Accsys Technologies PLC (AXS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Accsys Technologies Plc Preliminary Results for the year-ended 31st of March 2024. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dr. Jelena Arsic van Os, CEO of Accsys Technologies. Please go ahead.

Good morning, everyone, and welcome to our preliminary results presentation for the year-ending 31st of March 2024. We are here today to review our financial year '24 results and the transformation of Accsys for its long-term success. On the slide here, you can see a Silt hotel and casino on the Belgium Coast, very harsh environment for building materials where Accoya has an architect's choice. And our company could add another project, proudly contributing promotion of more durable and sustainable living spaces. Next slide, please. Here is our usual disclaimer, which I will let you to read in your own time. Next slide. In terms of this morning's agenda, we will start with an overview of key developments. Then Hans Pauli will take you through the financials. I will then discuss our operational highlights, strategy and outlook. Following this, Hans and I will be happy to take any questions you may have. I would also like to take this opportunity to welcome Hans and thank him for stepping into this Interim CFO role. Hans has been at Accsys for 14 years and previously held the role of CFO for the group, so we see him as a safe pair of hands for the company during the transition period. Now, coming back to the presentation. Financial year '24 has been a transformational year for Accsys. We have successfully delivered full-year results ahead of market expectations and despite market challenges. Our journey has 3 parts. Firstly, we are refocusing our business, undertaking a major transformation program to become a more streamlined and performance-driven company. In the second half of the financial year '24, we have already delivered a 19% reduction in our cost base versus the prior year. Due to swift response to the market backdrop and action taken, financial year '24 delivered a second best performance in the company history in terms of revenue and underlying profitability. We have successfully raised EUR 34 million in funding, of which EUR 24 million of fresh capital to support our existing international expansion program. We have reduced our net debt by EUR 7 million, and we have professionalized our commercial organization and invested in demand creation in anticipation of increased production capacity in financial year '25. Secondly, we are driving a transformation. Sales for quarter 1 '25 are in line with expectations and continue positive momentum we saw in Q4. For the first time in the company history, we have delivered an international expansion project in the largest and the most profitable wood market in the world. The successful completion of the Kingsport plant in Tennessee considerably de-risks Accsys as a company. We have also revisited and refreshed the company strategy, and we are excited to introduce our new Accsys FOCUS that will improve profitability and returns from the existing assets over the next 3 years. We will fill available capacity with the best, the most profitable and the most sustainable business available. The company will focus on earnings, its right to grow before we start putting the new metal in the ground. Financial year '25 will be transitional and transformational for the company. We will transfer U.S. volume to Kingsport from Arnhem, and we plan to refill available Arnhem and Barry capacity with the new European and U.K. business opportunities. From this solid platform, the most important, we are preparing for stronger growth. The markets are not expected to help us in what is still seen as subdued construction conditions. Nevertheless, we will optimize our product offerings in Accoya and Accoya Color, moving towards more finished products. We are aiming to almost double our volumes over the next 3 years by utilizing 100,000 cubic meters of available global capacity by the end of financial year '27. We are very excited about our future, long-term potential and we have a plan in place to deliver on this. Next slide, please. Our new FOCUS strategy will deliver a fundamentally strong business that is operationally efficient, customer centric and preferred in the marketplace, organized around a united and high-performing team to ensure a safe and sustainable future and transforming Accsys for the long-term success. In the second half of financial year '25, we will hold an investor event to update you on our new strategy. With this, I would like to invite Hans to give us overview on our financial performance. Next slide, please.

