Accsys Technologies PLC (OTCPK:ACSYF) Q2 2022 Results Conference Call November 22, 2022 5:00 AM ET
Company Participants
Robert Harris – CEO
William Rudge – Finance Director
Conference Call Participants
Martijn den Drijver – ABN AMRO
Christen Hjorth – Numis
Johan van den Hooven – Edison Group
Robert Harris
Good morning. Welcome, everyone, to our interim results presentation for the 6 months ended 30th of September 2022. Before we get started, I want to draw your attention to this picture. It’s of a newly built family house in the middle of a Lithuanian forest. I always like to start by talking about our products because we are all very proud of them in Accsys.
You can see the house features of Accoya wood cladding installed vertically in narrow battens. Accoya was also used for the garden decking and also used for the walled garden snug. Accoya was an ideal choice for this harsh environment, which experiences extreme cold in the winter as very hot summers.
Interestingly, in this project, it was the clients themselves that requested Accoya, showing the strength of our brand with our end users. This is supported by our recent brand awareness studies, which show that around 1 in 3 of our target audience in the U.K. and Germany is now actually aware of Accoya. Here is our usual disclaimer.
Next slide, please. In terms of this morning’s agenda, I will begin with an overview of the results. Then Will Rudge is going to take us through the financials. I’ll then walk through the business review, highlighting progress on our growth and expansion strategy, the recent challenges we’ve had and overcome and the outlook for our business.
Turning now to the overview of the results. We have delivered revenue growth in the last 6 months, up 5% to [EUR589 million] compared to H1 2022.
This has been driven by strong pricing power and product mix, despite lower volumes. You’ll see volumes were down 19%. This was due to the previously announced temporary production shutdowns in April and May related to our site expansion in Arnhem. We actually expect 50% higher volumes in H2, but more about that later. Gross profit is up 5%. And remarkably, our Accoya profit is up 30% per cubic meter.
This reflects the strength of the Accoya brand and the pricing power it commands in the market. Our ability to push through higher selling prices has offset macroeconomic inflationary pressures, such as historically high energy and chemical prices.
EBITDA is steady at EUR4.5 million compared to the same period last financial year. Demand for Accoya continues to exceed capacity, and we are pleased to say we continue to have strong customer demand for the next 3 months and beyond. We have just 2% market share of our target market for Accoya and Tricoya, leaving us a 98% opportunity. During this period, we have made excellent headway with our Accoya growth projects in Arnhem and with the Accoya USA Kingsport site in Tennessee.
We are pleased to have completed the reactor capacity expansion of our Arnhem site in September and are focused on ramping up production there. As I’ve previously said, we expect to see the benefit of this in sales volumes and operational leverage coming through in the second half of the year. Construction progresses very well at our exciting USA joint venture site in Kingsport, which will have a capacity of 43,000 meters cubed. The plant will service the substantial latent demand in the North American market and is on track for completion in early 2024.
In Hull, we have previously reported on some ongoing challenges and delays with the construction of the world’s first Tricoya plant. This has been a very challenging, very difficult and frustrating period, hampered by COVID, commissioning challenges and our capability needs. Discussions and validation work across the period have led to the restructuring of the Tricoya consortium earlier this month, giving Accsys 100% control and 100% of the potential earnings from Tricoya.
We believe this is a good result for Accsys, giving us the optionality to continue the project firmly on our terms and to our time lines. I’ll provide more detailed updates on our projects in the business review.
I will now pass over to Will to update on the financials.
William Rudge
Thank you, Rob, and good morning, everyone. First of all, just to comment on the image on the financial results page. You can see here a pool cover made of Accoya Color, made up of private residents in the Swiss Alps. Here, Accoya was selected with durability and stability even in this harsh Alpine landscape.
Moving on to the financial highlights. Looking at the financial highlights for the 6-month period to 30th September, Accsys delivered a flat EBITDA, as Rob just explained, despite a 19% reduction in sales caused by the production capacity constraints.
The 19% reduction to just under 24,000 cubic meters was due to the extended plant shutdown in Arnhem in April and May, which was required to complete the times of fourth reaction expansion project, as we’ve previously reported. However, despite that, revenue grew by 5% to EUR58.9 million, driven by an increase in our average sales prices compared to last year.
With inflationary cost pressures resulting — and those resulting from higher gas prices, our key manufacturing profits were, however, strong. We continue to achieve target gross margin of 31% achieved in the period. More importantly, again, as Rob explained, the profit per cubic meter increased by 30% to EUR755 per cube, with an opportunity for further growth going forward as we start to benefit from the fourth reactor. This enabled gross profits increased by almost EUR1 million, with our price increases more than offsetting the raw material costs and the impact from lower sales volumes.
