Accsys Technologies PLC (AXS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Accsys Technologies PLC interim results presentation for the 6 months ended 30th of September 2024 webcast and conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Dr. Jelena Arsic van Os, Chief Executive Officer. Please go ahead.

Good morning, everyone, and welcome to our interim results presentation for the 6 months ended 30th of September 2024. We are here today to update on the transformation journey of Accsys for its long-term success. As Accsys is redefining the future of the wood materials, we are very proud to showcase beautiful Accoya projects delivered in the period. On the picture here, you can see the Oakencroft farm and winery [ in Virginia, U.S.A. ], where the owners chose Accoya to help create a warm and elegant space while supporting their commitment to sustainability and environmental conservation. Next slide, please. In terms of this morning agenda, we will start with an overview of key developments. Then Sam Vohra, our new CFO, will take you through the financials. I will then discuss our operational highlights, market overview and outlook. Following this, Sam and I will be happy to take any questions. Before we proceed, I would like to take a moment to introduce Sam to all of you and officially welcome him to the company. Sam brings with him a wealth of experience as a proven CFO in the U.K. public companies. And his expertise will be an invaluable asset as we continue to transform Accsys. I'm personally very pleased to have him onboard. Now moving to the presentation. Next slide, please. Next slide. I am very excited to share that we have delivered strong half year FY '25 results that showed clear operational, financial and strategic progress as a direct result of our business transformation and FOCUS strategy. Accsys is becoming a more customer-centric and more efficient business with a significant improvement in EBITDA, which more than doubled year-on-year, while exceeding our 30% gross margin target. As you may recall, at the end of the last financial years -- year, we made several commitments. We are proud to share that we have either successfully achieved those goals or are on a strong track to deliver them by the end of the financial year '25. Given the company's history, it is very important to us to demonstrate valid proof points and deliver what we said we are going to deliver. Growth in the period was robust. Total Accoya sales volume grew 10% globally. This includes sales from both Arnhem and Kingsport. Our largest 2 geographies, being U.K. and the U.S., representing more than 50% of Accoya business globally, delivered impressive growth of 24% and 18%, respectively, on the back of good sales through our distribution channel. This is significantly ahead of the broader building market, which was mostly flat or low single digits, depending on the country. We grew our market share, demonstrated successful management of market challenges and capitalized on benefits -- and benefited from our investments in sales and marketing. In the terms of OpEx reduction, last year, we promised EUR 3 million in operational cost savings. Today, we are pleased to report cost savings of EUR 2.5 million that are visible in our results coming from our transformation and operational turnaround. In addition to this, we have made EUR 1.4 million of savings from lower Hull maintenance costs in the same period. Following the completion Accoya USA and the discontinuation of the project in Hull, Accsys is now considerably derisked as a business. The company moved beyond peak investment, meaning the capital-intensive pace -- phase is over. Accsys is already redefining the wood industry with our unique products. Building on the operational measures we implemented last year and continue to refine and demonstrate through the first half of this financial year, we remain fully committed to strengthening our business fundamentals and establishing a healthier global platform for sustained growth. The company is now focusing on accelerating commercial activities to utilize the available capacity we have, increase profitability and reduce debt. Last but not least, every business is as strong as the people behind it. This robust result delivery would not be possible without the strong dedication of our teams across Accsys and Accoya USA. I am taking this opportunity to thank them sincerely for their hard work [indiscernible] during the journey. With this, I would like to invite Sam to give you an overview on our financial performance.

