Accsys Technologies PLC

LSE:AXS

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and thank you for standing by. Welcome to the Accsys Technologies PLC Preliminary Results for the year ended 31st of March 2023 Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Stephen Odell, Executive Chair of Accsys Technologies PLC. Please go ahead.

[Stephen Odell, Executive Chair]

Good morning, everyone, and welcome to our preliminary results presentation for the year ended 31st of March 2023. Here's our usual disclaimer, which I'll let you read in your own time.

Next slide, please, operator. In terms of this morning's agenda, I will begin with an overview of the results, then Steven Salo will take you through the financial detail. I'll then go through the business review, highlighting progress on our growth and expansion strategy, the recent challenges we've overcome and the outlook for our business.

Next slide please. Overall, I'm pleased with our performance in FY '23. Demand for our Accoya and Tricoya brands has been strong throughout the year as customers have continued to seek out our outstanding products. The strength of the Accoya brand has allowed us to offset macroeconomic inflationary pressures such as high energy and chemical costs through price increases. As a result, revenue increased by 34% to €162 million.

The completion and startup of reactor four in Arnhem combined with the reactor one to three returning to production after the plant shutdown in April and May '22 has led to a 6% growth in volumes and record volume production in quarter four. I am delighted to report that EBITDA rose by 120% to €22.9 million.

Turning now to our operating highlights. The completion of reactor four in Arnhem adds 33% additional capacity to the plant and has enabled us to sell more products than ever before. Since breaking ground at our Accoya USA plant in Kingsport, Tennessee in April '22, we've made good progress with construction, successfully completing a number of key milestones. However, as previously announced in May this year, the project has experienced some delays and cost inflation, which is being felt throughout the industry globally.

The plant, which will service the substantial latent demand in the North American market, is expected to commence commercial operations mid-2024. And of course, we will be providing a significant update on our Hull project today. The Board has been reviewing the plant over the last six months and believes in the underlying attractive economics and margins of completing its construction. We will therefore continue to explore funding options to support the plant's construction. More details of that later and, I will now hand over to Steven Salo to go through the numbers.

[Steven Salo, Chief Financial Officer]

Thank you, Stephen, and good morning, everyone. I'll now take you through the financial results, starting with the financial highlights.

Revenue growth for the year was strong, up 34% to €162 million. This was achieved despite a 19% reduction in sales in H1, caused by production constraints in Arnhem during construction of reactor four. The strong growth in the full year revenue reflects high product demand, higher average sales prices and the implementation of an energy price premium to mitigate higher gas prices.

Despite the gas price and other inflationary cost pressures, our key manufacturing profit metrics were strong. Gross margins were 4% higher than last year at 34%, and in excess of our long-term target for gross margin of 30%. This enabled gross profit to increase by just over €19 million to €55.2 million with price increases more than offsetting rising raw-material costs.

The resulting underlying EBITDA of €22.9 million represents growth of 120%, ahead of our previous guidance of nearly doubling last year's EBITDA.

We have recorded an exceptional non-cash impairment charge of €86 million in respect to the Tricoya assets. This takes account of the previously reported CapEx to complete construction of €35 million, a higher pre-tax weighted average cost of capital, principally due to higher interest rates and a decrease in the production volume forecast for the plant from 30,000 mega tonnes to 24,000 mega tonnes. Stephen will cover the latest on the Tricoya project in detail later on.

Net debt increased by €16.9 million in the year to just over €44 million. This is due to the planned investment of €29 million in Accoya USA and CapEx investments of $30 million in respect to Arnhem Hull. The spend was partially offset by the €19 million capital raise in May 2022, the reduction in NatWest loan of €9.4 million as part of the Tricoya consortium restructuring, and from EBITDA generation during the year.

Next slide please. Looking now at our sales mix. During the period, we have continued to balance our customer demands with our capacity constraints, while successfully targeting key growth markets. We continued to see strong underlying demand for Accoya across all our regions, and with our Tricoya panel manufacturers. Our proportion of sales into North America increased where we are targeting the market ahead of our planned U.S. capacity expansion in what remains the largest market for our products globally. 24% of our total sales volumes come from Tricoya, and this proportion increased during the year by 2%, clearly an important product for us.