Resulting underlying EBITDA of EUR4.5 million in the period was the same as last year after relying for a moderate increase in other operating costs.
We have recorded an exceptional non-cash impairment charge in period of EUR58 million in respect of the Tricoya assets. This takes account of up to EUR35 million worth of capital costs identified to complete the plant construction, a hold period of at least 6 months, which we reported on the 2nd of November. And in addition, the impairment reflects other factors, notably current higher forecast acetyl costs and higher market interest rates, which impacts the discount rate. Rob will cover the Tricoya projects in more detail a bit later on.
Net debt increased to EUR61.4 million as a result of investments into the U.S. joint venture, completion of the fourth reactor and investment of the whole project for Tricoya.
We are expecting the cash balance of EUR7.2 million as of the end of September to increase over the second half of the year, volume completion of the Arnhem expansion and as we focus on ramping up Accoya sales and unwinding a high inventory position.
Coming to the next slide, looking in more detail of our sales mix. During the period, we’ve continued to balance our customer demand with our capacity constraints while successful targeting key growth markets. The chart sets out a proportion of Accoya sales by end market with the percentages and brackets reflecting the change to this proportion compared to last year.
We continue to see strong underlying demand for Accoya across our regions and with our Tricoya panel manufacturers. We increased sales into North America by 4% of total sales, where we are targeting the market ahead of our planned U.S. capacity expansion and what also remains the largest market globally.
With total sales volumes down year-on-year, given lower production in the period, other markets saw a small decline in sales volumes. This does not reflect a change in the underlying demand.
The next slide sets out how the group EBITDA compared to the same period last year. Now we have sought to carefully manage our profitability at a time of increasing raw material costs. Average Accoya prices increased significantly as represented by the left-hand green bar with higher pricing having been implemented to help offset higher raw material prices and ensure we achieve our target 30% gross margin. There are a number of components within this EUR11.1 million increase, which is summarized in the pie chart on the right, EUR8.9 million is due to Accoya price increases implemented both last year, but also in the most recent 6-month period.
EUR1.5 million was due to the benefit of the U.S. dollar strengthening, noting that while we sell Accoya in euros to most of our customers, our North American pricing is in U.S. dollars. The EUR0.7 million was attributable to the energy price premium, which is implemented from May this year. This is a mechanism whereby we invoice our customers an additional amount of gas prices increase above certain thresholds and enables us to mitigate the effects of volatile acetyls pricing, which I’ll come back to. The EUR3.3 million sales volume reduction is due to the 19% reduction in sales volumes, resulting from the lower production as explained before.
Raw material costs increased driven by higher acetic anhydride costs and raw wood costs, and I’ll explain that in more detail. Other manufacturing costs also increased due to higher inventory levels and higher utility costs, both of which is due to higher energy pricing. Accoya operating costs and other group operating cost both increased more moderately with the main increases due to higher staff costs and insurance costs.
The Accoya USA joint venture [indiscernible] increased as planned, following the investment decision in March and reflecting an increase in the project activity levels. Most of the costs incurred in respect to the U.S. joint venture have been capitalized within the joint venture.
The total of EUR31 million have been invested in CapEx within the joint venture by the end of September. Coming on to the next slide. This next slide summarizes how our key raw material costs have increased. As a reminder, our key chemical raw materials acetic anhydride, the price of which is linked to gas prices. However, we produce a byproduct, acetic acid, which is also linked to gas prices, although we produce less acetic acid compared to the volume anhydride we use in the process. As a result, while there remains a partial natural hedge, the net cost of acetyl has continued to increase by 49% in the period, given the significant increase in European gas prices.
As mentioned earlier, we’ve been able to mitigate this increase with price increases for Accoya and continue to manage the volatile changes in the cost with the implementation of the energy price premium from May, which has been understood by our customers. Raw wood pricing also increased in the period, with average prices up by approximately 14% compared to last year, broadly as expected.
We continue to purchase higher grade timber and benefit from a number of long-term supply agreements. And as a result, we have not experienced significant volatility, which has been seen with some other timber products. Looking forward, we expect raw wood prices to remain — raw wood price increases to remain moderate.
The next slide looks at the profitability. We continue to achieve our 30% gross margin. Fortunately, we’ve continued to grow the profit per cubic meter, which has increased by 30% to the EUR755 per cubic meter.