Thank you, Jelena. Hello, good morning all. I'm delighted to talk you through the financial performance and results for the half year in more detail. Next slide, please. This slide shows the financial performance and good financial progress made in the half year. I'll go into a lot more detail on a number of the financial metrics shown in the next couple of slides by highlighting some of them now. Total sales volumes were up 10% to 31,553 cubic meters compared to the prior period with a 5% increase in volumes from Arnhem and the U.S. joint venture delivering 1,181 cubic meters. The sales from the joint venture related to sales which previously would have been made by Arnhem. Aggregated revenue was up 4% to EUR 74.1 million due to higher sales volumes and maintaining a high average sales price across the mix. The gross margin was 210 basis points higher than the prior period at 30.7%, which is particularly pleasing to note. Underlying operating costs were down year-on-year by EUR 3.9 million, reflecting the benefits of the business transmission program and lower costs associated with Hull. Underlying EBITDA, which excludes the results of the joint venture, was up significantly to EUR 8.3 million from EUR 2.6 million in the prior period. And adjusted EBITDA, our main profitability performance measure, was up EUR 2.4 million to EUR 4 million. Net debt as of 30th of September stood at EUR 40.2 million, up from EUR 37.1 million at the start of the financial year. And we also booked EUR 3.9 million of exceptional restructuring costs and took a noncash impairment charge of EUR 18 million associated with the closure of the Hull plant. The EUR 3.9 million will be paid out in cash in the second half of the year. Next slide, please. Accoya sales volumes were up 10%, which was ahead of the broader building materials market, with wood revenue up 7% to EUR 67.4 million. We saw a particularly strong performance in the U.K. and Ireland, our largest market by sales volume, which saw 24% growth; and also North America, which was up 18%. North America sales are now fully transferred from Ireland to the new U.S. joint venture facility in Kingsport following the commercial start-up in H1. We also saw good growth in France and the Benelux countries during the period, but this was offset by lower sales in Germany, which is a feature of the wider German macroeconomic situation there. We also continued to see strong growth momentum for our Accoya Color product, which is also pleasing to see. Next slide, please. Our sales performance for Accoya for Tricoya remains robust, with sales volumes up 7% and revenues up 11% to EUR 12.7 million compared to the prior period. Accoya for Tricoya represents 28% of group sales volumes, slightly down from 29% in the prior period, but reinforces our belief in the long-term market potential for Tricoya panel products. Next slide, please. This slide shows EBITDA segmental breakdown in H1. EBITDA from our Accoya segment increased by 44% from EUR 9 million to EUR 13 million, which is a very strong performance. This growth is due to higher sales volumes, an improvement in the gross margin of 210 basis points to 30.7% and lower costs arising from the business transformation program. Corporate and R&D costs were EUR 0.3 million lower than the prior period, again reflecting lower operating costs from the business transformation program. Costs associated with the Tricoya UK Hull plant amounted to EUR 1.6 million in H1. Following the closure of the Hull plant, we expect to see annual operating cost savings of EUR 3 million per annum from this plant closure. So accordingly, underlying EBITDA improved significantly from EUR 2.6 million to EUR 8.3 million in the period. The Accoya USA joint venture [indiscernible] loss of EUR 4.3 million for the period, which reflected the costs associated with the pre-revenue phase of the plant and costs associated with the ramp-up of production. We expect the profitability of the U.S. joint venture to improve in H2 as production and sales volumes increase. Therefore, adjusted EBITDA, our main profitability performance measure, improved significantly to EUR 4 million in the period compared to EUR 1.6 million in the prior period. Next slide, please. This slide shows the EBITDA progression during the period, reflecting the financial and operational improvements made by the business. Sales volumes in Arnhem were 5% higher than the prior period, as I've mentioned before. We maintained a high average sales price across the mix, but in certain markets, enable to -- in order to grow market share, we had to undertake selective discounting; and this had a slight effect on the -- on profitability. Following the commercial start-up of the Accoya USA plant during the period, North American production sales that were previously made from Arnhem have now fully transferred to the new plant in the U.S.A. Since the sales price of Accoya products in North America is slightly above the overall average, there has been a small effect on revenue resulting from this transfer. We saw a benefit of EUR 1.9 million in raw material costs during the period, which was primarily due to wood. We experienced a lower average purchase price at Accoya for Tricoya wood following the usage of higher-priced appearance grade wood in H1 FY '24. Net acetyls were slightly higher than in the -- than the prior period also. The business transformation program implemented last year delivered benefits of EUR 2.5 million during the period. And we saw a reduction in costs associated with Hull of EUR 1.4 million. On an annualized basis, we expect to see benefits 3 -- benefits of EUR 3 million arising from the business transformation program and a further EUR 3 million arising from the closure of Hull going forward. Next slide, please. This slide shows the evolution of net debt during the 6-month period. Net debt at the end of September 2024 amounted to EUR 40.2 million, an increase of EUR 3.1 million compared to the start of the financial year. Operating cash flow has been strong during the period at EUR 8.7 million. While the overall movement in net working capital was relatively neutral, inventory levels reduced by EUR 1.8 million, but this was offset by a high level of receivables of EUR 2.3 million arising from high sales. Tight working capital management and free cash flow generation remains a key area of focus for us. CapEx was EUR 0.7 million during the period. And interest amounted to EUR 2.2 million, of which EUR 0.8 million was paid and EUR 1.4 million was rolled up. We made planned investments of EUR 7.2 million linking to the Accoya U.S. JV, as it completed its pre-operating activities and commenced commercial operations. Included within the net debt balance of EUR 40.2 million as of 30th of September are borrowings of EUR 7 million relating specifically to Tricoya UK. Following the closure of the Hull plant and for the Tricoya UK entity to enter a creditors voluntary liquidation, the EUR 7 million of debt associated with that entity will fall away. Debt reduction and deleveraging the balance sheet really does remain a key focus area and priority for us going forward. I'd like to now hand you back to Jelena, who will talk you through the business review. Next slide, please.

