved resilient sales, improved profitability and strong cash flow, delivering further strategic progress for the entire business. In fact, and actually, the first thing to say today is that we are reporting record results for Accsys with underlying positive EBIT, strong EBITDA and a robust balance sheet. Secondly, we have actively and effectively managed the impact of the COVID pandemic to deliver these excellent results. Thirdly, we have also seen continuing strong market demand for Accoya and Tricoya. The wider market fundamentals for our business indeed remain very robust. Fourthly, during the period, we made good progress and sustained positive momentum with the execution of our strategic expansion projects. More about these later. And finally, at the same time, we have been working hard to build our organizational capabilities to manage the growth ahead of us. But before diving deeper into our performance, let me take a moment to describe what I think is almost officially known as unprecedented challenging times, the COVID-19 pandemic. Accsys has been able to effectively manage the impacts of COVID-19 by focusing on 3 main priorities. The first thing to say is that our first priority was and is to ensure no harm to our people and to protect their well-being. I'm really proud of the way our people have responded to the necessary changes and challenges and to make progress and to come out stronger through this period together. We quickly changed the way we work at our Arnhem facility, in London and our Hull site to give people more physical space and protection to meet the local guidelines and generally to ensure that we are doing the right thing. This has included new workflow and shift patterns at Arnhem, where we produce Accoya, embracing remote working for our office-based staff and adapting our working methods and practices for the construction and preparation for commercial operations at Hull. Secondly, not knowing how long the pandemic will last, we needed to act responsibly with all the resources available to us. We have been agile in adapting our operations. Being able to keep our product flowing to customers is an achievement I'm really proud of. Our teams have really done a great job. As COVID impacted regions differently, our teams quickly directed and, in some cases, redirected production volumes to lesser-impacted markets. This allowed us to proactively buffer against reduced sales in our strongly impacted regions. Our teams quickly learned how our sales channels and routes to markets had changed. And they rapidly adapted our plans to delight our customers. We also quickly pivoted our marketing activities to reflect changing consumer trends, for example, more demand for decking in some markets as people did more home improvements during the lockdown. We also brought forward our annual plant maintenance shutdown to minimize disruption by completing it when production was lower. This year has been a critical year for us in the completion of our Hull construction. And frankly, COVID presented us with a new and challenging time schedule. To keep Hull moving forward, we increased our resources on the site, resumed safe activity as soon as it was possible. We've been able to make really good progress, and I'll come back to Hull later in the presentation. Thirdly, we necessarily took measures to protect our balance sheet. We diligently managed our cash flows to protect this valued resource and importantly to ensure we protected our strategic growth options. In addition to tight cost control and temporary reductions in spend in the first half, our teams have successfully managed working capital to ensure that the capital we have allocated to our growth plans is preserved and available for deployment. And while we have been managing COVID since March, we've also reached some significant milestones in the growth and development of our Accsys business. Today, we are reporting another good increase in EBITDA, actually now 2 full years or 4 half years of consecutive EBITDA positivity for Accsys. We completed the construction of a 9-story acetylation tower at the world's first Tricoya plant at Hull in the U.K. We lifted the top 3 floors of the tower, weighing in at around 60 tonnes into place in October, raising it now to its full height of over 55 meters. We also signed a joint venture with Eastman Chemical Company in the U.S. in August, progressing our plans to build an Accoya plant there. This marks a strategic step forward in our plans to expand Accoya in North America, which would no doubt offer a tremendously big market opportunity for us. We recorded our highest-ever monthly sales volume in October with over 6,000 cubic meters sold. We also broke our monthly record for sales in North America. And at the same time, we have also used this 6-month period to prepare and build our organization for the growth ahead of us. As we look to become a multisite organization with multiple international manufacturing sites and with Hull becoming operational next year, we have established cross-functional project teams working to ensure we build on our processes and organizational foundations to support this transformation. Our Chief Operating Officer, Bob Mannion, joined Accsys last January. And he is leading the evolution of our operations and operating process with a strong focus on project execution and delivery, so we actually learn from the past. Ensuring we have the right people and skills to manage growth is a prime focus of our HR strategy, alongside improving employee engagement and performance management. As we grow, it's also very important that we don't lose sight of our purpose: changing wood to change the world. Sustainability has long been key to Accsys. And we have done significant work in the period in developing our ESG agenda and material priorities. I'm very pleased that we are also announcing today the release of our sustainability report and strategy. This will be a road map for our sustainable growth. I'll be coming back to ESG later in the presentation. But now I'll hand over to Will for the financial results, please.