Thanks, Jelena. Good morning, everyone, from my side. Let's turn to the numbers on the next slide. Overall, our industry has faced significant headwinds with macroeconomic pressures impacting the demand for construction and building material across our end markets. Consequently, our financial performance did not finish where we wanted it to be at the start of the year. As Jelena has referenced, the Senior Leadership team and I have used this difficult backdrop to reset and begin to drive operational transformation of the group. We have 2 key areas of focus, both of which have had some positive impact on the performance in the second half of the year. Prioritizing demand creation and creating a leaner and more fit-for-purpose organization. Combined, this meant that our pre-closed trading statement confirmed results that were better than expected. So, overall revenue was EUR 136 million, down 16% on the prior year. 5 percentage points of this was the decline in acetic acid revenues related to the lower sales volume and the lower prices of acetic acid. Our sales volume was 56,568 cubic meters, down 11% on the prior year. Gross margin was 30% at the lower end of our historical band. Underlying EBITDA was EUR 4.8 million. Free cash flow was EUR 3.7 million against an outflow of EUR 13.6 million last year. This meant our year-end net debt was EUR 37.1 million. Please go to the next slide. I want to call out a few key numbers on this slide that expand on the story for the last financial year. Underlying operating costs increased 2% against a high inflation backdrop and an increase in Tricoya U.K.'s operating cost of EUR 0.9 million compared to the prior year. This was due to ongoing running costs being treated as operating costs following the introduction of the hold period in H2 last year. When we break this down and look at it on a half-year basis, you can see that the following decisive management actions to decrease the operational cost run rate, H2 costs decreased 19% over the same period last year. As you will be aware, the business has worked very hard at its core base during the year, taking advantage of the difficult market condition to realign our organizational structure and remove costs. These actions triggered exceptional cost of EUR 1.2 million. We have delivered an annualized run rate of EUR 3 million of cost savings and will deliver the full EUR 3 million in the current financial year. An increase in the Tricoya impairment of EUR 7 million was recognized in the first half of this year. This is treated as a non-cash exceptional item in the P&L. Accoya average sales price was at EUR 2,177, which was the second highest level for the group, down a modest 4% versus prior year when the energy price surcharge was still applicable. Against the challenging market, we have maintained price discipline when we have seen our competitors reduce price. Next slide, please. Looking at these results within the context of our longer-term financial performance, as you can see on the left side of the slide, we have delivered strong and consistent revenue growth over the last 5 years. FY '23 was an exceptional year with higher average sales prices implemented to cover raw material inflation during the period, as well as an energy price premium surcharge of approximately EUR 4 million, which we implemented to cover the higher market for energy cost. We were able to pass these price increases on, as you can see with significant increases in our average selling price, showing the strength of our brand and our product. Our revenue CAGR has been 8% over this period, despite several years having serious supply constraints. On an underlying basis, we saw further improvement in our price position in the last financial year, but did not repeat the energy surcharge. Hence, reported average selling price and revenues were negatively impacted. FY '24 was our second best year both in terms of revenue as well as of Accoya sales price. As you can see on the right of the slide, we have seen gross margin consistently maintain at or above 30%. Gross margin despite all the volatility around raw materials, energy costs, supply chain disruptions, product mix, geographic mix, et cetera, has maintained within the fairly stable corridor. FY '23 clearly had a positive effect from very strong demand and the energy surcharge. While we believe there's upside potential on gross margin in the medium term, we would expect to be at the lower end of the gross margin corridor in the new financial year. Regarding EBITDA, we see a similar picture as with revenues. FY '23 being exceptional year. Underlying EBITDA in FY '24 was slightly better than in FY '22 and '21, demonstrating our underlying business is solid. Now, I will speak about Accoya's sales performance. Next slide, please. Accoya is a flagship product and highly regarded across the industry. We faced 2 challenges last year. First, the general malaise and weakness in demand for building materials across all our key markets. Second, excess inventory across our customer base. The combination of these was most exposed in Q3, but the aggregate impact on revenue decline of 14% and volume decline of 11%. As I mentioned on an earlier slide, we maintained pricing discipline while peers discounted. There were 2 bright spots for Accsys. First, Accoya for Tricoya showed double-digit sales growth. Both Medite and Finsa expanded their sales in Europe. In addition, thereto, our own sales team started to sell Tricoya panels produced by Medite and Finsa in North America and Australia, further strengthening the commercial strength of Tricoya brand. Second, we saw ongoing growth momentum for Accoya Color, especially in the DACH region; Germany, Austria and Switzerland. While these numbers are disappointing compared to last year's, both sales and marketing initiatives in the back end of the year had a positive impact on our sales trajectory in the last quarter and we have taken some positive momentum into the new financial year. Our market intelligence suggests that our sales channels are predominantly clear of excess inventory and our distributors are achieving good pass-through levels, demonstrating solid end user demand. Now, I will speak about Tricoya sales performance. Next slide, please. While still modest, our sales performance for Tricoya remained robust, up to 40% compared to last year's. Tricoya now represents 31% of group volume, an increase of 7 percentage points compared to last year. Volume and revenue growth has been achieved at the time that one of our key partners has increased its pricing of Tricoya. Turning to the EBITDA segment. Next slide, please. As you would expect, our Accoya segment remains our strongest performing segment and we have seen another year of strong operational performance. EBITDA of EUR 20.6 million was down on last year due to exceptional performance in the prior year for reasons covered earlier. Next, we show a pre-operating loss for Accoya USA of EUR 3.7 million, an increased loss of EUR 3 million as we have prepared for production to start up. With commercial production on track for later this year, subject to exactly when and how smooth start-up goes, we anticipate losses to reduce from here. And subject to our decision regarding Hull, the pre-operating loss of EUR 6 million for Tricoya U.K. will either decline as bulk of these costs will be capitalized or will disappear. The aggregate impact of these is an adjusted EBITDA of EUR 4.8 million. This does not reflect the potential of our group. Let me turn to the EBITDA bridge. Next slide, please. We are clearly not pleased with the EBITDA performance for the year, but take some comfort from the actions that we took in terms of sales and marketing stimulation and cost-out program that led to a slightly better performance in Q4. In terms of the key movements in EBITDA, revenue had an adverse impact of just over EUR 11 million, the majority of which was volume related. The discontinuation of the energy price premium should not be ignored either in the analysis since it amounts to approximately EUR 4 million. Cost of sales had an adverse EUR 3.2 million impact, fairly even split among increased raw material costs, in part due to the use of higher-cost appearance grade wood for Accoya for Tricoya production and as a manufacturing cost. We lost operational efficiency as we had lower volumes and also were adversely affected by higher plant maintenance costs. Other operating costs had an adverse impact of almost EUR 4 million, the majority of which was the pre-operating cost relating to Kingsport. Now that we have reached the critical hurdle of mechanical completion of Kingsport and will move to commercial operations later this summer, we will start to see sequential improvements in our EBITDA bridge from Kingsport once Accoya is sold from Accoya USA. Tricoya operating cost increased as all costs were accounted for through the P&L, following the decision in November '22 to place the project on hold. In the prior year, costs were capitalized during the first half of the year. Turning to the next slide on net debt bridge. The key message here is that we reduced our net debt by EUR 7 million during the year. We had 2 key cash inflows during the year. The first was Accoya EBITDA of approximately EUR 20 million, which again made a significant contribution. The second was the net funds raised from our equity raise in November. Combined, these 2 items improved on net debt by over EUR 33 million. The main detractors were a series of smaller investments in the group, namely pre-operating cash flow from Hull and Kingsport, plus R&D and CapEx to support further growth and a modest net working capital outflow. Net working capital included the decrease in payables, partially offset by a decrease in inventory, primarily raw materials as we took action to decrease the inventory balance during the year. Thank you for your attention. I will now hand back to Jelena, who will take you through our operational highlights, strategy and outlook.