Thank you. Thank you, Sam. Next slide, please. Looking at our H1 results, we conclude that global demand for Accoya remains resilient, with a 10% increase in total Accoya sales making good progress for our mid-term volume target of 100,000 cubic meter run rate at the end of financial year '27. With continued challenging conditions in the construction industry, H1 sales volumes grew ahead of the broader building materials market, with market growth in the Americas forecasted to be flat in the calendar year '24; and negative, minus 0.5%, in Europe, according to the [ Oxford Economics ] industrial and building material global industry forecast. We have achieved this market share growth while maintaining our gross margin of 30%. Teams are working very hard on elevating the customer experience. Accoya also continues with its premium price discipline. We have maintained a high average sales price across the product mix, with some sporadic discounting in selective markets to stimulate growth and establish market presence. Our product availability improved, and it will continue to impact positively on our customer experience. Our demand drivers remain robust. Accoya is redefining wood building material performance. Global economic development and the substitution of CO2-intensive materials with more sustainable solutions is happening right now as government policies around the world focus on delivering a net zero economy. Wood materials are well positioned to take the market share they deserve, as they are naturally capturing CO2 and are truly circular and renewable. Next slide, please. On the screen, you can see some of the impressive projects from the past 6 months, all showcasing the beauty and versatility of Accoya and Accoya Color. We are incredibly proud of our products. And now they empower builders and architects to bring their creative visions to life across such a wide range of projects. This year, we had the honor of showcasing Accoya Color decking at the world-known Chelsea Flower Show in London, a prestigious event that attracts over 150,000 visitors. From garden designs to commercial buildings, it is exciting to see more and more offices and business structures embracing sustainability. Accoya was chosen for projects like the Unusual Rigging headquarter and the Oakencroft winery and a major development in Willowburn Retail Park in the U.K., just to name a few. Beyond commercial applications, Accoya continues to be popular choice for the high-end residential building. A perfect example is this stunning boathouse in Austria, where Accoya Color resistance to the moisture played a key role in their decision to use our wood for such a distinctive and demanding project. Next page, please. Our most significant achievement in this period is the opening of our second production site, Accoya USA, in a joint venture with Eastman Chemical Company. Located within the [indiscernible] complex in Kingsport, Tennessee, this site gives us a local production in one of the world's most attractive markets. I would like to reiterate many thanks to our joint venture partner and the teams involved from Kingsport and Arnhem for their hard work in bringing the site into production. The plant that -- which represents our Arnhem -- basically replicates our Arnhem facility, gives us an additional 43,000 cubic meters of capacity, with the potential to increase this in the future. I'm very pleased to report that the manufacturing operations of the plant are on track. While pre-operational and ramp-up costs have been higher than anticipated for this period, as you heard from Sam, we are confident that the site's underlying profitability will strengthen in H2 and as we pass start-up phase and production volumes and customer sales grow further. The opening of this site is a huge achievement for Accsys and Accoya USA. It transforms our business and provides growth potential. Next slide, please. We are intensely focused on rapidly increasing sales across North America, ensuring that Accoya reaches more customers than ever before, now that we have increased capacity and reliability of supply. Our North American strategy focuses on 3 key aspects: firstly, targeting high-demand regions. We are doubling down on critical areas like east and west part of the country, Northern California and Florida, by ensuring we have 2 significant distributors in each area to fully penetrate [indiscernible]. Secondly, we are relentlessly building our distribution footprint partnering with new distributors, expanding our highly effective Approved Manufacturer Programme and [ deepening ] relationship with existing distributors to grow together. Already