Looking now at how Accoya and Tricoya have performed during the year. Accoya's revenue and sales volume rose by 37% and 6%, respectively. The increase was driven by product demand, higher average sales prices and the implementation of the energy price premium. At the interims, in November, we guided the market to expect a 50% uplift in sales volumes in H2, and I am delighted to report we beat this with 64% sales volume increase H2 on H1. While sales volumes into the UK and Ireland in Europe was slightly down year-on-year, we delivered double-digit growth in our key American and Rest of World markets.

I'd also like to draw your attention to the final figure in the chart, the 18% sales growth of Tricoya to our customers. The strength of this performance and the continued market demand for the product underpins our belief in the long-term market potential for Tricoya, which brings me to a few more comments on Tricoya.

Next slide please. Again, you can see the revenue and sales volume performance of Tricoya in the chart on left, but I think one more number warrants attention and that is the 24% of total group volumes that Tricoya represents. This clearly reinforced the strategic importance that Tricoya market to Accsys. As mentioned on the previous slide, market demand for Tricoya remains strong and the applications of our Tricoya products continued to be many and varied.

Turning now to EBITDA progression. You will see that we have carefully managed our profitability at a time of increasing raw material costs. Average Accoya prices increased significantly, offsetting higher raw material prices and ensuring that we achieved in excess of our long-term target of 30% gross margin. Included within the €30.7 million sales price increase: €23.3 million is purely attributable to Accoya price increases implemented in both FY '22 and FY '23; €3.5 million is due to the benefit of a stronger U.S. dollar, noting that we sell Accoya in euros to most of our customers, but our North American pricing is in U.S. dollars; and €3.9 million is from the energy price premium, which we implemented in May 2022.

This is a mechanism whereby we invoiced our customers an additional amount if gas prices increased above certain thresholds, and enabled us to mitigate the effects of volatile acetyl pricing. With the stabilization of gas prices during the second half of the year, we are no longer adding a surcharge. €3.1 million came from higher volume production. Raw materials increased, driven by higher acetic anhydride costs and raw wood costs. Other manufacturing costs also increased due to the higher inventory levels and high utility costs, most of which is due to higher energy pricing.

Accoya operating costs and other group operating costs both increased moderately with main increases due to higher staff insurance costs. The Accoya USA JV share of loss also increased, reflecting an increase in project activity levels. Most of the costs incurred have been capitalized within the JV with a total of €31.2 million invested to date. The cost associated with the JV will increase in FY '24 as we gear up towards mechanical completion and the operation of the plants.

Next slide please. This brings me to summarize the five year profit and revenue performance of Accsys. You will see that Accsys has been on a journey, a successful journey, and one worth reflecting on. Whilst the jump in revenue in FY '22 to FY '23 is impressive, it is important to view this in light of the overall strong progression that has been made over the last five years. We have managed to grow revenue on a compound basis by 21% and underlying EBITDA by 125%. We plan to continue building on this growth and positive momentum.

Turning now to our debt position. Opening net debt of €27.2 million increased by €16.9 million during the year, ending with a closing net debt position of €44 million at March 31, 2023. There are a number of moving parts to highlight. The Accoya business generated EBITDA of €38.5 million. Following the Tricoya construction being put on hold following the November restructuring, it generated an operating loss of €5.1 million.

Working capital increased during the year, driven by higher inventory levels and higher receivables following the increase in production levels related to reactor four coming online.

The group spent €29.8 million of CapEx during the year, including €7.9 million into the Arnhem expansion project, plus €20.1 million for the construction of the Hull plant, prior to being put on hold. Our investment in Accoya USA during the year was €29 million. This cash represented Accsys' 60% investment and was made alongside Eastman's 40% investment.

Finally, Accsys completed an equity raise by way of a placing in May 2022, raising net proceeds of €19 million, which have helped strengthen the balance sheet, increase liquidity headroom and fund additional costs for reactor four in Arnhem.

Moving onto the next slide and to explain our financial position in more detail. I have covered net debt and our investment into Accoya USA, so I'll not repeat those comments here. To note, tangible assets of €110 million decreased by €71 million due to the Tricoya impairment of €86 million, partially offset by additional CapEx spend during the year. Net working capital increased by €14.7 million, driven by higher inventory levels, €9.6 million; receivables, which increased by €1.2 million; a decrease in payables of €4 million. In relation to the reduction in payables, €8.7 million of the opening balance was mainly connected to CapEx spend on Hull, prior to the project being put on hold and unwound during the year.