Thank you, Hans. Next slide, please. On this slide here, we are showcasing fantastic projects over the last year the group has delivered. We are very proud that our products have once again been selected for some of the world's most prestigious building projects. These include historical restorations like the decking for the renovation of the Caernarfon Castle in Wales and the restoration of the Bow Bridge in Central Park, New York. The remarkable Google landscaper at King's Cross in London, a showcase for Accoya, is set for the completion in 2025. Our sustainability credentials continue to attract architects, evidenced by Accoya being chosen for the Lidl Net-Zero supermarket building in Almere in the Netherlands and the Clichy Black low-carbon building in Paris, which saved over 1,000 tons of carbon dioxide compared to the originally-specified aluminium. Turning now to our strategic project. Next slide, please. In particular, I'm delighted to report that we have made significant progress on our Kingsport plant. As a reminder, Kingsport is a joint venture between Accsys and Eastman Chemical Company, one of the world's leading producers of acetyls. Accsys owns 60% of the joint venture. And for us, North America is a hugely attractive market and there is a considerable strategic value, having local production to service this market. Accsys will be making products in America for the American market, allowing one of the largest and the most profitable wood markets in the world to fastest adopt the best and the most sustainable wood product available. We have now reached mechanical completion at Kingsport, with the first batches anticipated in the coming weeks. With Kingsport and the fourth reactor at Arnhem that was added in September '22, we will have doubled our production capacity in under 2 years. Next slide, please. With the fourth reactor added in Arnhem, our production capacity has increased by 1/3 to 80,000 cubic meters compared to the start of the financial year '23. We have also started to see the benefits of our new wood stacking technology called Stacker II, which was an important CapEx project in the prior year to speed up production times. Overall, Arnhem is operationally improving. We have implemented a program called Solid Roots to create a stronger performance-driven culture with the intent to further optimize supply chain reliability and stability of the plant and overall decreasing the unit cost of production. We will provide you more insights into the program as we go through the year. Barry is performing well. We are seeing fantastic growth in Accoya Color demand and plan to further expand the available capacity with the operational improvements. As many of you know, Hull has been on hold since November '22. We've been fully exploring options in the last month to find a solution and recently announced that we had appointed a financial adviser to support us in this process. We are confirming today, as previously communicated, that we will come to the resolution before the end of the second half of financial year '25. Next slide, please. As I said in my opening comments, we have used the difficult market backdrop to formulate the group transformation program. Essentially, this has 3 core components that we have already started to execute, showing the first positive impact on the financial year. First, sales and marketing initiatives. We stepped up investment in sales and marketing during the second half of the year, including new recruits in North America, Netherlands and France and the addition of 10 new customers, of which 7 new distribution partners and 3 direct manufacturers across multiple territories. A new sales incentive program has been introduced that will drive a performance culture. I have already mentioned the Solid Roots in our slide on Arnhem. This program is to ensure safe and sustainable operations at our largest asset. We want to move from the scale-up mindset in Arnhem to deliver a mature manufacturing performance. Third, our organizational design reset. We made some very difficult decisions around our organizational structure, but with the objective of creating a leaner and more fit-for-purpose structure. We need leaner overhead and stronger local organizations to deliver on our ambition. This has certainly been a very challenging time for our colleagues, and I would like to thank all of them for their resilience, hard work, professionalism and dedication during this uncomfortable period. We are also showcasing on this slide our key deliverables in terms of operational improvements. First, we made savings of EUR 3 million on annualized basis. Secondly, we have started to create much stronger performance-driven culture through changes to personal targets, pay structure and incentives. Third, discipline with our capital. We made good progress in Q4 with a reduction in our inventory of EUR 4 million. We will embed these disciplines into our ways of working as we focus on growing our business. So, now turning to our strategy and outlook. Next slide, please. I've been a CEO of Accsys for now almost a year and I'm very excited about the future potential of the business. This company has fantastic proprietary products positioned for global growth. We are reducing the risk on the larger CapEx projects and underlying business has strong base to be built on. Many of you invested because of its significant market opportunity, unique technology, diversified market and international operational footprint. I will now spend a few minutes on each of those drivers