Thank you, Rob, and good morning, everyone. As Rob explained, we believe our first half financial results represent excellent progress in what has otherwise been challenging times. This first slide summarizes our financial highlights for the 6 months to 30th of September 2020. And in the next few slides, I will explain in more detail how we have improved our profitability and focus on maintaining a robust balance sheet. While sales volume and revenue margin decreased compared to last year, this reflected the impact of COVID-19 on customer supply chains in the first quarter and April, in particular. Since then, sales recovered quickly and second quarter sales were meeting our production capacity levels. There was a smaller reduction in revenue compared to the volume reduction. And this is primarily due to a change in our sales mix, but mainly due to the sales price increases. And I'll explain this in a bit more on the following slide. Our gross margin increased from 29% to 33% with this driven by the higher average selling prices plus EUR 400,000 of recognized license income associated with the formation of our new joint venture and the license agreement relating to that for the Accoya plant in North America. Together with management for our other operating costs, which remained relatively stable, this translated to a significant 72% increase in underlying EBITDA. Finally, careful cash management has helped maintain a robust balance sheet, the reduction in net debt by EUR 8.9 million over the 6-month period. Moving on to the next slide, improved profitability. The 2 charts here help summarize our improved profitability. On the left-hand side, this sets out which of our reported segments generated a net EUR 4.3 million of EBITDA with a EUR 9.2 million of positive EBITDA generation driven by our Accoya operations. This was partially offset by the Tricoya business, which is still in its pre-operating stage, together with ongoing R&D and Corporate costs. The right-hand chart shows a bridge setting out how the EUR 4.3 million of group EBITDA has increased compared to the EUR 2.5 million reported in the first half of last year with the improvement almost all being attributable to the improvements in the Accoya business with the Tricoya, Corporate and R&D costs remaining relatively stable. We have managed our overhead and corporate costs during the first half of the year, including a reduction in senior staff and board salaries during the key COVID period. And this has helped partially offset increased headcount. In the second half of this financial year, we do expect Tricoya cost to increase ahead of the Hull plant starting up as we build up the operating team at Hull. We also expect our other overhead costs to increase marginally looking forward as we resume our plans to invest in our organizational capability. The next slide explains our global sales distribution and how this has supported our resilient sales performance during the COVID period. The chart on the right helps explain the impact we saw at the start of the year due to COVID. We saw a drop of orders in April, in particular in U.K. and North America, due to the disruption in our customer supply chains. As Rob will explain in more detail, we were able to focus our sales and marketing efforts on other regions to stimulate additional sales, in particular in Mainland Europe and Nordic region, while also increasing sales to our Tricoya partners. This helps our sales to recover quickly following our maintenance stop in May. And by the second quarter, sales were at the levels we had anticipated prior to COVID. Looking at the left-hand pie chart. As a reminder, the Tricoya segment of 28% represent the sales of lower-priced Accoya to our Tricoya partners MEDITE and FINSA. This volume is expected to transfer to the Tricoya plant in Hull next year. And this will free up capacity in Ireland for full-priced Accoya sales. Also, as a reminder, we started selling directly to customers in the Rest of Europe region from 1st of April 2020, having previously agreed the early termination of the Cerdia arrangements, including the end to discounted prices. The next slide provides some further details on how our EBITDA improvement was generated from EUR 2.5 million on the left-hand side to EUR 4.3 million on the right-hand side. EUR 2.5 million of this improvement was due to higher average sales prices. And this is split broadly between the end of the