in H2, we have secured 2 significant new distributors in America to support our market growth. Our distribution is serving more than 100 of AMP's approved manufacturers in the country. Finally, we are driving awareness and demand among architects, contractors and end users, those who ultimately make the decision whether to use Accoya, using the full suite of marketing channels. With this investment in marketing and awareness, we are ensuring Accoya stands out against competition. We are confident that this strategy will increase our market share and deliver the benefits of Accoya to more end customers [ than ever before ]. Next slide, please. Tricoya revenues showed robust growth of 11% in the period. And it represents 28% of the group sales volumes. As we exited the project in Hull, we would like to reiterate that the group remains fully committed to Tricoya. And we are confident these products have a bright future ahead, as demonstrated by the sales growth momentum. We will continue producing Accoya for Tricoya at our Arnhem site, ensuring that we meet the needs of our long-standing customers. Our immediate focus will be on improving production efficiencies, including increasing the use of Spanish radiata pine in this product line, which will help us enhance both performance and sustainability. Next slide, please, turning now to our operational highlights. As you can see on this slide, we are progressing well on our key operational targets that we communicated at the end of financial year '24. Kingsport is online and commercially operational. Our business transformation program is working and delivering results. We have made operational cost savings in the first half of EUR 2.4 million compared to the same period last year. The team is now more agile with a faster decision-making, driving operational efficiencies. With the organizational delayering, the leadership and organization are more empowered to drive further continued improvements. We are making good strides with our FOCUS strategy. We have worked hard to quickly embed our new assets, ensuring a smooth transition from volumes being sold out of Arnhem to the U.S.A. We are sharing best practices and learning between the 2 sites and accelerating our sales and marketing to progress towards our target of 100,000 cubic meter run rate by the end of financial year '27. The company also made a very strong progress with our Solid Roots program in Arnhem. In the period, we have improved the overall equipment effectiveness to be on track for a 500 basis points improvement at the running financial year. We also have a new incentive program in place. And we continue to accelerate our sales and marketing as we [ go further ] our volume. Delivering on our promises is very important to us. And we are proud of the proof points along the way. Next slide, please, looking at the outlook. As much as we are very pleased with the delivery, so far, we will stay laser focused to continue to drive performance going into second half of the year. We do not expect too much support from the market, which is still being relatively soft. Nevertheless, we are upgrading our EBITDA outlook and do expect the end-of-year result to be significantly better than consensus. Growth momentum is expected to persist. And our commercial team works very hard on demand creation, as commercial success is one of the most impactful accelerators of the company performance. We are committed to enhance customer experience while strengthening our commercial presence in Europe and the U.S., expanding our market channels and driving strategic growth initiatives globally. Our product is premium in the marketplace, so our products pricing and gross margin discipline will continue. We will advance with the further ramp-up of the Kingsport capacity, with focus to improve our joint venture underlying profitability. Efficient cash management and deleveraging the balance sheet remains our key priority. Overall, H1 result has been a period of strong progress for Accsys. The company is building robust foundations with a simplified structure. We are creating a higher-quality business with greater capacity. This will enable us to deliver on our significant potential. The executive committee and the Board have been working on refreshing the company strategy in the first half of the financial year. I'm very excited to inform you that we will be holding an Investor Strategy Day on the 30th of January '25, where we will discuss our growth outlook and the company strategy in more details. This was everything what we prepared for today. Thank you very much for listening. And now we will open for questions. Operator?