over the coming slide. Next slide, please. We operate in large, attractive, structurally growing markets. The global wood product market size is worth over $800 billion in 2024 and has seen structural growth over time. We have enough capacity in Europe and U.S. to utilize the market opportunity in the coming few years, with Reactor 4 addition in Arnhem and Kingsport coming on stream in this calendar year. Growth has 2 drivers; global economic development and the substitution of wood for other building materials as government policies around the world deliver a net-zero economy. Wood materials are well positioned to take the market share they deserve in the construction industry as they are naturally sequestrating efficiently the carbon dioxide. We are confident these trends will become more prominent in the coming years. Many of you are very familiar on a proprietary core product offering that you are seeing on the next slide. Our products are differentiated in their performance, durability and low lifetime maintenance costs. Accoya, Accoya Color and Tricoya are regarded as a reference in the building material industry, supported by credible world-famous architect firms. Going forward, we will focus on improving our customer experience with improved service and availability. We will continue working on innovation solutions as innovation is in our company DNA. Next slide, please. Accsys is a global business and we have good distribution partners to champion our products and get it into market. We have a long-standing relationship with key distribution partners in our core markets, and we have added 7 new distributors during financial year '24, 3 in the United States and 4 in Europe, as well as 3 new direct manufacturer customers. We understand the importance of supporting the manufacturers who work directly with our products. Our approved manufacturer program provides support to our partners with sales techniques, trainings and best practice in production. The third part of our distribution strategy is our relationship with Medite and Finsa who produced Tricoya panels from Accoya for Tricoya. We have strong partnership with both companies, and we are continuing to develop this market potential. Next slide, please. As I mentioned in the beginning, we have used the recent months to start to review the company strategy, reset our priorities as a business and ensure that we have solid foundations on which to build upon. Ultimately, we believe that Accsys can be sustainable, profitable business, cash flow generative and creating a shareholder value. A key part of this has been the transformation program that is focusing on performance culture, effective asset management, optimization of supply chain and capital efficiency. You've seen some of the tactical activities that we have been already taken and there is more to come. We will come back to you with a specific strategy investor event in the second part of the financial year '25 to provide more color and a full update. Now turning to our targets. I was talking a lot about performance-driven culture in this presentation. Performance culture starts with a clear target setting and accountability across the team, and we are introducing a series of operational targets for the year ahead. Kingsport to be commercially operational by the end of the summer. Implementation of attractive incentive plan aligned with the double-digit sales growth objectives. Deliver on our planned in year EUR 3 million in cost savings. Achieve 500 basis points improvement in our operational efficiency for key equipment in Arnhem. In addition, the company is expected to deliver significant growth in the coming year and we are today providing you 2 growth objectives. We are targeting refilling transferred sales at Arnhem within 12 months of migrating it to Kingsport on a run-rate basis. This implies an underlying double-digit growth in the production volumes from Arnhem. And for the longer term, we are planning to deliver approximately 100,000 cubic meters annual run rate by the year-end of financial year '27. This means solid double-digit growth year-on-year, with the ambition to keep our gross margin on minimum 30% and improve our returns. Next slide, please. Looking ahead, we have made a good start in the financial year '25, with performance in line with our expectations. We are confident in delivering further financial and operational progress in the coming year. Financial year '25 will see a ramp-up in volumes as Kingsport come on stream and we seek to replace the transfer production for the plant in Arnhem. We will get the full benefit of our EUR 3 million cost savings, and we will maintain our working capital discipline. In terms of our priorities for the year ahead, we are focused on delivering resolution to Hull as our priority, further de-risking the company to large project exposure. CapEx for the current year will be very modest, EUR 3 million to EUR 4 million, focusing on the key operational improvements in Arnhem and Barry. We are also looking forward to providing more details in our forthcoming investor event in the second half of financial year '25. And to finalize this call today, in short, we are transforming Accsys. Good progress has been achieved this year. More is to come, and we are excited about our future long-term potential and we also have a plan in place to deliver on this. Thank you very much for listening. And now we will be open for all your questions. Operator, can we move to the Q&A session, please, and start with our first question?