Cerdia discount that I've just mentioned, an increase in the sales price from materials sold to our Tricoya customers and the effect of price increases to our Accoya customers from 1st of January 2020. This was partially offset by a EUR 1.4 million reduction due to the lower sales volume being the temporary reduction in sales in Q1 due to COVID. It is very important to note, we have not seen such an impact for the current wave of lockdowns. For raw material costs, while the raw wood prices increased marginally compared to last year, this was more than offset by a reduction in acetyl prices, which have benefited from lower gas prices. Looking ahead, we do anticipate a marginal increase in both wood and acetyl prices. And we have implemented a further sales price increase to our customers from November this year to account for this. The next slide looks at our strong cash flow generation. This sets up a movement in net debt for the 6-month period. The overall reduction of EUR 8.9 million reflects our ambition to have maintained as robust balance sheet as possible during the COVID uncertainty and to preserve our ability to complete our key expansion projects for which we raised equity this time last year. There are a number of elements to highlight. Firstly, the Accoya business and its improved profitability now generate significant cash inflow, the EUR 9.6 million generated in the 6-month period. Next, while the Tricoya, Corporate and R&D segments have partially offset this, we do anticipate the Tricoya segment to generate positive returns following the Hull plant startup next year. We continue to invest an EUR 8.3 million of the EUR 9.8 million of CapEx in the period related to the progress made with the Hull plant, although this was partially offset by CapEx accruals in the period. We've also very carefully managed our working capital during this period. And that's resulted in a EUR 4.2 million reduction spread broadly across inventory, receivables and payables. It's worth noting we've had no bad debts in this period. And while we have been managing our working capital, we do expect this decrease to partially reverse in the second half of the year, including as we prepare for the additional capacity becoming available in Ireland following the Hull plant startup and as we build up our inventory of higher-priced material. The EUR 3.2 million reduction you can see is due to the Cerdia termination fee, which was recorded at the end of last year in the income statement but has been reflected as a noncash item in the current financial period and the reductions to our ongoing loan arrangement with Cerdia. In addition, the group issued EUR 2.6 million of new equity to our Tricoya consortium partners, reflecting additional funding for the Tricoya consortium and principally to fund the Hull plant construction. Therefore, overall, driven by a combination of good Accoya cash performance and the profit and working capital initiatives that Rob has explained, we closed the period with net debt of EUR 16.3 million. The final chart for the financial part of this presentation sets out a longer-term trend of the previous 4 years of underlying EBITDA for our Accoya segment, reflecting the manufacturing income but excluding any license income. As you can see, Accsys delivering continued profitability improvement year-on-year. We previously said that we believe that 30% gross margin was achievable. And this set of results confirmed we've now achieved this for 12 months. The notable increase in financial year '20 reflected the step-up resulting from the benefit of a third Accoya reactor coming onstream in Ireland. The remaining improvements we've seen in profitability over the period are largely due to the higher average prices resulting from the price increases that we've successfully implemented. We will continue to target further improvements in profitability as we benefit from additional capacity: firstly, next year, with the Tricoya plant at Hull freeing up capacity in Arnhem for higher-priced Accoya sales as well as the potential higher margins that the Hull plant itself can generate; and secondly, with the completion of the fourth Accoya reactor in Ireland by the end of year ending March '22 with the latter also enabling us to target operating efficiencies associated with the economies of scale we have historically seen from adding incremental production capacity. And with that, I will pass back to Rob.