[Operator Instructions] And your first question comes from the line of Martijn den Drijver from ABN AMRO ODDO BHF.

I have 4 questions, and I'll take them one by one, please. When talking about sales growth, you mentioned 10%. Can you elaborate a little bit on how much is restocking? How much is real underlying market demand? And how much is market share gains? Just to give us a bit of a sense between these 3 drivers.

Do you want me to answer the question? Okay. So listen, Martijn. We see quite a good sell-through, our distribution channel. And as you can remember, at the end of the last calendar year, we had quite a lot of stock in the distribution channel, but nowadays we are able to follow the sell-through. And most of the demand and most of the growth that you are seeing today is actually being the underlying demand and market share growth in the region. Now we do have also -- with the new distributors, they are building some stock. So every new distributor that comes in, they do create some stock, but this is nothing large. And we are following very, very swiftly how much is going through. So that is the new process we have with our distributors. So most of it is [indiscernible] market share growth.

Clear, clear. Moving on to my second question, the guidance for significantly higher results, EBITDA relative to consensus. What kind of production/sales level have you baked into that guidance for Accoya USA? And should we just assume that Arnhem did roughly 10,000 on an annual basis, so 5,000 for the second half of the year for Accoya? Or would that be a too optimistic assumption? Just a bit more color on that development in the guidance.

Yes, sure. I think, Martijn, it's a new plant. It's a new facility. It is going to take a period of time to ramp up. And we've always said that, the sales that were made out of Arnhem, it would take about 12 months for that to -- for it to be to -- for it to come through North America. So I would say, for -- in total for the financial year, looking at North America doing around 7,000 to 8,000 cubic meters for the joint venture.

Got it, got it. And then with regards to pricing, I was wondering. That's my third question. Can you talk a little bit about what you're seeing? And particularly Europe versus the U.S. Because I understand that there are some Lat Am-based hardwood exporters that are driving down prices in the market. So maybe you could talk about pricing in Europe and pricing in U.S. That would be very helpful.

So as you can see, usually the pricing in the U.S. is higher than the pricing in Europe. That is our experience, so far. If -- you saw it in our bridge that we did realize minus EUR 1.2 million of price reduction in the first half of the year. The EUR 0.9 million came from reduction, so this very specific discounting that we like -- that we put in place to attack the new customers or new -- to attack the new market; and EUR 0.3 million from transferring volume from Arnhem to the U.S. Now we do -- as you remember, in our last year result presentation, we were talking about specific discounting that we started in the U.S. at the end of calendar year 2023. Those efforts basically paid off. It took a little bit of time for distributors because we -- and our marketing and commercial activities are not focusing on really gaining the market share by reducing the price. We put quite a lot of -- it's premium products. And we are putting quite a lot of efforts on specification selling. We are putting quite a lot of efforts to invest in the marketing and sales activity so that we actually sell the value of Accoya, so our pricing in the U.S. is -- stayed on a very high level as it's also stayed in Europe. So we are not expecting some massive price reductions, if you like, in any of the region going forward.

Okay, so no effect for whatever pricing those hardwood competitors are actually using. Okay, clear. Then my fourth question is with regards to the gross profit margin. You did a very strong level in the first half. When we talk about Solid Roots and that 500 basis points improvement, should we use that as an uptick for the gross margin based on the 2024 level? Or should we use it as a base -- from a base of the 2020 to 2023 gross profit margin, when it was already 32%, 34%? So just to get a bit more sense of where the Solid Roots program could lead in terms of gross profit once concluded.

Yes. That's -- it's a good question, Martijn. I think, the Solid Roots program and the 500 basis points that we talked about, it's looking at overall equipment effectiveness. That's not saying that it's 500 basis points on top of our gross margin because gross margin is made up of raw materials, labor costs and overhead costs. So my -- at 30.7%, the gross margin is up 210 basis points on the prior period. It's above our target of 30%, but really I would expect, for the full year, us to maintain the gross margin at roughly this sort of level. But we would be looking to increase it over the next couple of years because really it's all about reliability and availability.

Just to come back to that. Are you now saying that, if you've concluded it and volume goes back, you can -- and I know that this program doesn't equate gross profit margin but that you can get overall for Arnhem to above that 34 -- 32%, 34% that you did in the past. That's essentially what you're saying.

That's correct. That's correct.

All right. I have additional questions, but I'll move into the queue for now, back in the queue.

Right, okay.

And your next question comes from the line of Thomas Rands from Davy U.K.

Can I just check you can hear me okay?

Yes, all good.

Great. I've got 3 questions. The first one -- I'll take them in order, if that's okay. The first one is just can you -- and thank you for the details of the kind of guidance for U.S. Accoya volumes, but can you just remind us when you see that kind of plant kind of being breakeven? What kind of volume are we needing to get to that point, and what the kind of time scale could be, please?