[Operator Instructions] We will now go to our first question. Our first question comes from the line of Christen Hjorth from Deutsche Bank.

I've got 3 this morning, if that's okay. First of all, starting with the 100,000 cubic meter target in FY '27. Can you just sort of work down the P&L and sort of run through what sort of EBITDA, for example, you would expect to generate on that, maybe excluding the EUR 6 million of costs for Hull because, as you mentioned, they'll be sort of going either way? The second question is just on corporate costs, which look like they've halved in FY '24. Has there been some of those costs moved to other areas of the business? And then just sort of checking whether that's sort of corporate cost of EUR 4.6 million is the -- is sort of the right base going forward? Or there is any sort of specific numbers in there that maybe have to go back into FY '25? And then just finally, just sort of touching on net debt trends for FY '25. And I suppose any of the key movements, and I suppose I'm thinking there injections into the JV working capital, et cetera.

So, I would like to, Hans, answer your question, Christen. Thank you very much for asking.

Christen, yes, taking your questions in the order you gave them. 100,000 cubic meters, that's our target for FY '27. We envisage that we will stay within that 30% to 34% gross margin bandwidth. And as you will appreciate that over time, when we get to better economies of scale, we will improve our EBITDA level from the current EBITDA level as a percentage taken. So, I think it will be fair to assume that if you were to look at the prior year and '23, as I think we mentioned quite a couple of times, was an exceptional year. If you look at a couple of years earlier, those EBITDA percentages are roughly what we're envisaging. But it will remain difficult because we have quite some items to take into consideration, what happens to the wood price and raw, what we buy in and also what happens to the acetic anhydride price. And as you know, both of these are the key drivers for the cost of producing Accoya and Tricoya for that matter, but we're focusing here on Accoya. Coming to your next question on corporate costs. There are 2 components here. There's one element. We've reallocated costs to these specific units, i.e., to Arnhem, to Barry and to Kingsport as well. So, there's a little bit of cost movement there. At the same time, as part of the organization or reorganization we've done late last year, we've also reduced cost there significantly to EUR 3 million. We mentioned earlier in the presentation. A portion of that is corporate cost saving. Not all of it, but a portion of that is corporate cost saving. So, EUR 4.7 million roughly is a good indication of going forward, obviously, apart from inflation and some other adjustment. But that is a good indicator. Finally, turning to your net debt question. We've mentioned that we are about complete with the investments in Accoya USA. We will be planning for some maintenance investment of a handful, EUR 3 million to EUR 4 million we mentioned earlier. However, to get from where we are, where we've got now, the mechanical completion of the plant and well ahead in commissioning, we will be incurring start-up costs. We will be building up our inventory, i.e., working capital for that matter. And it will also take a while until we are actually in a cash flow neutral, cash flow positive situation in the U.S. So, we've raised sufficient money to get us through all of that period. So, we will have to invest some more money in the U.S., but there is no need to raise more money. So on net debt position, we'll probably increase a little bit over time, but then it will come back. That's our aim. Yes, that's simply our aim, and we're confident that we get there.