Many thanks, Will. I'll now take you through an overview of our business and our segments in more detail. But first, I'd like to just pause on this photo, please. Here, we have the Minnesota State Capitol building in the U.S.A. Like the Swiss Alps, Minnesota also gets pretty cold, about 12 Farenheit in winter or about 10 degrees Celsius negative. This was part of a USD 272 million restoration project to the capitol building and its 242 windows. It's worth remembering at this point that our products aren't just for new construction, they're also for refurbishment. About 30 years ago, the windows in this building have been replaced with aluminum, or to be to correct, aluminum. And they had really deteriorated and started to fail quite badly. Our Accoya was chosen to restore the windows to their original wooden glory, better even, we believe. Some of the sash windows here are 2 meters by 4 meters tall. So you really don't want windows of that size getting stuck. Choosing Accoya means that the windows will both look great and perform well for years to come at this historic building in Minnesota. As I mentioned earlier, I joined Accsys as CEO last November. From my first 12 months as CEO, there are 3 key things that really define for me which is true of Accsys and our long-term opportunities. Firstly, we have a truly world-leading sustainable product and technology. We create performance wood products through our unique, proprietary and protective technology. Secondly, we have a significant market opportunity. We sit today at production and sales of just around 2% share of our own self-defined achievable market of 2.6 million meters cubed per annum. And thirdly, we have a clear global growth strategy. Our plan to increase production capacity 5x by 2025 is underway with a number of strategic development projects in progress to deliver this. I will now shift gear for a moment and move to our products, Accoya and Tricoya. There is a lot to digest on this busy slide, so I'll walk you through it from left to right. Please bear with me. To understand our growth opportunity, firstly, you need to understand our products. Starting on the left-hand side of this slide, we have unique proprietary and protected technology, which we use to create high-performance wood in 2 main products. On the left-hand side, you can see that we use a process called acetylation. We use acetic anhydride, which is actually a bit like very strong vinegar and transforms the properties of the wood by changing the cell structure so that they no longer absorb water. We're essentially boosting nature. It is world-leading and we are the only company to successfully commercialize acetylation for wood in this way. We strongly protect our IP through patents and other means. What we produce is wood that has superior performance. If you can now look at the center of this slide, our wood building products match or outperform other products in 3 key dimensions. It is more durable, it lasts far longer and is more resistant to deterioration. It is more stable because it does not absorb as much water. Our wood building product do not swell, shrink and warp like most woods do. Finally, our products are sustainable. We use fast-growing softwood from FSC-certified sources. And we effectively lock away carbon for decades while new generations of trees grow. As you can see here, we have a range of green certifications for our products, such as FSC and Cradle to Cradle Gold-certified and, in fact, Platinum rating for material health. There's a full list of these certifications and accreditations on our Accoya website. We have 2 key products you can see on the right: Accoya and Tricoya. Accoya is our solid timber product, planks, essentially. It is a high-performance material and it's a durable sustainable substitute for not just hardwoods, such as teak or oak but also to metals, plastics and other synthetic construction materials. We currently produce Accoya at our plant in the Netherlands. Tricoya is essentially acetylated wood element, or what's more commonly known, wood chips. We sell and license to partners who create wood panel products, like MDF. Tricoya panels have quite revolutionary qualities in the MDF marketplace and against other products. Like Accoya, Tricoya is able to perform in wet and humid conditions, where traditional MDF simply can't. It also opens quite amazing new possibilities to replace the use of other materials in outdoor or wet indoor environments. Our panel-producing partners use Tricoya chips in place of traditional feedstocks and create a much higher performance product as a result, making it highly value-enhancing throughout that entire supply chain. We have been successfully seeding the market by chipping some of the Accoya we produce while we build our first dedicated Tricoya plant in Hull in the U.K. Together, we target 4 main product categories, where our products have the strongest and most direct competitive advantages as a substitute material. These categories are windows, doors, decking and cladding or siding, as it is known in the U.S. The first thing to say on this slide is there is a significant global growth opportunity for our products. Most directly, we operate within the global wood production industry. Over 800 million cubic meters of lumber and engineered panel wood products are produced annually, yes, over 800 million cubic meters. However, the characteristics of our products also mean they