This chart shows this key metric has continued to grow over the recent periods with a 124% increase since — the financial year ending March 2019. This is a result of price increases, but also the economies of scale resulting when we bought on the third reactor, which helped drive the increase in FY ’20. Going forward, we expect to continue to achieve our 30% target gross margin and expect to continue to do so, although this margin will remain a little volatile depending on the sales mix and the effect of the energy price premium. The opportunity is to grow the profit per cubic meter further as we see the benefits from the fourth reactor in Arnhem in the second half of this year and beyond.
The next chart shows the movement in net debt for the 6-month period. We saw from the left-hand side with net debt of EUR27.2 million at the 1st of April and ended with net debt of EUR61.4 million at 30th September.
There are a number of parts to highlight. The Accoya business and its steady profitability generated significant cash inflows a gain of EUR10.4 million, while the Tricoya corporate and R&D segments have partially offset this. And we’ve also reported a EUR6.9 million increase in working capital in the period, which I’ll expand in a bit more detail. This working capital increase was largely driven by higher inventory levels, which actually increased by EUR12 million, partly offset by receivables, which decreased by EUR5.6 million. While inventory was expected to increase ahead of the additional capacity coming online and due to higher input costs, the increase was more than we had planned and as a result of the previously reported delays completing the fourth reactor expansion. Raw material levels ended the period at higher levels given the long lead times from New Zealand and work in progress that was also increased as we commenced operation of the fourth reactor in September.
As a result, we do anticipate inventory levels reducing significantly in the second half of the year. The EUR22.6 million of CapEx in the period includes EUR6.3 million relating to completion of the fourth reactor in Arnhem, plus EUR16.3 million in respect to progressing the construction of the whole plant prior to ceasing construction and completing the Tricoya reorganization which Rob will explain in more detail.
The EUR29.1 million investments into Accoya USA joint venture represents the earmarked cash, which had been committed to be invested in March 2022 at the time of completing the final investment decision, where the funds are only contributed into the joint venture in the current period. This cash represents Accsys’ 60% investment and was made alongside Eastman’s 40% investment.
Finally, Accsys completed an equity raise by way of placing in May this year to help strengthen the balance sheet, increase liquidity headroom and fund additional costs for the fourth reactor. The final finance slide just looks at the cash and net debt position in a little bit more detail. As I said net debt at the end of September was EUR61.4 million. This takes into account a number of debt facilities, EUR45 million drawn under the ABN term loan entered into last October, EUR5 million utilized under the ABN revolving credit facility, so the EUR15 million was drawn under the NatWest facility, which was subsequently reorganized in November and EUR10 million drawn under the convertible loan agreement with De Engh, which was entered into March this year.
The cash balance was EUR18.1 million. However, EUR10.9 million of this cash balance was pledged to ABN AMRO to support the USD20 million letter of credit, which was put in place back in March to support the U.S. funding arrangements. Excluding this, our adjusted cash balance at the end of September was EUR7.2 million. And therefore, with a focus on cost and cash management, the second half of the year is expected to benefit from increased Accoya profits from the staff of the fourth reactor, no planned shutdowns, a reduction in inventory as well as significantly reduced cash outflows in respect to the whole plant and therefore, a strengthening of the balance sheet as we go forward.
With that, I’ll pass back to Rob to discuss the business review and outlook.
Robert Harris
Many thanks, Will. Turning now to the business review. Before I begin, I want to draw your attention to this picture of the Edgewater Public Market in Colorado. You can see rough sawn Accoya wood manufactured by Delta Millworks installed as cladding. This public market was previously a 55,000 square foot abandoned grocery store.
The owner’s vision was to transform it into a food market and brewery using sustainable materials to minimize environmental impact. As a repurchasing project with sustainability front of mind, Accoya with its strong sustainability credentials was a natural choice of material for the developers. The project was commended by the American Institute of Architects Colorado for adaptive reuse in 2022.
Next slide, please. Many of you follow our business closely, so I’ll run through the next few slides pretty quickly as a recap on what we do, our products, our market and our strategy. Our proposition is this, we have world-leading products and innovative technology with an outstanding global market opportunity of over 2.6 million meters cubed, coupled with a global growth strategy to increase our production capacity.
While the 6-month Hold Period in Hull will naturally push out our 5x capacity target by 6 months, we remain committed to significantly increasing our capacity over the coming few years. We’ve already made great progress in increasing capacity with our fourth reactor at Arnhem coming online in September.