We'll now move on to our next question. Our next question comes from the line of Kenneth Rumph from Goodbody.

I wanted to ask 2 questions. One is to maybe expand a little bit on kind of how U.S. production and costs and the start-up costs you mentioned, kind of how that works out this year as a part year, the extent to which you can kind of replace existing sales from Arnhem and benefit from that and sort of where we are in the year in terms of your ability to kind of capitalize on the production? So just to try and understand the kind of path to sort of normality and profitability, do things get worse in terms of losses before they get better this year? I'm trying to understand. And the second question was, as you said, things will be resolved one way or another with Hull in the next 3 months, I guess, given where we are. I don't know if in the event of things not proceeding, can you quantify what the kind of cash financial impact is? Or is it not possible [Technical Difficulty] to sort out the difference in that, I guess? Anyway, you get the idea of the question, if there's anything more you can say about the kind of downside risk, if you like, on Hull?

So, I would like maybe to give you -- thank you very much, Kenneth, on your question. I would like to give you a little bit more color on the U.S. You do appreciate that we do not really provide a very detailed profit forecast. But let me talk you through some of the factors that are going to improve the profitability in the year ahead. So, we are transferring production volume from Arnhem to Kingsport, and Arnhem is actually aiming to recover fully that volume during 12 months on the run rate of the transition. So if you look at Arnhem taking it in isolation, we are not expecting really to improve profitability and efficiency considerably in this year because of this transition period. However, Kingsport facility is in a start-up phase. As Hans already mentioned, we have enough funds to finalize the project. Commissioning is very well on the way and we are very, very -- have quite a lot of confidence that production and commercial availability of our products from Kingsport plant will start basically during this summer. So, that means that plant is going to start to generate revenues and of course, we are going to see some losses in the period to come before we reach the breakeven point. So it is very difficult for us to give you exact how much Kingsport is going to contribute in a financial year '25. It is still going to be transitional. But nevertheless, if you look at the moment that both plants are completely fully operational, this company is going to be in a totally different space. In terms of reducing exposure to these large capital projects that actually showed that for Accsys, this was quite a big burden to have. So in that sense, finalizing Kingsport and getting that volume ramp-up as soon as possible is one of our priorities this year. And we are confident with all the investments we are doing in marketing and sales that we are going to get there. Regarding Hull, I'm going to give Hans an opportunity to comment on that.

Kenneth, yes, I'm happy to speak a little bit about how it's a project dear to me. So where we are, as you mentioned in the May RNS, we've appointed a financial adviser to help us in seeking funding for that. That process is still underway. And yet before the end of this first half of our fiscal year, i.e., before the end of September, we will make a decision. Either, we are funding and if successful, we continue to build it out and make it a nice operating site in Hull, or we have to take the other decision and we have to discontinue, which will be undoubtedly painful for people and also some pain in the heart of others. What we've done in the past is we completely ring-fenced Hull, financially ring-fenced it. And that's a strategy, which we are now saying, right, that was definitely the right strategy. We continue to do it that way. So apart from, yes, an impact, it has provisions we have to take for the closing Hull minor provision, but still relevant to us. That's it. Our exposure is very limited to how, if we have to decide to close the plant. Hopefully, that answers your question.

Yes. Okay. I mean, by the end of this year, it is going to be a transformed proposition, hopefully, with Hull included but one way or another.

That's correct. Yes. That's a correct statement. Yes.

We will now move on to our next question. Our next question comes from the line of Johan van den Hooven from Edison Group.