compete to substitute with adjacent non-wood construction materials, such as concrete, PVC or aluminum. So the global market we operate in is well in excess of the EUR 800 million. Within this global market, Accsys is focused on where our products have the most compelling competitive advantages and where there is the most significant demand for a better substitute. We are not typically competing with cheap, mass-produced interior doors that you might find in big-box, do-it-yourself stores, for example. We are targeting where customers want a high-quality, high-performance product and the added value of better sustainability and product life cycle, i.e., simply put, products with a longer life span and lower maintenance costs. These characteristics will make it the preferred choice of many manufacturers and end consumers. Importantly, we are not having to build a market for our product. Our market opportunity is one of realizing and accessing significant latent demand that already exists. And we are doing this through awareness, penetration and supply, offering a product that is simply a better alternative. We can break our market down further by looking at specific markets we are focusing on, either geographically, where our main focus is in Europe, North America and Asia Pacific, or by product category, where the characteristics of the product are most compelling as a substitute. Through these funnels or filters, we have estimated an achievable market for our products of over 2.6 million cubic meters per annum for Tricoya and Accoya together. Last year, we sold just under 60,000 cubic meters. This means we currently have just around about 2% market share. So you can see that the size of the market potential and growth opportunity for our products from where we stand now is really significant. And hence, this big market opportunity requires a clear strategy to extract this latent value for Accsys. Accsys is proud to have a clear purpose, changing wood to change the world, and to be a company that is led by its purpose. We do that by acting in accordance with our values and have a strategy aligned with our purpose. We have redefined our values this year. We are ambitious. We actually believe the world really depends on us. We respect and value all our stakeholders. And we are truly committed to safety, quality and sustainability. To achieve our goals and deliver our purpose, we have a 4-pillar strategy. Simply put, we will focus on growing demand for our products, practicing manufacturing excellence, further developing our technology and then building the organizational capability necessary to deliver this growth. In line with this strategy, we have set a target to grow our production capacity by 5x by 2025. We want to reach 200,000 meters cubed equivalent annual production capacity, having started from 40,000 meters cubed in 2019. Let's turn now to our segments and some of the highlights from the first half of this year and how Accsys is currently on track in actually doing what we said we would do. Accoya has had a very good and very resilient first half, delivering a manufacturing margin in excess of our previous 30% target, up 490 basis points year-on-year. And 21% underlying EBITDA growth for the segment is also a very strong result. Will has mentioned some of the impacts of the COVID lockdowns in April. What we saw was particular disruption to some of our downstream customers. What has been so impressive is the speed with which Accoya sales bounced back, thanks to the underlying and pent-up demand. This resulted in a swift recovery through the subsequent months in those markets. We saw this good growth notably in the DACH region and the Nordics, where COVID restrictions had less impact. Our teams rapidly switched focus and effort as product planned for the U.K. in particular was no longer going to move during the initial lockdown. The improved margin result is also reflective of our improved average selling prices achieved through both price increases and in retaking direct sales across Europe, and of course, good cost management. We've increased focus and resources in North America to bolster sales and marketing, increasing our distribution there as we build our market presence in this target region. We reached record U.S. sales in October amid record global sales overall in October, as I mentioned before. Operationally, as we touched on our full year results, safety is an area of prime focus for the Accsys organization. We are increasing our safety resources, our performance monitoring and our reporting. For example, we recorded 12 months without a lost time incident for staff in Arnhem from October 2019 to October 2020. Moreover though and very sadly, one of our haulage contractors' employees sustained an LTI during the period. We have also begun commercial sales of Accoya Color in selected regions. This is a new product we've developed that offers something the market hasn't seen before but already wanted. Our product is colored throughout the wood, not just the surface, which is actually unique in the market when combined with the other qualities of Accoya. We've seen continuing strong demand for Accoya. And this has continued into the second half of this financial year. So where are we heading with Accoya strategically? Accoya is a fantastic business. It's cash-generative with a good 30%-plus margin. We have been successfully using our proprietary technology for some time. And