Back in April 2002, Ben Law had spent ten years of his life living in a clearing in a West Sussex forest. His bedroom was a rusty caravan, his home a motley collection of tents and shacks. As a coppice worker, or traditional woodsman, Ben earned his living taking care of the forest, selling charcoal, furniture and trimmed wood for fencing.
One day he decided to make a change. Once he won planning permission from the local council, Ben began to build himself a proper home. Not content with everyday bricks and mortar, he decided to make it from local wood, sourced from his own forest.
Using trunks from the surrounding trees for the frames and floorboards, and local oak for cladding, Ben set out with £25,000 in his pocket to make his dream, sustainable home a reality.
I won’t spoil the ending, but this is just one episode of one of my favourite TV programmes, Channel Four’s Grand Designs. Design guru Kevin McCloud visits a new self-build project each episode. It all begins with the excited builder or builders discussing plans for their dream home.
We’ve been trained over the years to spot immediately the overly-optimistic budget, the unrealistic timescale, and the self-builders’ lack of skills and experience. Part of the fun is watching the inevitable problems unfold and seeing how they’re overcome. But most of it lies in seeing some really exciting and innovative architecture take shape.
And whether he knew it or not, Ben Law was tapping into a growing worldwide trend. More and more builders are turning away from artificial materials like uPVC and aluminium – which release harmful gases into the atmosphere during their creation – and towards natural wood.
Today’s company is a high-tech wood specialist that’s got the potential to shake up the construction industry. I’m going to tell you all about this exciting firm and its market-leading product in just a moment. First though, let’s look at why wood remains such a hot commodity.
The only truly sustainable building material
One of the big themes in Grand Designs projects is sustainability. Sympathy for the environment and aesthetics are often high up the list of these self-builders, which is understandable.
While using good quality ‘green’ materials can be more expensive, it can lead to a more pleasing all-round result.
Programmes like Grand Designs and a general increase in green awareness have led to a lot more interest in this approach. We know that uPVC windows and doors can do the job, but increasingly we are realising that wood gives a more attractive natural look alongside the benefits of being environmentally sound.
In fact, wood is the only truly sustainable building material. It’s non-toxic and can be recycled or used as a biofuel at the end of its useful life. It offers good heat and sound insulation and is easy to work with. Wood also has great carbon credentials – it acts as a carbon sink when it’s growing and often displaces materials that use energy-intensive manufacturing.
All in all, the uses for wood in all kinds of industries are huge. But there is one crucial fly in the ointment. The woods with the best performance are expensive hardwoods. Cheap, fast-growing softwoods simply don’t have the right characteristics.
But that’s about to change. There is an Aim-listed company that has solved this problem, and that’s why I’m writing to you today.
Accsys Technologies (AXS) owns a process called ‘acetylation’, which can give softwoods the same sought-after characteristics of hardwoods. The process changes the chemical structure of wood, by converting free hydroxyl molecules into acetyls – hence ‘acetylation’.
The treated wood no longer absorbs and releases water to the same extent. So, it doesn’t swell or shrink and is a lot more durable. This stability also means it requires less maintenance, which adds to the value proposition.
Quite aside from the importance of environmentally friendly building materials, there are a huge number of possible applications for this technology across the global construction industry. That’s precisely why I find this company so exciting.
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More durable, more environmentally friendly
The name of this ‘superwood’ is Accoya. Accsys is targeting windows and external doors as prime markets for Accoya, as well as cladding on buildings. Given its high quality, Accoya is also well suited to marine use, because it’s cheaper than teak and outperforms it.
In the commercial sector, Tokyo Disneyland has installed Accoya walkways and cladding, where it withstands the rigours of 28 million visitors and regular hosing down to keep it clean.
In theory, the potential market for Accoya is massive. Accsys now has 57 distributors around the globe and the 35,000 metres cubed (m3) capacity of its Arnhem plant represents a minute fraction of the 4.3 billion m3 world demand for cladding. The global market for windows and doors alone is estimated at $136bn each year.
On top of this, there is some regulatory encouragement. Given the controversy surrounding illegal logging of tropical hardwoods, the EU has followed the US and introduced tougher rules making the importer responsible for ensuring such wood comes from a certifiable source. That’s great news for this company.
It’s only a matter of time before this story takes off
Accsys floated back in 2005. So, given its great product and huge market opportunity, why isn’t it much bigger than today’s modest £70m market value?
First off, its timing was unfortunate. The recession happened shortly afterwards, which hit the construction industry particularly hard. Arguably the company had its priorities wrong as well. It was spending too much and was burning cash. The Dutch factory had cost €30m, but was under-utilised.
The company’s focus was more on technology and production, rather than commercialising their product by building sales and developing customers. Accsys allowed Accoya to become more of an architect’s speciality product than a mainstream material.
As a result, there were some management changes and cost cutting, initiated when current CEO Paul Clegg took over in 2009. The company has since raised a further €50m and believes that it now has sufficient resources to see it into profitability. Accsys neatly illustrates the problems of a small company trying to introduce a new product into an established market.
Limited distribution and a premium price mean that it can take a lot longer than planned to grow volumes, even if it’s better than the competition.
There’s more growth to come for Accsys
But the picture is brightening up for Accsys now. The company’s Arnhem plant is currently operating above the 50% utilisation rate required for it to break even at a cash level, and Paul Clegg believes it will be fully loaded before long. That will help the company reach a break-even position during the next financial year.
Future growth and profitability doesn’t rely on expensive extensions to this factory, and over time, Accsys will make money from licensing its technology to others and receiving royalties on their sales.
Accsys has also signed its first deal with Belgian chemicals company Solvay. They are to decide where to locate their planned 63,000 m3 plant soon and production is expected in 2016. If all goes well, it’s safe to assume they will have the appetite to expand this significantly in time.
Alongside Accoya, Accsys has another product called Tricoya. This is acetylated MDF which addresses another large segment of the construction market. In order to accelerate the prospects for Tricoya, the product has been placed in a 50/50 joint venture with chemical major Ineos.
These deals make Accsys a sort of hybrid company. The dominant part of the business currently is its own manufactured Accoya, which has consumed a lot of cash to date. Going forward we are moving to a more capital-light royalty model, based on the patented acetylation intellectual property.
This firm is one for the watch list
So after a long slog, prospects are picking up for Accsys. We now have a clear strategy, sales are building, and we’re on top of the cash burn. Things are falling into place, but it still feels a little early to get involved in the shares.
A small loss is forecast for the March 2016 financial year, which is still two years away. Looking beyond that, I think that profits will start to come through from royalties and licence fees, which are high quality.
In the interim, if we get some more deals signed, then Accsys could start to look like a bet to take in the here and now. Until then, this innovative company is one for the watch list.
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