Next slide, please. Many of you will also be familiar with this slide and our products, so I’ll skip over it. We’ll upload the presentation to our website after this call. So if you wish to review it in more detail, it will be available. So now let’s look at the Accoya’s performance in the first half.
Next slide, please. We achieved good segment revenue growth for Accoya despite 19% lower volumes due to the shutdowns of the Arnhem site in April and May, as previously reported. Revenue was up 6%, comprising of a 5% growth of wood revenue and a 9% growth in acetic acid sales, our manufactured co-product.
We achieved a phenomenal 30% growth in gross profit per meter cube for Accoya compared to the same period last year, increasing from EUR581 to EUR755 per cubic meter. During the summer, we introduced price rises as well as an energy price premium. These price increases have successfully offset the impact of inflationary pressures and increased raw material costs.
Our main raw material cost is acetic anhydride, which we use in our acetylation process.
The cost of this is closely linked to the gas prices, which, as you know, has been impacted by wider geopolitical event. At their peak, they were actually 10x higher than normal average. We expect further good progress over time on our profitability metric through: one, operating with greater economies of scale; two, improved product mix; and three, additional downstream activity. These Accoya price rises were largely repeated in the main for Tricoya wood sales from Arnhem, which is very encouraging for our future potential. The fact that customer demand remains strong following these price increases is testament to the outstanding pricing power of our inspirational Accoya and Tricoya propositions.
The launch of Accoya Color has continued successfully with further distribution in the deck market and North America as well as preparation for launch into France and Australia and New Zealand.
Customer feedback and demand remains very positive, in particular for decking and siding applications with Accoya Color. H1 has seen a 172% increase in sales versus the same 6-month period in FY ’22 and is set to grow further across H2 at potentially higher price points.
Next slide, please. We are thrilled to have successfully expanded our capacity at our production site in Arnhem with the addition of Reactor 4, a new 20,000 meter cube reactor. This is a great step forward in realizing our ambitious capacity expansion plans. As previously reported, there were unfortunately unplanned delays in the final installation, pushing back the expected start-up. This also resulted in our unexpected second shutdown across the plant in April throughout May of this year.
Subsequently, during commissioning in June, defects were also identified, which required repair work over the following 8 weeks. The remedial costs were around EUR1 million, and we have started a program to recover costs from third parties. In September, we were delighted to produce our first commercial batch of Accoya from the new reactor, and I’m pleased to report that it is working very well today. I have now commenced the operational ramp-up of the reactor to increase its output to full capacity over a 2-year period. And of course, if we can accelerate this, we most certainly will.
As an upside, our other 3 reactors at Arnhem are operating at full capacity, and we are anticipating a 50% increase in total volume in H2 compared to H1. Our customers are really delighted with this news as they have been waiting patiently for more product and remain strong proponents of both Accoya and Tricoya. I’d like to thank them for their loyalty, commitment and patience.
Next slide, please. In the U.S.A., during the first half, we made good progress together with our joint venture partner, Eastman in progressing the construction of the plant in Kingsport, Tennessee, in line with our expected time line and budget. The plant is expected to take around 2 years to build and to be operational by March 2024. Once fully operational, we will have the potential to produce up to 43,000 meters cubed to Accoya with a site allowing for further future expansion. In the first part of the period, ground works and deep drilling were successfully completed.
This has been followed by the commencement of steel work. Today, the site is a hive of activity with construction at the main warehouse building well underway, and you can see that in the photo in the top right. Accsys and Eastman teams are working seamlessly together, reflecting the joint and complementary expertise and strong product leadership between us. The construction is managed by an EPC contractor with Eastman taking a lead role within the joint venture in overseeing the EPC contractor and construction project management. We are using the lessons learned from our previous projects. A strong focus on projects and cost management continues by the JV. All major equipment has now been ordered and multiple large shop contracts, including piping, have now been placed.
We anticipate delivery of our 2 new Accoya reactors to the site from Germany in January. And as a live update today, they are actually on their way and left the manufacturer’s premises with destination Kingsport, Tennessee. Safety has been established as a key priority of site around the end of H1 FY ’22, we are able to celebrate 50,000 hours worked without accident. And you can see the team enjoying lunch in recognition for this. Celebrating good HSE performance is something we do.
The overall forecasted project costs remain on track. The market opportunity remains tremendous with an anticipated achievable market of 1 million cubic meters. And importantly, both current and projected selling prices remain ahead of our original forecast. Once complete, the site will be a huge value add for our business and will dramatically increase production volumes and our ability to service the U.S. market, which is actually very hungry for our products. I’ll take the next slide, please. Accoya continues to be specified by some of the world’s leading brands for prestigious and innovative projects.