So we don't give guidance in terms of the breakeven point for the North American plant. It has only just started commercial operations, but as you'd expect for any new facility, that initial period, you would expect to have those start-up losses, which is what we're seeing. But as we really -- as we ramp up production and hence sales and -- the profitability will improve, so really we would be looking at profitability in its -- [ in the second half of the ] next financial year. But we don't give specific guidance as to amount of breakeven point.

Okay, understood. The second question was some -- giving us some detail on the U.S. kind of marketing ramp-up to kind of absorb this extra volume that's going to be coming in the next couple of years, obviously, in Europe as that volume transitions from Arnhem to Kingsport. Is there a plan? And can you share some of the details of marketing in Europe to kind of absorb some of that spare capacity at Arnhem that would have obviously -- or has been and will do for a short period supply that U.S. market? Or it's too early to talk about that.

Yes. Thomas, with -- we are quite -- we are actually quite -- investing quite a lot in the people, in marketing and sales, also in tools. If you look: For the Accoya USA, we basically doubled the head count from April '23 until today. We are also increasing number of salespeople, commercial people, and that includes sales and marketing FTEs, in Europe as well. So our plan is really developing the business development plans with our key distributors. We are working with them on the leads, on the definition of targets. And we are supporting them with the marketing material, so we do have a quite detail -- quite a detailed and very close cooperation with all of that. And as I mentioned in the first part of the -- when I was answering questions from Martijn, we do now follow with them also what is the sell-through, not with all of them but with the largest ones. What is the sell-through? And how much stock do they have in place? So that we can be much more efficient also with our supply.

Okay. And then the third question is kind of 3 elements linked together, so hopefully -- I'll try and get this [ out ] quickly. I guess, the extra volume, Accoya volume, in Europe, that will allow you to kind of feed more into Tricoya production, so is that a key part of that kind of extra plan to help ramp up the Tricoya? Is there -- from a raw materials availability point, given that you're now obviously Hull closure, you're not using the pine kind of wood chips to [indiscernible] plant to feed into Tricoya. Is there access to lower-grade wood, the radiata pine either in Europe, through, you mentioned, the Spanish kind of supply chain now; as well as the traditional one, to kind of feed in lower grade into Accoya for Tricoya production? And then the third element of my third question is just any comments around the kind of market acceptance of Tricoya given its disruptive nature. Obviously you've seen growth in the period, but I guess, is the market pulling for more demand and you're struggling to supply? Or is it still kind of a steady acceptance from the market which is just feeding into that kind of demand profile?

So as I already said, that Tricoya is very important product range for us. We reported last year, at the end of financial year, growth in the volume. And we are continuing to report also into this first half of the year this growth of like 11%. So Tricoya represents today 28% of our volume, and we are able to basically keep that volume. We don't want to fill in half Arnhem plant with Tricoya volume because, for us, Accoya as a product range is more profitable than Tricoya, so -- but in any case, it is a very important product range. And we are continuing to serve our existing and long-standing customers. Now we do put a lot of efforts to optimize the cost to serve and, if you like, the costs to produce Tricoya. So today, we are using much more of the kind of cheaper wood species than radiata pine. So Spanish pines is one of the wood species that we are using regularly to optimize the costs of Tricoya production. So we -- yes, we do have access to the lower-priced wood. And yes, Tricoya will remain a quite important product range. If you like -- if you look at today, on 28%, that is basically one reactor in Arnhem is dedicated for the Tricoya production. I hope I answered your question.

Yes. The last point was around kind of market acceptance of Tricoya is -- what are you seeing? What are you hearing from kind of customers and distributors of the end customer architects' kind of design and use of Tricoya, please?

So we do really that -- the progress is slow, but it is very consistent. So what we are seeing, and we are reporting this very regularly, plenty of applications. They are -- Tricoya is being used. And it is being used for -- from the siding of the roofing, to the facades of the buildings. And our Medite and -- both our customers are actually taking care that it is becoming and becoming very visible in their product range. And it is important part their product mix, to have it always on stock and available for our [indiscernible].

We will now take the next question. And the question comes from the line of Christen Hjorth from Deutsche Bank.

Three questions from me. I'll take them in order as well because that seems to be the trend, but the first one: Can you just touch on the initial feedback from new U.S. distributors and architects now that [ North American ] supply can ramp up? Any particular pushbacks from them?