today, we are capacity-constrained and currently cannot make enough to meet obvious market demand. So we are expanding our capacity and progressing our plans to grow across the world. Firstly, we're adding capacity at our existing Arnhem plant by adding a fourth reactor after adding a third in 2019. This will increase production capacity by 33% to a total of 80,000 cubic meters. And we estimate a 3-year payback on this fourth reactor. In the period, our R4 plant, as we call the project, move forward with the EPCM contract being entered and key long lead time orders placed, including the reactor itself. Furthermore, we are improving our efficiency with equipment, such as a new wood stacker, new automated handling equipment and increasing our chemical storage capacity. We are now in the process of obtaining the necessary permit required to start construction. There have been some broader issues in processing permit applications in the Netherlands. But we are currently on track with our plans for R4 to be operational by March 2022. Secondly, our international growth. North America is a large potential market for Accoya. To fully realize its potential, we are progressing our plans towards building an Accoya production facility in the U.S. In August 2020, we announced the formation of a joint venture with Eastman Chemical Company, one of the world's biggest producers of anhydride, previously referred to as strong vinegar, to progress our plans for an Accoya plant there. We are designing the plant to produce an initial capacity of 40,000 meters cubed with the potential to add further capacity to that in the future. Investment evaluation has been progressing in the period. And this includes site-specific engineering planning, detailed CapEx estimates and JV funding options. We are aiming to make a decision on investment and related funding for the U.S. Accoya plant in the first half of the calendar year 2021. Turning to Tricoya. As you know, we are building the world's first Tricoya plant at Hull, so we can really bring Tricoya fully into the market in a larger and stand-alone way. The plant construction has made good progress in the period, and we are on track as we approach target completion in Q1 of next year. As we last updated, construction was impacted by COVID-19 during the initial more severe U.K. lockdown. But since that initial disruption, the work on site has accelerated. We continue to work with the lead contractor to ensure construction work is completed as quickly and as safely as possible. We have increased on-site staff to ensure good progress. In October, the top 3 floors at the 9-floor acetylation tower were lifted into place. This was an important milestone, as I've mentioned. And this effectively marked the end of the heavy construction work on the site with now mainly just the mechanical and the electrical work left to follow. It's also good to state here that our Hull work is continuingly presently, has not been affected by the more recent second U.K. lockdown. Once construction is complete, commissioning activities will follow. Once the plant goes live, we expect to see the benefit of the additional capacity from the first part of the new financial year. As previously discussed, we plan for a gradual 3-year ramp-up to full capacity. This is the world's first technology and a different process to how we operate Arnhem as Tricoya will be a continuous production process, whereas Accoya is a batch process. The operational ramp-up will let us learn and modify the new technology as needed. We expect to reach breakeven on EBITDA at around 40% capacity. I would also like to reiterate, we have a measured production ramp-up plan. When we turn the key to start up the world's first Tricoya plant, we don't expect it to behave like a Mercedes car, actually. It will likely cough and splutter a bit. But we will learn quickly with the great team we are building at Hull. We will adapt and focus on the delivery of our promised ramp-up plan. For Tricoya, we continue to expect that a gross margin of approximately 40% should be achievable. This is higher than Accoya because of the wood input costs and there will be a high level of automation in the Tricoya continuous process compared to the Accoya batch process. We are also exploring the opportunity to expand Tricoya production into Malaysia. We've continued our feasibility study with PETRONAS Chemicals Group for the construction of a Tricoya plant in Malaysia. As we have stated previously, we will make the decision to progress with the plant after Hull is operational to ensure that we capture learnings from this Hull plant into this Malaysian plant design. I would now like to shift gear to spend just a couple of minutes on ESG, and specifically Accsys' approach to sustainability. We are delighted to be publishing our new sustainability report this morning. And this slide illustrates Accsys' ESG framework. It is fully aligned with our purpose, which you can see here in green. It is fully dovetailed with the United Nations Sustainable Development Goals, the colored boxes below. Within our purpose, changing wood is what we do, which you can see here in green on the left-hand side of this slide. And to change the world is why we do it, which you can see in green on the right-hand side of this slide. Under our purpose, in the gray boxes, there are 10 material issues we have identified through our ESG research, engagement and strategy work