Accoya has been specified by the architects, Heatherwick Studios and Bjarke Ingels Group for several projects for their client, Google. Yes, Google, including — I’m very proud to say its flagship London headquarters at London, King’s Cross. The large horizontal building has been described as a land scraper. At 333 meters long, it’s as long as the London Shard is high. Selected for use with the large wooden facade for the building, Accoya can be seen within what will be one of the world’s largest timber and glass facades at 23,000 square meters in total area. Accoya has also been specified for exciting and ambitious new tourism project in the Middle East.
Red Sea Development Company is creating a new development of hotels and an airport across 90 undeveloped islands in the Red Sea. Accoya was used as part of the building materials and was selected once again for its sustainable properties and performance.
Moving now to Tricoya. Tricoya revenues represents 27% of total group sales volume. I’m pleased to say — or pleased to share that Tricoya revenue is up 2% in H1, again supported by a strong pricing power in the market, which over the past 2 years has increased by approximately 30%. The market for Tricoya remains extremely strong, and the applications for our product continues to be many and varied.
One of our Tricoya partners, Medite wanted to showcase the possibility of wood panels and set its sights on the RHS Chelsea Flower Show, a meeting of over 150,000 garden designers, architects and enthusiasts in London. Working with award-winning garden designer and innovator, Sarah Eberle, they created a garden showcasing the possibility of wood panels. Medite Tricoya Extreme was chosen for the centerpiece of the garden. And as you can see in the picture, they created a large Tricoya cabin-like structure with waterfalls on the interior. The structure demonstrates the durability, versatility and sustainability of Tricoya. The garden actually won the award for Best Constructed Garden. Tricoya was also selected for this medical center in Santiago, Chile in the top image.
More than 2,500 square meters of Tricoya panel was used for interior and exterior cladding. I’ll take the next slide, please. During H1, we run into several challenges with our Hull Tricoya plant. These challenges were related to cost overruns, partly due to commissioning challenges and partly due to our resource capability. A new and clear path forward was needed and a positive intervention was made. Following detailed discussions with our consortium partners in November, we announced a restructuring of this consortium.
Accsys now owns 100% of Tricoya and 100% of Tricoya Technologies Limited. That’s the intellectual property associated with Tricoya. This gives us full control and the optionality to complete construction — the construction on our terms and at the right time. It also means that we, Accsys, benefit from 100% of the potential long-term returns. As part of the restructure, consortium partners received 11.9 million new Accsys shares, which represents approximately 5.7% of Accsys’ current issued share capital. We also restructured our loan facility with NatWest Bank.
NatWest has agreed to lower the principal amount by approximately EUR9 million for a total of EUR6 million facility under a new 7-year term. We’re also very pleased to maintain the continued support of Ineos and Medite as supply and off-take partners, respectively. Following the restructure, we’ve taken the decision to put the project on hold for a minimum of 6 months. While it’s disappointing not to be moving forward right now, our Board is supportive that this is in the best interest of Accsys and its shareholders. The validation work undertaken to date as part of the restructure has demonstrated the opportunity to produce Tricoya of attractive margins in the future remains strong.
The Accsys Board will have tight control over decision-making, and we have identified several factors that will inform our next steps. These include validating the cost to complete and commission the facility, monitoring acetyl’s pricing, volatility, supply and margins, ensuring we have the project delivery capability, skills, organization and structure in place to give certainty, visibility and assurance of the project completion.
And importantly, we’ll be looking at full exploration of funding options by Accsys, including consideration of trade and financial co-investors, debt, new equity and contributions from Accsys cash resources from our product sales.
Looking now in a bit more detail on the project status and outlook. Third parties have validated the plant as substantially complete, and the commissioning has progressed. This photo above was taken very recently. During the 6-month Hold Period, we will carry out further validation work and focus on cash generation from our increased capacity at Arnhem. By putting the projects on hold for this period, it also increases the opportunity to improve plant start-up profitability so that we would not be coming into operation during a time of volatile and historically high acetic anhydride and gas prices. During the hold period, the plant will have a monthly cost of approximately EUR500,000.