So I must say everybody is super, super excited about having the greater availability and greater, if you like, security of the supply and local production in the U.S. So feedback from our distributors was really very, very positive.

Brilliant, excellent. And then second one is just on that sort of theme of Tricoya from Accoya. Would plan be to do that in the U.S. as well? I assume, in the first instance, the focus will be on Accoya, but then going forward...

So as you said, our primary focus is really getting the capacity [ filled in ] with Accoya. We do not have, at this moment in time, plans to produce Accoya for Tricoya in the U.S., but as the market develops and as we come to that stage -- I mean never say never, but for that -- for now we are really focusing on getting as much Accoya from that plant as possible.

Brilliant. And then maybe one for Sam: Just there's been a theme of deleveraging in the presentation. Just how should we think about the right level of leverage for this business?

Yes, it's a good question. I mean clearly I did show and I talked about the net debt bridge, but really what I'd like the group to get to is being in a position of between 1x to 1.5x leverage. And I think that will be a healthy level and will give us ample headroom to undertake additional CapEx as we see fit.

Brilliant. And maybe just one more. I mean the growth in the U.K. seems very noticeable -- and lots of U.K. companies like Kingfisher and B&Q yesterday talking about the struggles that the U.K. is having at the moment, so what's been the driver of that big bounce-back in U.K. sales [ volumes ]?

It's really the result of our investments in the commercial activity, better availability of products, better reliability of supply. As you know, we really struggled quite a lot for a period of time with availability of the products in all the markets. Then we went through the period of very big stock levels at our distributors. And now we are coming back to that regular sell-through, so everything what we've seen from the U.K. is really the effort of our big, big effort in investing in commercial activity. So it's really a market share gain.

[Operator Instructions] And your next question comes from the line of Johan van den Hooven from Edison.

Most of my questions are already asked, a few left. If you look at the inventory levels, they further decreased in the first half. What are your expectations going forward? Is there some -- more room for further reductions?

Yes, absolutely, yes. I mean you saw in the first half a reduction in inventory levels, which came through in the cash flow statement. And as we can see, that, yes, for us, tight working capital management, which is really around our focus on inventory, both raw materials and finished goods, is really key. And quite typically, we look at having about 3 months of raw material wood inventory on hand given the lead time in terms of purchasing and the duration from New Zealand for it to get to the Netherlands and approximately 1 month of finished goods. And actually the stock turnover of finished goods is very fast, so tight inventory management is very key for us, but really think about 3 months raw material, 1 month finished goods.

Okay, so there's -- from the current level, there's some -- still some room for improvement. You're not there yet, I mean.

Yes. There is a little bit on the raw material side.

Okay, yes. Second question is you just mentioned that good growth in the U.K. due to increased commercial efforts. I might have missed a bit in the presentation, but the rest of Europe was the only region showing a small decline. Is there a special reason for that? And are you expecting to turn that around?

Yes. No, yes. I -- basically we had -- we are seeing growth in France and Benelux, for instance, but Germany was really, really, very, very soft. And if you look at EUROCONSTRUCT reports that we have available, the number of new build homes in Germany since '22 decreased 40% in this year. So it is predominantly -- the numbers you see in our reports are predominantly driven by weak Germany. And then all the other parts of DACH are relatively good.

Okay. And then last question for now. So the Tricoya panel revenue was a bit lower than last year. What is your plan with, well, selling Tricoya panels yourself?

We will continue doing that. It is, of course, additional marketing and commercial efforts for us, but we do have good partners, a few partners that -- doing it. And we will continue to basically [ prove ] the viability of a bigger push, so it is we will continue doing.

Your next question comes from the line of Max Hayes from Cavendish.

Can you guys hear me?

Yes, we can.

Got it. Congratulations on the results. Just one quick question from me. I think you spoke about plans to grow gross margin above that 30%, [ particularly ] after FY '25. Are you seeing anything that could impact that such as sort of potential wage inflation across your markets?

