Accsys offers blue sky potential

Not only does Accsys's treated wood offer the potential to reduce pressure on slow growth hardwood stocks, it also provides some stunning advances on conventional wood. Accoya-treated timber has a 50-year guarantee against rot or swelling, and you don't have to paint it for 20 years unless you want to. In fact, the Timber Research and Development Association (TRADA) has extended the service life of Accoya window frames to at least 70 years, significantly more than the most durable hardwood timbers. And, as an MDF substitute, Tricoya-treated wood chip can be left outside in the rain for 60 years with no coating.

Crucially, Accsys has reached the tipping point of moving from the development stage to achieving commercial roll-out, and has avoided the costs of establishing a string of production facilities by concentrating on securing licensing agreements. Only last month, it finally signed an agreement with Solvay, giving the Belgian chemical group exclusive rights for at least 15 years to produce and sell Acoya products in 47 Eurpean states, which excludes the UK. The first production plant will have the capacity to produce 63,000 cubic metres of finished Accoya. In return, Accsys will receive a series of licence payments, as well as royalty payments linked to volume output, and licensing income alone will reach €30 per cubic metre per year.

This comes on top of an existing joint venture with INEOS, called Tricoya Technolnogies Limited (TTL), that has signed up a licence agreement with Medite Europe, a well-known MDF producer, for the latter to build and operate a Tricoya plant that will provide Accsys through TTL with a series of licence and technology payments in the same way that it will from the Solvay agreement. And Accsys has also secured 50 distribution or agency agreements, where joiners can brand their products and thereby increase the profit margin. And, while the emphasis will remain on securing licensing agreements, Accsys built its own production plant in Arnhem, which on 60 per cent capacity generated €900,000 cash profits in the first half.

Establishing a new technology in an established market is always an uphill struggle, but Accoya wood is slowly gaining acceptance and other factors are working in the group's favour, notably much tighter regulations on illegally sourced wood. True, Accsys remains loss-making and doesn't pay a dividend, but the shares are all about its technology's blue sky potential. And now deals are coming through, the cash burn rate is shrinking rapidly from the current €6m-7m a year, with Numis estimating a free cash outflow of just €2.4m next year. Indeed, gross profits in the six months to September jumped 84 per cent to €3.5m with turnover up 74 per cent at €15.8m, and this doesn't include the latest deal with Solvay. What's more, increasing prices and economies of scale benefits have pushed gross operating margins up from 18 per cent to 22 per cent.