Yes. It's Johan van den Hooven, Edison Group. A few questions from my side. The first one is you're mentioning about your good pricing and you kept it relatively stable against competitors. Can you tell us a bit more about which competitors you mean and to which you compare yourself? Second question is about the good start of the year and in line with expectations. You mentioned volume growth for the full year. So, I guess you mean good start is higher volumes. But of course, that compares to a quite good start last year. And then just to double check, third question about cost savings. I thought you mentioned that you realized cost savings for EUR 3 million, but you also mentioned a target of EUR 3 million for this year. Are we talking about the same EUR 3 million? Or is it 2 times 3?

Thank you, Johan, for your questions. So the first question was about pricing. And as you can see, if you look at the pricing of Accoya and if you look at it over the period of time, of course, after a significant inflation in 2023, we went slightly down, 4% down this year, but we didn't -- and that, of course, was related to a mixture of the effect. Some of the effect is also reduced price of acetic acid. And the second effect is that we introduced specifical discounts for seeding in the new markets like, for instance, in the U.S. So basically, we do hold pricing of Accoya on almost historically high level. Despite that, what we call our competition is usually we are talking about hardwood because Accoya is used as a material of choice when people are choosing between hardwood and other modified materials. So if you look where the hardwood prices went in the last 1.5 years, they considerably decreased more than 50%. Then if you look that the Accoya only decreased 4% and still kept basically lower, still kept the market share, then we are saying that we are certainly are capable of defending that premium market position we have. So, that's it regarding the price and competition. You are talking about -- you also wanted to know about what the good start of the year means?

Yes.

So the good start of the year means that since January, we do see increase in the demand. We had 40% better demand in quarter 4 compared to the quarter 3. And we are seeing that our order book for the quarter 1, so the first 2 months of this financial year and order book for the next 2 months that we have visibility on, it looks quite good. So that means that order book is relatively full. Of course, that is the order book of business that is looking together at Kingsport and Arnhem. We are going to transfer Kingsport volume -- Arnhem volumes for the U.S. as soon as Kingsport becomes operationally efficient. And both plants -- so Arnhem is focusing to basically replace that volume within 12 months. And Kingsport is, of course, targeting quite a big growth because we are investing quite a lot in our commercial activities, including people in the U.S. given that we are going to get 2 reactors available. We do plan to fill in both reactors within 3 years as we are saying in that full-year '27 target of basically having Kingsport and Arnhem full. I hope this satisfies it.

Can I just say about -- if I understood correctly, the volumes in Q4 versus Q3, was it up 40% for Europe?

Yes. Q4 '20 -- so Q4 '24 -- financial year '24 versus Q3 financial year '24. So it was -- we had quite a weak quarter 3 and then quarter 4 improved, and then we see the trend in quarter 1, not 40% on top of the quarter 1, but we hope that stronger order book continuing into quarter 1 as well.

Okay.

Okay. And then cost savings, we are committing on this EUR 3 million because it's one-time EUR 3 million cost saving. We -- of course, we started with our transformation program in the middle of the financial year '24. We do see a portion of it. It's already visible in our operational expenses, but we basically are committing to deliver the full EUR 3 million savings in the financial year '25.

Okay. There is an additional question about the U.S. You already mentioned the ramp-up -- volume ramp-up in U.S. I think -- and you extended Arnhem by another reactor. You said sort of could be EBITDA breakeven in 12 months' time. Is that the same for the U.S? Or will it take a bit longer?

Johan, I think your -- you're mixing up things, frankly speaking. When we move from 2 reactors to 3 in Arnhem from 3 to 4, you were able to completely use that additional capacity within a 2-year time frame. That was just adding 20,000 cubic meters. Now, we're adding 43,000 cubic meters going from Arnhem to the U.S. We would love to achieve what you sort of envisaged us achieving, but I think that's overambitious. So let us be realistic. 3 years is a target we have and what we see on demand development in the U.S. and also in Europe as Jelena just mentioned. We've got good confidence that we can achieve that, but there's still obviously some uncertainty there. But 3 years is much more realistic than a year.

If I just may add -- if I just may add, Johan, filling the plants is not difficult if you want to reduce considerably the prices. We really want to keep that premium, and then build the volume actually in the plants with the most profitable business we can get. We invested a lot of money. We have a lot of metal in the ground, and we would like to focus on our returns.

Thank you. There are no further questions at this time. So, I'll hand the call back to Jelena for closing remarks.

So thank you, everyone, for attending today. And with this, I'm going to finish this call and you will hear from us again at the end of the first half of the year results in September. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.