I would also like to draw your attention to the VRI, or Value Recoverability Instrument, which represents liability of €1.4 million. This instrument was issued to NatWest as part of the Tricoya debt restructuring, which I will cover in more detail shortly.

At March 31, 2023, we held cash balances of €26.6 million, a €15.5 million decrease on the prior year. This is attributable to construction costs relating to Arnhem and Hull and the investment into Accoya USA, and the increase in inventory referred to above. This was partially offset by the capital raise in May 2022, €10 million proceeds from loans and cash flow generated from our operating activities. More importantly, when adjusting for the cash pledged for the letter of credit provided by First Horizon Bank at approximately €10 million, and in the prior year, the adjustment for cash earmarked to be invested in Accoya USA, adjusted cash increased by €12.5 million during the year to €16.8 million.

Next slide please. In November 2022, we agreed with our partners Ineos, MEDITE, BGF and Volantis to acquire 100% ownership of the plant -- the Hull plant and the Tricoya group entities, Tricoya Technologies Limited and Tricoya UK Limited, in exchange for 11.9 million new shares in Accsys, representing 5.74% of our total share capital valued at €9.5 million. At the same time, we restructured the debt arrangements between Tricoya UK and NatWest, which resulted in a €9.4 million reduction in the principal debt to €6 million and restructured into a new seven-year term loan with no capital repayments during this period. In addition, we issued VRI instrument to NatWest as part of this restructure.

The construction of plant was then put on hold. It is clear that the market for Tricoya has attractive underlying fundamentals, which Stephen Odell will discuss in more detail very shortly. However, this restructuring was executed to provide access with a wider range of options in respect of serving this market, and in relation to completing the plant in a timeframe more of our making. The reorganization of Tricoya consortium will also provide Accsys with improved licensing opportunities.

I will now hand back to Stephen for the business review and outlook.

[Stephen Odell, Executive Chair]

Thank you, Steven.

Many of you follow our business closely, so I'll run through the next few slides pretty quickly as a recap of what we do, our products, our market and our strategy. Our proposition is this: we have innovative technology and world-leading products which are positioned within the global wood products market, which is currently estimated to be worth some $748 billion in 2023, and with a compound annual growth rate of 7.4%.

At Accsys, we transformed fast growing, certified sustainable wood into a building material with characteristics that perform strongly against manmade, resource depleting and carbon polluting alternatives. As our products compete with and indeed displace other building materials, including concrete and plastics, the market opportunity is even greater.

We have bold, but realistic growth ambitions, and our strategy is predicated on four key pillars of growth: the first is to develop market opportunities to drive revenue growth; the second is to grow our global manufacturing production capacity and do things faster, better and more safely; thirdly, we will continue to develop our process-related technologies and products to protect and grow our leading market position; and fourth, we will continue to develop our people and organizational capability to enable us to meet our growth objectives.

Next slide please. Many of you will be familiar with this slide and our products, so I skip over it. We will upload the presentation to our website after this call if you wish to review it in more detail.

Next slide. This year has been one of major significance for the company as we completed the expansion of our plant in Arnhem through the additional reactor four, which began operations in September 2022. Reactor four adds an additional 20,000 cubic meters of capacity, taking Arnhem's maximum annual capacity to 80,000 cubic meters.

As reported back in November, we did have some unexpected delays in the final installation and supply of equipment for reactor four. And also experienced some defects to machinery, which resulted in an unplanned second shutdown across the plant in April and May '22. Since startup, however, the reactor has been working well. Further work on enhancing productivity to reduce cycle times and deliver more capacity is planned for the coming years. We are also investing in new stacking technology to drive efficiency improvements across the plant.

A couple of words now about our Accoya Color operations in Barry, Wales. The plant has increased our ability to convert Accoya wood into Accoya Color, a product which combines the benefits of Accoya wood with color all the way through the wood from surface to core. A much smaller site than Arnhem, the plant has a maximum capacity of 12,500 cubic meters a year. Operational improvements to the site last year resulted in an increase of production of 140% to just over 4,000 cubic meters. And while this is a good result, we would expect a further increase in production in the coming year.

