Accsys takes heavy impairment on Hull project

Stephen Odell, executive chairman of Accsys Technologies (AXS), summarised what went right for the company through FY 2023 when he confirmed that it “offset the wider market pressures from raw materials costs and supply chain disruption through price increases”. A seemingly straightforward task on the face of it, but for a capital-intensive enterprise like Accsys – a manufacturer of high-performance wood products – the combination of upward cost pressures and supply chain disruption poses a threat to financial performance.

In the event, the company achieved record production in the fourth quarter *(Q4) as demand for its products held up despite wider macroeconomic challenges. Gross profits were up by 53 per cent to €55.2mn (£47.2mn) on a four percentage point increase in the underlying margin.

Unfortunately, the ongoing assessment of its “world-first” Tricoya (a high-performance MDF composite) project in Hull meant that development has been temporarily put on hold, as management chose to mitigate the risk of weaker economics on start-up due to high raw material prices in Europe. The decision was also taken to book an €86mn impairment based on additional time and costs towards completion, a 20 per cent reduction in projected production volumes, and a 3 per cent increase in the applied discount rate to 13.5 per cent. Further work is required to prove the working capabilities of the plant, and discussions are ongoing with strategic partners to foot the estimated €35mn bill to complete the project, although there are no guarantees on that score.

It would be unwise to make a definitive judgment given the uncertainties in Humberside, but at least the company boosted capacity at its plant in the Netherlands by 25 per cent, and consensus forecasts suggest that its free cash flow yield will turn positive in the current year. Hold.   

Last IC View: Hold, 65p, 22 Nov 2022