2 separate specialist firms were engaged to validate the capital costs for the remaining construction and commissioning work. Noting that the plant is the first of its kind, the additional cost to complete and commission the plant is suggested to be up to EUR35 million. In terms of funding these additional costs, we will explore a range of options, including consideration of trade and financial co-investors, debt, new equity and contributions from Accsys’ cash resources. The Accsys Board will continue to closely review the project and will ensure necessary returns on further capital commitments. With the plants on hold, we will continue to profitably seed the market for Tricoya from our Arnhem supply. And now chart on a summary of H1 and the outlook for H2.
Throughout the period, we have achieved good EBITDA and revenue growth despite lower volumes. This comes back to the outstanding pricing power of Accoya. The high performance and sustainability of the product means that our customers will remain loyal and committed to our proposition. Looking ahead, we have reasons to be cautiously optimistic. Our pricing power is proven.
We have increased capacity through the expansion of Arnhem and current trading remains good. Additionally, H2 has started on a good footing with 6,600 meters cubed sold in October and demand continues to look strong. So we are showing resilience in the face of continued global economic uncertainty. We anticipate the revenue growth and EBITDA will accelerate over H2 as the R4 plant volumes ramp up, making it an exciting period for Accsys and its customers. We remain focused on our ambitious expansion plans. In Hull, we will use the Hold Period to validate the remaining construction work, the risks and the full range of potential funding choices.
We will be ramping up production in Arnhem, further demonstrating value-add integration with Accoya Color and continuing with the construction of our U.S.A. joint venture plant, all with a focus on ongoing cash and rigorous cost management.
Thank you for your time. Thank you for listening. And we’ll now open it up to questions. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of Martijn den Drijver from ABN AMRO.
Martijn den Drijver
I will take my questions one by one, please. With regards to the gross profit per square meter, you expect good progress over time, which is logical. Would you be prepared at this time to provide any guidance as to where that EUR750 million might actually go in the second half and perhaps even in 2023. That would be question one, please.
William Rudge
It’s Will. I’ll answer that. I don’t think we’re going to provide specific guidance. I think the opportunity is for it to grow clearly with the fourth reactor and operational and without the shutdown that we had in H1. So to grow, I think what we’ve set out in the presentation is a trajectory.
So that’s possibly the best guidance is to look at that as the order of magnitude as we’re targeting the 50% volume growth in the — in H2.
Martijn den Drijver
Just to follow up on that. That is volume. Can you elaborate a little bit on your price increases that you’re going to effectuate in the second half or that will have an effect because of the price increases of the first half. Just a bit of color around the price effect in the second half.
William Rudge
So price increases were implemented in the summer and they range a little bit, but approximately 12%, 13%. Price increases have been implemented in October this period of around 2% to 3%. And there were no current further pricing increases planned at this point. However, the energy price premium is still in place, and it’s an important part of the way we’re managing the volatile raw material prices and ensuring that we can target that 30% gross margin as well.
Martijn den Drijver
Got it. Then my second question on Accoya Color. Obviously, you have capacity available now. Could you tell us your thoughts around what type of volume and therefore, also maybe price we should be taking into account for the second half and perhaps beyond?
Robert Harris
Yes. So let me take that one, Will. The facility that we produce in-house following the acquisition of those assets that we’ve referenced or previously reported has about 10,000 meters cubed of capacity. We’re not running at full capacity today due to the challenges we’ve had on volume and trying to keep supplying to our traditional customers rather than just penetrate with the new products as Accoya Color. But what I can say about pricing, as we go further downstream, we noticed an uplift on price opportunity. And today, we’re selling Accoya Color at a price somewhere between 15% and 20% higher than traditional Accoya.
Martijn den Drijver
But I just want to come back to volume. Is there anything you can say about what we should expect coming from the Accoya Color because obviously, you have capacity, it’s not running at full capacity, but a bit more meat on the bone here would be very much appreciated.
Robert Harris
We’re currently running that unit at about 50% capacity in that sort of region. We’d like to continue to ramp it up to go after those attractive margins. We’re seeing the penetration into specifically the deck region, very positively received as Accoya Color and also into North America. We’re seeing that as a terrific product into decking and siding. The opportunity to — we clearly want to fully utilize that plant and capture that additional margin with those higher prices.
Martijn den Drijver
Okay. You also mentioned when we talk about Tricoya and the 40% gross margin that aesthetic asset prices should normalize. What would be a range that you consider normal before — well, we can actually call the market normal between brackets.
Robert Harris
I think there’s 2 elements to it. I don’t think we necessarily expect prices — gas prices to go back to their historical averages. Normalized also means stabilized. And I think that’s a really important point, having stability and therefore, the ability to predict with more certainty what that the impact will be enables us to potentially have conversations with customers as to pricing. And that’s important.