Accoya Color's unique proposition has proven to be very attractive to customers in our target markets, particularly in the decking category where the surface-to-core grey color requires less maintenance to maintain over the long term. In addition to our existing markets of Germany, Switzerland, Austria, and the U.S., Accoya Color was launched this year in Australia, New Zealand and France. It's also worth pointing out to you that Accoya Color generates a higher gross profit per cubic meter than Accoya, and so will enhance our product margins over time.

Turning now to the U.S. and our joint venture with Eastman. As we've said many times before, North America is the largest potential market for our products. Together with world-leading chemicals giant, Eastman, we are building an Accoya plant in Kingsport, Tennessee. The new plant, which will replicate the proven technology of our successful plant in Arnhem, has an initial capacity of approximately 43,000 cubic meters. Under the terms of the JV, Accsys hold 60% interest and Eastman 40% in the project.

Progress with construction of the plant, which commenced in April 2022, has been good, and a number of key milestones are now complete. However, as announced in our May trading statement, the project has experienced some delays in cost inflation, which I will add, are being experienced throughout the construction industry at the moment, so we're not alone in this. We, therefore, expect to commence operations in mid-2024. Both we and Eastman remain fully committed to the project and its successful completion.

As you will have seen highlighted in our result statement this morning, cost will increase at the site in the coming year. This partly reflects the inflation increases are referred to just now, but it's mostly because as we near completion, we need to increase our investment in people and infrastructure in preparation for start-up.

And finally, before I move to the next slide, a comment about health and safety at the site, which is of course of paramount importance to us as a group. By the 2023 year-end, the plant celebrated over 150,000 hours worked with only one minor first-aid injury, which I think is a fantastic achievement.

Moving on now to the world's first Tricoya plant in Hull, and the Board review of the project, which has been on hold since November last year. Before I go into the detail, let me start by saying the key finding of the Board review. We continue to believe in the underlying attractive economics and margins associated with completing the construction of Hull, and will therefore continue to explore funding options to support the plant's construction, including strategic partners and lending institutions. Looking at the cost to finish the construction and complete commissioning, our regional assessment was that we would require up to €35 million for this, and we can confirm that this is still the case.

Accoya production from Arnhem has continued over the period, and our off-take partners, MEDITE and FINSA will convert Accoya into Tricoya and help seed the market, remain committed and supportive partners. And demand for the product remains strong. Ongoing discussions with both partners about future arrangements following completion of the plant remain positive.

We've also been in discussions with certain strategic partners with a view to providing appropriate funding necessary to complete the plant's construction. To date, the company has been unable to reach acceptable terms with any of the strategic partners.

Looking forward, should we be unable to secure third-party funding, we will use modest levels of internally generated cash to maintain the plant and progress some pre-construction works. Despite our continued confidence in the future for Tricoya, the Board is clear, however, that the core Accsys business must not be compromised to find a solution for Hull.

In the meantime, we will continue to work with our partners to develop the Tricoya market using Accoya, including exploring the expansion of dedicated capacity for greater volume production within our existing facilities.

Next slide please. To the left of the slide is a summary of our performance. And despite some disappointing setbacks, it has nevertheless been a year of considerable progress, as I hope we have communicated to you today. Looking forward to FY '24, we expect to leverage the benefits from greater economies of scale associated with higher production volumes at our plants. This year will also be one of transition during which we will implement actions to ensure the business is sustainable growth and to drive value creation for our shareholders. These actions include moving towards completion of the Kingsport plant, which will incur higher costs this year, as I have already outlined, and also further investment in the core business to support higher volume production.

In view of our increased capacity from the expansion of Arnhem and future capacity from Kingsport, and in light of the softening of price and demand in the global construction industry, we are dedicating more resource to our sales and marketing activity globally, and particularly in the U.S., to create more demand as supply becomes available. We've made a good start to FY '24 with performance in-line with our expectations.

With our new executive management team in place to drive the business forward in its next phase of growth, we are confident in delivering further financial and operational progress in the coming year, and in the longer-term demand and growth opportunity for Accoya and Tricoya.

Thank you for listening. We will now hand back to the operator, who will moderate today's question-and-answer session, and which will be hosted by our CFO, Steven Salo. Over to you operator.

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Martijn den Drijver from ABN AMRO-ODDO. Please go ahead. Your line is open.