No, I think clearly there's always going to be inflationary pressures on our input costs, yes. There is wage inflation [indiscernible] with our workforce, the majority in Netherlands; inflation levels in the EU, that also our workforce in the U.K. have reduced. So there is less inflationary pressure there. And in terms of wood availability, we -- for a number of the sawmills in New Zealand, we are their largest customers. We have very good purchasing power. They have their own input cost inflation which they will try and pass onto us, but we can leverage our position in terms of buying appearance grade wood to sort of try and reduce that inflationary pressure. And then really, from the chemicals side, similarly there are options other than contractual anhydride purchasing. There is spot market, but we balance off purchasing chemicals because it's really based on availability. But really we target 30% gross margin at a minimum, but I would expect us to be above that in the coming years through really optimizing our operational performance.

Your next question comes from the line of Martijn den Drijver from ABN AMRO ODDO BHF.

Firstly, can I come back to Germany just to give a bit of a sense of how much headwind that has been? Do you know by heart what is the absolute decline in sales in Germany relative from -- let's say, from 2 years back to now?

Well, we -- listen. If you look at the best times in Germany, we are probably at maybe 30% down. I'm not talking about last year. I'm talking about a few years back.

Yes, so 30% down. And can you just remind me what type of absolute number is that or maybe even a range if you don't know the exact number...

No. I would prefer to not -- I don't think we ever share that...

No. We don't quote individual countries. Germany defaults as one of rest of Europe.

Okay. Then my second follow-up question is on Accoya Color. Would you be able to share a bit the developments in that segment? So maybe a little bit more color on volumes and your expectations for volume in the second half of the year.

So we do have -- Accoya Color is becoming one of our major products, if you like, on the growth path. It is we are investing also in some improvements on the finishing part of the product. So as you know, Accoya Color can be acetylated. And then it goes to the profiling so that you can make the final product that is decking, for instance. So we had this year a 29% year-on-year growth on the Accoya Color. It is a relatively small part of our sales mix, so -- and we do expect to actually continue on this growth path as we go into H2. So today, Accoya Color is around 7% of our mix.

And can I tempt you to give us a bit of a sense of the utilization of that plant in Barry? Are we talking 20%? Are we talking 40%? Where are we, roughly?

So the plant in Barry is basically mostly limited by the availability of the proper quality of the raw material. Accoya Color does need premium wood, and so the problem is not with the capacity. The problem is really the raw wood availability.

Okay. And then my final question. When we were talking about Accoya USA and the start-up costs and scaling up, you said that it costs a little bit more than anticipated. Are there incidental nonrecurring items that we should not take into account for H2 that did impact H1? Or are they just all normal start-up costs, scale up costs...

No. They're all just regular start-up costs as any plant would expect to see, nothing [indiscernible].

Your next question comes from Thomas Rands from Davy U.K.

Just one follow-up on the back of Martijn's question on the Accoya Color. Given the limited supply of raw materials, would it be fair to say that the expansion of the range of colors probably -- I think you only supply one color at the moment. Previously, you've talked about maybe adding other colors in time. Is that kind of delayed while you kind of build up the potential with the existing kind of color offering?

So maybe I should kind of bring you to the right thought. So this availability of the right-quality wood was a temporary thing for the H1. And it was a consequence of basically availability on the supplier side, but in general, we do have enough, there is enough good-quality Accoya Color wood available across all the suppliers that we have in our portfolio. It takes a couple of months to get wood from New Zealand to Arnhem or to Barry, so in that sense, we do expect this availability and we see that availability improving. And it will continue, so we will grow Accoya Color quite aggressively as we go forward. We are also investing in the plant in Barry, on the [ cleaner ] and the other finishing capabilities so that you're going to hear, hopefully, in the future some positive news about that. Our innovation progress on other colors, like Accoya brown, for instance, we are not -- we are very much dedicated to expand [ portfolio ] as much as we can, so we are putting a lot of efforts to actually continue this work. And we will report on the progress as we go.

Thank you. There are currently no further questions. I will hand the call back for closing remarks.

[ Great ]. I just want to leave you with a couple of key messages that we want to leave it -- with you. First of all, Accsys is becoming a higher-quality and more profitable business. We also moved beyond the peak investment phase. We do have a new platform in place and capacity to deliver on our growth ambitions, which you all know it's quite aggressive. And we are also demonstrating with all the proof points from this H1 that we are actually committed to deliver what we say that we are going to deliver. With this, I want to thank everybody who contributed to the call and also everybody who asked the questions and our moderator. Thank you very much. And we will now close the call.

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