We’ve been able to do that very successfully with the Accoya business. It’s been harder to do that with the Tricoya plant, which is not yet operational. What we do know is if we went back to sort of 100p per therm levels, that would be sufficient to give us sort of the appropriate margins without any further pricing adjustments.
Martijn den Drijver
Okay. That’s fair. And my final question, obviously, R4 is now doing well. You mentioned specifically that demand still outstrips your production capacity. I know it’s very early days, but are you thinking about a fifth or a sixth reactor?
Robert Harris
I thought — well, our plans that we’ve described out to 2025 and moving those slightly to the right now with the delay of Hull, it’s currently valid but under review. We’re seeing exceptionally strong demand for Accoya to look at the feasibility to expand the Arnhem facility is something that is ongoing. But we also see the U.S. market and the integration of our new joint venture facility, the integration into the supply of the chemical there. As you know, we’ve constructed that site with 2 reactors, but with a footprint to accommodate 8 reactors, and we see the market opportunity, the achievable market opportunity for Accoya in North America to be in the region of 1 million meters cubed, and we’re bringing on 43,000 meters cubed of capacity. So all of these options are under review to how we further accelerate the growth for Accsys.
Martijn den Drijver
Am I reading this right as said, though you have a slight preference if you’re thinking about down the line expansions, it would rather be in the U.S. than it would be in Europe?
Robert Harris
Yes. I don’t think at this stage, looking at the returns on those assets, I would be as clear as that. But please bear in mind that the site in North America is vertically integrated. We’re currently seeing better sales prices as well in North America than we did in Europe. But I’m not going to speculate on those references and please respect me for that.
Operator
We will take our next question. Our next question comes from the line of Christen Hjorth from Numis.
Christen Hjorth
So 3 questions from me, if that’s okay. So first is just a little bit more color around the confidence for a EUR0.50 increase in sales volumes in H2. Obviously, October, as you referred to, was very strong, but we’re moving into a tougher macro environment. So just of any indications from clients, et cetera, that gives you that confidence around supply/demand.
The second one, just referring to the bridge of price increases versus cost inflation and obviously, sales price is meaningfully above raw material cost inflation. I’m sure there are some other — but even when including the other manufacturing costs, still above on that.
Just so I’m picking that a little bit, obviously demonstrates strong pricing power. I know sort of general timber prices was not a direct competitor, whereas you’re quite volatile, maybe increased quite a lot over that period as and if that sort of allowed a little bit more price to go through. So just a bit more color around that, please?
And then third, just on the Hull plant. I mean, obviously, the third parties have sort of come in and substantially complete. But then the higher end of that range of potential costs is still pretty meaningful in the overall cost of the project.
So just trying to understand, what the key areas they’re sort of pointing to, which is going to take the lion’s share of that potential higher capital cost to complete?
Robert Harris
Want me to kick off on that?
William Rudge
Yes.
Robert Harris
Seem I remember all your questions. Christen, thanks for rolling 3 at the same time. Appreciate that. First one around the 50% increase in volume in H2 versus H1. Clearly, we’ve got the ramp-up of the fourth reactor, which seems to be behaving itself at the moment and running well, and we want to ramp that up as quickly as possible. Two, you recall that we did have the outages on the plant in April, May and June last year where we essentially lost nearly 20% of the capacity of the plant.
So that’s going to reverse out in the second half of the year. So those 2 factors in terms of available capacity will play very strongly into allowing us to grow the sales. In terms of the sales pipeline on our 3-month look ahead, clearly, there is a headwind of recession there. But at this stage, with the niche applications and niche markets that we target Accoya and Tricoya at, we are not seeing any reduction or diminishment of the order book looking forward in that 3-month period. So that gives us some comfort and solace that a, you will have the capacity and b, the demand is there.
In terms of your second question around cost inflation, we — and how we see that with timber price sort of volatility. Our pricing strategy is not to get caught in that volatile commodity pricing world.
We are selling a specialty material in Accoya and a specialty material in terms of Tricoya. And we try and keep our prices stable. But as well as described, we put up prices in the summer, around about 12.5% and then a further 2% to 3% in October. Importantly, with our customers, we’ve been very transparent and open around the challenges on energy prices, on gas prices and how we need to recover that.