[Martijn den Drijver, ABN AMRO-ODDO]

Yes, good morning. And it is indeed a difficult name, operator. Martijn den Drijver for ABN AMRO-ODDO. Can you hear me by the way?

[Steven Salo, Chief Financial Officer]

Yes, I can Martijn. Good morning.

[Martijn den Drijver, ABN AMRO-ODDO]

Okay, thank you. My first question is with regards to Tricoya UK. While you had six months of discussions, you see long-term potential, attractive margins or even financing pre-construction. So, can you shed a bit of light on what is the key hurdle? Is that the valuation? Is that shareholder agreement details? Is it that your strategic partners still see some uncertain economics? That would be part one.

And part B would be, as I said, you have had six months. What time are you going to take to complete this process? Is it going to be another three months? Is it going to be another six months? Just a bit of light on the timing of this process. That's question one, please.

[Steven Salo, Chief Financial Officer]

Thanks very much for the question, Martijn. I think it's fair to say, we have been talking with strategic partners around funding options. I think it's fair to say we need to get -- we need to reach an agreement that would work for both parties, including our shareholders. So, we haven't been able to reach an agreement with a new strategic partner in speaking to to-date.

In terms of -- your question was what is the biggest hurdle that we see right now, and the biggest hurdle that we see right now is putting in place the appropriate financing to fund the completion of the construction. So, we will continue to explore options in respect to that.

And in terms of your second question, what sort of timeframe that we would put on this. We will continue to assess it, but the group continues to generate excess cash -- generate cash flow and internally generated cash flow maybe in time deployed to complete the construction of Hull.

[Martijn den Drijver, ABN AMRO-ODDO]

Did I understand you correctly that you -- okay. So you're even -- if development move your way, you might even try to finance it and fund it completely. That's what you said last. Is my -- is that correct?

[Steven Salo, Chief Financial Officer]

Yes, so effectively, all options are on the table, and yes, we will consider use of internally generated cash flows from the construction in time.

[Martijn den Drijver, ABN AMRO-ODDO]

Okay. And then just going back, obviously funding was the key element that needs to be resolved, but in your discussions with these strategic partners, what is the key hurdle? Is that the valuation of the plants? Is it that you're still in discussions, not so much on the valuation, but what happens if things turn out a little bit different from the planned scenario? Is it -- are these strategic partners understanding of your belief that there is an interesting economic proposal? Just to get -- not so much -- funding is of course a key problem. What are your -- what are these strategic partners saying to you? Why you couldn't reach an agreement?

[Steven Salo, Chief Financial Officer]

Martijn, I think you'll probably appreciate that we wouldn't disclose discussions that we're having with third-parties, the details and all.

[Martijn den Drijver, ABN AMRO-ODDO]

Then I'll move on to my second question. Could you provide a bit of guidance, obviously no sales or EBITDA numbers, but perhaps something on production or whether that 34% gross margin is sustainable? Could you provide a bit of color on 2024, a bit of guidance there?

[Steven Salo, Chief Financial Officer]

So, just as a policy -- sorry Martijn.

[Martijn den Drijver, ABN AMRO-ODDO]

Yes, go ahead, Steven.

[Steven Salo, Chief Financial Officer]

As a policy, we don't provide guidance. However, I think what I would draw your attention to is we have indicated record production in H2 of FY '23, and as stated in the Chairman's statement, we've had a good start to FY '24. In terms of our long-term gross margin target, is 30% and we will do what we can to maintain and to beat that target.

[Martijn den Drijver, ABN AMRO-ODDO]

Okay. So it doesn't make any sense to ask a question about the incremental OpEx, the staff additions, the marketing investments, anything you could help us with to understand what the impact might be of those elements in terms of OpEx.

[Steven Salo, Chief Financial Officer]

In terms of -- I'm sorry, what's the question, Martijn? Do you mind repeating it, please?

[Martijn den Drijver, ABN AMRO-ODDO]

Yes, in the press release you've outlined that you've been adding staff to Group, Operations and Engineering, Director, Center of Engineering and Project, that's -- obviously there is a tailwind effect of that in 2024. You've announced marketing program in the UK. You will invest more in marketing in the U.S. So is there something you can help us with regards to OpEx -- incremental OpEx in 2024?

[Steven Salo, Chief Financial Officer]

So, Martijn, we're not providing guidance at that level of detail at this stage.

