Accsys Technologies — Accsys now owns 100% of Tricoya but Hull on hold

On 12 September 2022, Accsys reiterated that it was in discussion with its consortium partners about the funding of the rising construction costs at the Tricoya plant in Hull (due to delays and COVID-19) and the continuing volatility in energy and acetyls prices, which were affecting the plant’s short-term profitability. Also in September, Accsys stated it was investigating all possible options, including changing the structure of the consortium or self-funding Hull from Arnhem's incremental cash flows over a longer period. Exhibit 1 shows the previous structure of the consortium, which was originally formed in March 2017.

On 2 November 2022 Accsys announced that it had become the 100% owner of Tricoya Technologies (TTL, owner of all the IP related to Tricoya) and 100% owner of Tricoya UK (TUK, the operator of the plant in Hull). Under the agreement, Accsys acquired the remaining 23.5% in TTL and 38.2% in TUK.

The consortium partners have sold their shares in TTL and TUK in return for new shares in Accsys Technologies. On 7 November, Accsys issued 5.7% of new equity (3.6% to Ineos, 1.7% to Medite and 0.4% to BGF/Volantis), which represented a value of €9.8m on 1 November based on Accsys’s share price of €0.80.

The original loan notes of €19m from BGF/Volantis have been repaid. At the start of the Tricoya consortium in March 2017, both BGF and Volantis were granted options to buy Accsys shares at 0.62p for up to a total of 14% of Accsys shares outstanding at the time. Volantis has exercised its options, but BGF still has its options.

As part of the restructuring, NatWest will write down €9m from the original loan of €15m to TUK, with a new seven-year term for the remaining €6m (with interest rolled up until the plant is operational). In a separate instrument, NatWest is entitled to recover up to €9.5m depending on the profitability of the Hull plant.

Apart from the €6m loan from NatWest, Accsys is now Tricoya’s sole owner. Ineos and Medite will remain operational partners by retaining their existing supply and offtake agreements respectively for the Hull project but 100% of the future potential of the Tricoya proposition (including licensing) now belongs to Accsys.

On 12 September Accsys stated that external parties would investigate how much capex was required to finalise the construction and commissioning of the Hull plant. That same month management commented that construction was mechanically completed for more than 90% and commissioning for about 40%. These third-party reports are now complete and indicate a further investment of up to €35m is needed to get the plant fully operational (according to management, this is largely related to commissioning). In June 2022 Accsys communicated that the total cost for the Hull project was €94–103m, thus these additional costs will bring the total investment to €129–138m, which is roughly double the €68m estimated at the start of the consortium in March 2017.

On 12 September Accsys stated that it would investigate the impact of volatile energy and acetyls prices on the plant’s short-term profitability, indicating that the threshold for break-even would be closer to 60–70% of capacity instead of the previously communicated 40%. Given the additional required investment of up to €35m, Accsys has therefore stopped the construction and commissioning of the Hull plant for at least six months (a ‘hold period’). This will reduce the cash impact from Hull from €4m per month to around €0.5m as of November 2022, which are on top of the additional expenses of up to €35m.

During the six-month hold period Accsys will focus on the following:

After the hold period, Accsys will only commit capital to complete the Hull plant if an appropriate return can be expected. We assume that the project will continue and that a further six to nine months will be needed to finalise the construction and commissioning of the plant, which means that we assume that it will be March 2024 at the earliest before the plant is fully operational.

We note that while it is positive that Accsys now has the full potential of the Tricoya business, it also has to bear the investment on its own. There are several possibilities for the funding of the construction and commissioning of the plant in Hull:

According to management, Accsys wants to complete the plant and it will take at least six months to decide how to proceed.

According to the company, it remains adequately capitalised and the change in the structure of Tricoya will not have a cash impact. Accsys provided a bridge loan to Tricoya UK of €17m last year (a second ranked loan facility) and in September 2022 it added an uncommitted €8m to cover cost overruns. This €8m loan is now committed and ranks joint first with the NatWest loan.