this year. These are aligned with what we do as a business, the 5 on the left, and how we make an impact, the 5 on the right. And we show here the relevant UN Sustainable Development Goals in the colored boxes, which align to each of our issues. For each of these 10 material issues we have developed and will keep evolving detailed internal plans and road maps. Considerable progress has been made, whether that is starting with better data gathering, monitoring and management, or indeed establishing baseline metrics to create ambitious but attainable targets, or indeed more immediate actions and initiatives that are already improving how we work, increasing our positive impact on the world around us. We are actually making excellent progress but recognize we have lots to do. So how did we get to our new ESG framework? And what are some highlights from today's sustainability report? Firstly, we need to consider the sustainability of our products. Sustainability is intrinsic to our business and a core competitive advantage for our products. In short, industries are under pressure to decarbonize. Our products are a sustainable solution to move the industry to lower carbon. Secondly, we have looked at how we, as a company, act and operate sustainably. We engaged a specialist sustainability consultancy to help us deliver our strategy this year. We completed a materiality assessment, which included extensive research and the stakeholder engagement process. Our 10 material issues, these were listed on the previous slide and are discussed in-depth in our report, are the important impact areas that are most relevant and important to us as an organization and actually, most importantly, now confirmed as the most relevant and important to our broader stakeholder community. In our report under these 10 issues, we have identified over 30 themes and goals and developed action plans to deliver these goals. Today's report overall includes a significant expansion in our ESG disclosure. We are publishing over 5 times more ESG data and baselines, which can actually trust you to agree is a great step forward and upwards for Accsys and indeed our planet. Some of the highlights from the report are that in terms of our environmental and ecological impact, we have reduced our carbon dioxide equivalent intensity per cubic meter of Accoya by about 6% year-on-year and that our total CO2 equipment impact for the full year 2020 is a negative 48,000 tonnes with over 53,000 tonnes of carbon dioxide equivalent being locked into our products compared with 5 tonnes of net emissions. There is a wide range of information in the report, including the S, the social, and G, the governance as well. I hope you all may find time to go through it. So looking back at what we've covered this morning, I will now summarize and open up the session for questions. Accsys has made excellent progress in the first half of the year and delivered some excellent results to date. We are in a strong financial position and remain firmly on the path of increasing profitability as our business grows in scale. These excellent results are against the backdrop of COVID-19 with Accsys being able to deliver over 70% growth in underlying EBITDA, highlighting the resilience of our business model. Furthermore, we have continued to make significant progress on our growth plans and strategic developments. There is continued strong market demand for our products within our large potential market. Actually also really proud of the work our team has put into the launch of our expanded ESG report today. I would also like to thank you, our investors and other stakeholders on the call today, who are generous enough with their time in that process. We have built the right structure and ESG foundations on which to grow sustainably in the years to come. Turning to our outlook. Looking ahead, as you know, we don't provide specific full year revenue and margin guidance. But we have seen a good start to the second half of our financial year with continuing strong market demand with our production facilities continuing to be at capacity level. We had record sales levels in October and good demand continues in November without the same disruption experienced in the first series of COVID lockdowns across the world. Like every company, we remain mindful of the uncertainty and disruption that COVID-19 can bring. However, we also feel confident in our ability to manage this. And we remain agile from the changes already made and lessons learned in the first half of our financial year. In the second half of this financial year, we are further applying spending to support our growth agenda. We, therefore, will continue to exercise diligent cost and margin control. We expect a marginal increase to our cost base as we resume some initiatives and spending to support our growth. Looking further ahead, we know we can deliver further gains in profitability as we benefit from the economies of scale as new capacity comes online. Revenue-wise and longer term, in line with our 5x capacity growth plan, we will achieve revenue growth as we increase this capacity and our new construction projects complete and ramp up. To conclude, as I complete my first year as CEO of Accsys, I'm confident in the long-term growth opportunities ahead of us and in our ability to execute our strategy to capture them. With that, thank you for your kind attention. And we'll now take your questions. Thank you.