[Martijn den Drijver, ABN AMRO-ODDO]

Okay. Then hopefully one that you can answer. Accoya Color, to what kind of capacity is the plant after these modifications? Where can it go in terms of production capacity?

[Steven Salo, Chief Financial Officer]

I think, if you like -- we are looking at in FY '24 targeting a few thousand meters cubed to go through that plant, less than double-digits.

[Martijn den Drijver, ABN AMRO-ODDO]

Okay. And then my final one, the cost overruns at Accoya, you say. Is there anything you could help us with in terms of the ballpark, the range perhaps, so we can get a better understanding of what cost overrun means. Is it...

[Steven Salo, Chief Financial Officer]

Sorry, I have nothing more to add beyond what we stated in our RNS.

[Martijn den Drijver, ABN AMRO-ODDO]

All right. Thank you very much, gentlemen.

[Steven Salo, Chief Financial Officer]

Thank you.

[Operator]

Thank you. We'll now move on to our next question. Our next question comes from the line of Christen Hjorth from Numis. Please go ahead. Your line is open.

[Christen Hjorth, Numis]

Thanks very much. Good morning, team. Three questions from me, if that's okay. So first one, just following on the question on how and the ability to use potentially internal resources and time, I imagine that's not necessarily the first choice as we stand today. But if that is the route that has to be taken, how should we think about that in terms of timing and leverage and capacity to increase leverage, et cetera?

The second one is just on the U.S. Accoya plant. A modest delay, and as you say, not driven by project-specific dynamics as the general theme across the U.S. But how does the Board consider the risk of future delays from here? Are there any particular pinch points that or milestones which we should be aware of?

And then finally, I know H2 was very strong at Arnhem in terms of production, plus, you wouldn't need to generate the same level of production volume in FY '24 to be at full capacity utilization. So, what is the reason that Arnhem can't or is there a reason Arnhem can't run at full capacity utilization in FY '24 rather than sort of ramping up over the two years that you have guided to? Thank you.

[Steven Salo, Chief Financial Officer]

Thank you very much, Christen. Right, let me just trying to address those questions. So, in terms of timing of funding Hull from our internal cash flow, that would not be a short-term measure. I think it's flagged. That's a medium to long term measure in the Chairman's commentary on Hull.

And in terms of leverage, I mean, I think we will need to assess how the group develops over the next 12, 24 months, and any bank's appetite to increase or potentially project finance that asset. But it's -- we very much looking at all options at this stage, and we will we continue to reassess utilizing internally generated cash flow over the period.

In terms of the U.S., the milestones to completion, there aren't really pinch points. We continue to work with Eastman and our contractor on the site in Kingsport to complete the project. We're working very, very closely with a very experienced project team and continue to push that forward toward completion.

With respect to Arnhem and the, let's call it, operating at capacity, I think there's certain point to mention just in terms of extrapolating H2 production over an entire year. We go through a period of regular maintenance or maintenance stop in respect to Arnhem, and that occurred this year in H1 rather than -- and did not occur in H2. So, if you like, you had six months of relatively uninterrupted production in H2, whereas in H1 this year, we will have conducted our maintenance stops. So, that would impact an extrapolation or pure extrapolation of H2 production. Hope that answers your questions.

[Christen Hjorth, Numis]

Thank you very much, Steven.

[Operator]

Thank you. We will now move onto our next question. Our next question comes from the line of Johan van den Hooven from Edison Group. Please go ahead. Your line is open.

[Johan van den Hooven, Edison Group]

Good morning, gentlemen. Johan van den Hooven from Edison Group. I have a few questions left. If you look at the Arnhem plant and indeed R4, you mentioned before, ramp up of two years [indiscernible] September next year, what are the plans, if there are plans, for reactor five or more?

And the second question is about the new stacking technology. Four of you had built a completely new stacker when R4 was going to be ready. Can you explain a bit more what it means the new stacking technology? I'm not satisfied to content with the [indiscernible].

[Steven Salo, Chief Financial Officer]

Is that just two questions, Johan?

[Johan van den Hooven, Edison Group]

Yes, two for now.