I think it’s important to say, I’ve never met a customer who likes a price increase, but with the proposition of our products, customers are working with us on supporting this energy price premium to recover and offset the additional costs that we see in our business on acetic anhydride, gas and the additional labor costs as well. And because we’re doing it in a transparent way, they recognize that when the world improves, that energy price premium would have come off, but clearly, the sales price would stay. So we’re not getting caught up in those timber price volatility, and we’re not going to commoditize our specialty product. And then to answer your third question, which I believe is really around the EUR35 million outstanding capital cost when we’ve got a plant that’s substantially complete.
We conducted 2 independent assessments of the facility. We brought in third-party engineering and construction companies to assess what is required to finish the construction, to do the commissioning and then we build in a contingency around that within this EUR35 million. But importantly, what we’ve seen here is the 2 companies that we used actually came out with quite different numbers, not necessary to complete the construction of the plant, but to get the plant fully commissioned. And that spread was telling us something as well. So we book-ended that spread, taken the higher number with our track record and understanding of our capability to manage these projects and put that into the EUR35 million number.
Operator
We will take our next question. Our next question comes from the line of Johan van den Hooven from Edison Group.
Johan van den Hooven
First of all, a few questions about the guidance for volumes. If you look at the October month with 6,600 cubic meters, if you then take the full capacity — total capacity of 18,000 and then simply divide it by 12, I come to a 6,666 cubic meters output. So you’re close to that. Is that — can you explain that actually you seem to be close to full capacity or second half of the question, are Reactor 1, 2, 3 having a higher output than 20,000 each.
William Rudge
It’s Will. I’ll try and answer that. I think your logic has some sense, but there are a few sort of parts. I think the overall guidance is that we’re targeting the 50% increase compared to H1. So 24,000 in H1 gets us to about 60,000.
That’s what we’re targeting. The opportunity, as Rob said earlier, to do more than that. I think the October figure reflects also a little bit of unwinding of work in progress that I mentioned earlier, we built up a little bit of work in progress as we started the fourth reactor. It’s not necessarily indicative that we’ll be able to do that figure every month for the rest of this financial year. But the opportunity is there, and that’s what we’re working towards. But given the number of moving parts as we ramp up consistently, the target of 50% is the right figure to look at.
Johan van den Hooven
Okay. And in the past, I think with Reactor 1 and 2, you sometimes manage to get a higher output than the 20,000 cubic meters. Is that still possible?
William Rudge
It’s still possible, absolutely. And it depends sometimes on our product mix, some dimensions, some products go through the bank a little bit quicker, but it’s certainly possible. And that’s sort of the high-level guidance of 20,000 cubic meters per reactor also takes into account the planned downtime we have every year for maintenance stops.
Johan van den Hooven
Yes. Okay. Another question about the capacity in 2025, if I heard it correctly, what Rob said, has a delay of 6 months. Well, my calculation is at least 9 months, but it’s the 6 months holding period and then 6 months finishing the construction, I guess.
Robert Harris
Yes. So — sorry, it’s Rob here. We’re going to go into this hold period, fully validate the cost and time to complete look at the options for funding. Importantly, look, as Will described, look to see where the market is as well in terms of the margin we can achieve, the Tricoya project — product produced in and how they make a decision around timing. So our strategy for 5x out to 2025 has moved slightly to the right.
But as one of the previous questions was, are we looking at other options as well? Clearly, the demand for our products is still exceptionally strong. And we see the growth potential and maybe that portfolio will shift slightly. But that’s all under review and nothing concrete at the moment.
Johan van den Hooven
Okay. Clear. Last question for me now. Of course, Medite is still a partner with off-take agreement. What about Finsa? What is their position towards the — well, the delay in Tricoya production?
Robert Harris
Yes. So the arrangement with Finsa and apologies remiss of me and certainly apologies to Finsa, I should have mentioned it, that off-take agreement is still in place as well. There clearly weren’t an investor in the Tricoya consortium. But they’re still very committed to the product. They’re frustrated with the delay.
They still take material for their market seeding from Arnhem, where we produce lower grade Accoya and convert it to Tricoya. So they’re still committed as an off-taker into the project proposed frustrated and want the material.
Operator
There are no further questions at this time. So we’ll hand back to Rob Harris for closing remarks.
Robert Harris
Okay. Well, thank you very much for your time and listening today and through the key financial highlights, the operational highlights and our outlook for H2. And we feel very positive targeting the 50% growth, and our focus on Accoya generating cash to support our optionality around Hull and to maintain the very positive momentum we have in the U.S.A. to bring that project on time and on budget.
So thank you very much for your time this morning and your support. Thank you.
William Rudge
Thanks very much.
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