[Operator Instructions] Your first question comes from the line of Christen Hjorth from Numis.

And congrats, guys, on what's obviously been a cracking half. I've got three questions, if that's okay. First of all, I just wanted to touch on the Accoya manufacturing margin, which is very impressively above 30%. And clearly, that includes some lower-priced sales conversion in Tricoya, et cetera. Just wondering where you think -- or is there any update on where you think that margin can get to perhaps post the fourth reactor? The second one was just on price increases and perhaps your approach to price increases from here. Is it balancing, I suppose, seeding the market, just more generally, and this is in Accoya, and you're keeping one eye on cost inflation? Just how you sort of think of that as a business. And then my final one is just in regards to Tricoya, just where you are in terms of licensees, because obviously, MEDITE signed up, where FINSA is and the conversations with them and just sort of perhaps if there's any other interest if you've got any more capacity post those 2.

Okay. It's Will. I'll start the response to the first question, then I'll pass it back to Rob for the second, if that's all right. So Accoya margin and where do we expect that to be post fourth reactor and looking forward, noting that some of our sales to date have also been from the purse of Tricoya. We set out that we anticipated a 30% gross margin was achievable long term a little while ago. We have achieved that, which is great. I think it's right to assume we don't anticipate any significant steps-up in our Accoya gross margin looking forward. I think there's the possibility and the potential for small -- very small further increases as we turn on the fourth reactor but not to assume anything significant. I think where the real advantage and potential opportunity lies is the economies of scale we get really below the gross margin line as well. So while we will add incremental revenue and gross contribution, our other operating costs below the gross margin line are not expected or anticipated to increase significantly at all when we add that additional incremental capacity to the plant in Ireland. Where we have the opportunity to increase our gross margin a fraction is how -- is with the additional things like the new wood-handing equipment and stacker. We're still in the process of working through that. And so we can't really provide any guidance as to whether there will be a benefit from that or not. But that's where the opportunity lies over that period of time. I hope that answers that particular question. And I'll pass over to Rob for the pricing.

Thanks, Will. In terms of our pricing strategy. It's worth saying this is an evolving strategy for Accsys. During the first half of this year, we've been very focused on how we understand the real value in the supply chain from a geographical perspective, from a sectorial perspective, so whether it's windows, doors, decking or siding, and from a segmental perspective, and what I mean by the segmental is the actual channel or route to market. We see considerable differences across the world for each of the geographies, sectors and segments that we're targeting in terms of pricing. So at this stage, our strategy is to really test the glass ceiling on these prices and to manage the -- and optimize the margin where we can as we grow, reeling in the benefits, as Will has described, around potential for margin enhancement through economies of scale. I mean turning to your third question, Christen, the point around Tricoya. Clearly, we have one very involved offtake partner in terms of MEDITE, who's also a shareholder in the consortia. And we have a second committed offtake partner in terms of FINSA. Both those companies are anxiously awaiting for us to start up the production in Hull. And they remain confident in the opportunity in the market to take that material from us and grow with us as we ramp up according to the ramp-up plan we've previously described. So from that perspective, the offtake appears at this time pretty robust.

I mean it's worth adding, Christen, on that point. We anticipate, between FINSA and MEDITE, them taking the vast majority of the output of the Hull plant. So we're not anxiously looking for additional licenses to support that output. We want to maintain the option to generate some additional production capacity to seed additional markets. And I think the -- really, the next focus is around whether we can develop that opportunity with PETRONAS in Malaysia for the potential joint venture for a plant there. And as with the arrangement we have with MEDITE and Tricoya in Hull that we would anticipate there being a license arrangement associated with that joint venture arrangement in Malaysia, indeed as it has also been put in place with the joint venture arrangement we have for Accoya with Eastman and the joint venture we have agreed with them in North America.