Accsys communicated that net debt stood at €62m on 30 September 2022 versus €55m at the end of March. Net debt is expected to decline by c €9.5m as NatWest will write down part of its loan to TUK and we expect cash flows to increase now that the fourth reactor in Arnhem is ramping up.

In its half year results (to be published on 22 November 2022), Accsys will most likely record a material impairment of a proportion of the tangible fixed assets related to the Hull plant (per end March 2022, assets under construction had a book value of €94m). We estimate an impairment of around €35m for Accsys’s previous share in the Tricoya business. The payment of €9.8m for the combined shares in TTL and TUK of Ineos, Medite and BGF/Volantis compares to their total investment of €50m.

Assuming internal cash flows of c €10m and potential higher debt of around €5m, this leaves an additional capital raise assumption of up to €20m in about six months’ time, depending on the outcome of the company’s assessment of how much it will cost to complete the plant in Hull.

We have reduced our revenue and EBITDA estimates for FY23–25 due to the further delays at Hull and the uncertainty about when the project will restart. We assume that it will take at least until March 2024 before the plant is operational, so we have postponed Hull’s contribution to the group’s results by about one year. We have left our FY23 estimates broadly unchanged as they already only consisted of the contribution from Accoya in Arnhem.

We have lowered our FY24 estimates as we have taken out the contribution of the Hull plant and lowered the average price and margin for Accoya as Accsys is expected to continue to produce low-grade Accoya which is chipped afterwards to produce Tricoya for market feeding by partners Medite and Finsa. The percentage decline in estimates is less for FY25 because we assume that the Hull plant will come on stream and contribute to group results in the same way as we previously planned it would do in FY24.

Our new estimates assume revenue growth of 15% in FY24 and 28% in FY25, driven by the ramp up of the fourth reactor in Arnhem and the first contribution of the Hull plant in FY25. EBITDA margins are expected to increase steadily as Arnhem scales up while Tricoya has a higher margin.

Despite the short-term uncertainty about the continuation of the Tricoya product, there is long-term potential for Accsys, even if it only continues with Accoya. The Arnhem plant has potential revenues of €180m with the full capacity of its four reactors (and there might be space for two more) and the first Accoya plant in the US with its 60/40 joint venture partner Eastman Chemicals has potential revenues of around €95m (with upside to around €380m if the plant is expanded to eight reactors). Current capacity plans, which include two reactors in the US, suggest revenues on a fully consolidated basis of €275m versus the €121m reported in FY22.

Optionally (if the decision is taken to continue with Tricoya), Hull could potentially contribute €50m in revenue with another €50m in revenue from a potential second Tricoya plant, for instance in Malaysia with its partner Petronas.

We use a DCF model as there are no other listed companies with a business profile close to Accsys’s. The company is trading on FY23e multiples of 2.0x EV/sales and 17.0x EV/EBITDA. Our current DCF model is based on four reactors at the Arnhem plant and one in Hull. We use a DCF to value a separate Accoya plant and add a value for the Accoya plant in the US, which is expected to be operational in mid-2024 after construction started in April 2022.

We previously added a value for the Tricoya plant in Malaysia (or an alternative location) with a probability rate of 50% as the final investment decision on that project had not yet been taken. But with the delay in Hull, any plans for a second Tricoya plant are delayed as well. According to management, Petronas is still interested in a Tricoya plant in Malaysia but as we have communicated previously, the Hull plant will be the blueprint for this second plant and should have been operational for at least six months before the final investment decision will be taken. If Accsys manages to get Hull operational in March 2024 it is unlikely that a second plant will be operational before September 2026. For that reason, we have left out any value for this potential plant.

Most of the other assumptions for our DCF model are unchanged. On our lower estimates and higher capex assumptions, our DCF indicates a value per share of €0.95 (previously €1.21).