[Steven Salo, Chief Financial Officer]

Okay. Well, thanks very much. Appreciate the questions. So, in terms of a fifth reactor, I think it's fair to say that the management team are focused on, firstly, delivering Kingsport. And at this stage a fifth reactor is not currently being planned for, although we'll continue to assess that. I think it's worth mentioning, the Kingsport facility in the U.S., whilst it commences with two reactors, it has the ability to add-on additional reactors much more easily than perhaps the -- adding a fifth reactor to Arnhem. So that's just something to bear in mind.

In respect to the stacking technology, so there was a stacker -- a new stacker was brought in to, let's say, cope with the additional capacity that was coming online with the fourth reactor, starting upwards in Arnhem, and that's the reason why we've moved to a new stacker technology in Arnhem.

[Johan van den Hooven, Edison Group]

If I understand correctly that came hand-in-hand with the new stacker, I guess. So, what's happening now that you're looking into new technology?

[Steven Salo, Chief Financial Officer]

So, I think the point was made around the, the stacker was installed in line with our four, and we are looking at improvements to the stacker technology -- sorry let's call it, the new stacker that we have in Arnhem.

[Johan van den Hooven, Edison Group]

Okay. So, I think the maximum capacity was 100,000 cubic meters, I think, the stacker, which might not be there yet, of course, that's what you mean we have to improve?

[Steven Salo, Chief Financial Officer]

Correct. There were some more efficiencies that we wanted to add to the stackers, so it runs more smoothly, in line with our reactors and our production schedules.

[Johan van den Hooven, Edison Group]

Okay, thank you. And the last question for now. Martijn already tried about the cost overruns in the U.S., you don't want to give -- well, disclose any costs. But going forward, is there more risk so to speak to more cost overruns, or is it agreed now that to a certain amount and that's it until it is realized?

[Steven Salo, Chief Financial Officer]

So, look, I think the point to note is any major complex projects involves change orders and let's call it, scope improvements, and that's what we're dealing with the contract together with Eastman in respect to the development of the plant in Kingsport. So, we are still expecting to complete the project in mid-2024. There is timeframe in there that we may decide to change some of the scope or make some changes to the delivery of the plant, and that would obviously come at additional costs, but we won't do so unless we see a benefit.

[Johan van den Hooven, Edison Group]

Okay, thank you.

[Operator]

Thank you. We'll now move on to our next question. Our next question comes from the line of Ben Bourne from Investec. Please go ahead. Your line is open. Ben Bourne, your line is open. Please go ahead with your question.

[Ben Bourne, Investec]

Good morning, all. Stevens, thank you, very much for that update. Just a couple of questions. I'm intrigued by Tricoya now at 24%. Can you just expand on the use cases so far to give us a flavor for the longer-term?

And then, the second question relates to Accoya U.S. sales expansion. Which regions are you most excited about and why, please?

[Steven Salo, Chief Financial Officer]

Sorry, do you mind repeating that question -- these questions for me please, Ben?

[Ben Bourne, Investec]

Sure. The first one is, can you expand on the Tricoya use cases so far just to give us a flavor for the longer-term?

And the second question is relating to Accoya U.S. sales expansion. Which regions are you're most excited by and why?

[Steven Salo, Chief Financial Officer]

Thanks very much, Ben. In terms of the Accoya -- sorry, Tricoya panel applications, I mean, effectively, we sell our Tricoya to -- sorry, we sell our Accoya, which is chipped and used as Tricoya to our two partners, FINSA and MEDITE. And they use those chips into manufacturing Tricoya panels, which are a much more sustainable, durable and reliable MDF panel or alternative to MDF panels. So, wherever you see the use of MDF panels, you can extrapolate the use of a Tricoya panel, which will involve a much stronger, durable and more sustainable product.

With respect to the U.S., I mean, I think -- sorry, in terms of North America, I mean, we see the U.S. as a market where we can expand our presence in our distribution. You'll be aware that across Europe, we primarily use distributors to sell our Accoya product, and those distributors are -- in the states are represented across wider areas than simply individual states. So, there is a real opportunity for us to expand our distribution networks in the U.S., and therefore, penetrate the U.S. market and North American market much more widely than we currently do.

[Ben Bourne, Investec]

Okay. Thank you.

[Operator]

Thank you. There are no further questions at this time. So, I'll hand the call back to you for closing remarks.

[Steven Salo, Chief Financial Officer]

Thank you very much everyone for joining this webcast. I appreciate the questions, and we shall see you at the interims. Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.