Circa Group AS

OSE:CIRCA

Earnings Call Transcript 2022-Q3

[Anthony Duncan, executive]

Okay. Good morning, I think let's go to slides and then we can basically think off. So thanks, everyone, for joining this Circa Group Quarter 3 Presentation. Good morning to everyone in Norway, or joined those in France. Good morning to those in U.K. and good day to everyone in Australia.

As we head towards the end of 2022 the Board and management of Circa are very pleased to provide this presentation of results for the 3 months from July to end of September. We're going to trace some of the key highlights and will give an outlook where the business currently is as well as talking about some upcoming developments.

Next slide, we have the names in this meeting, I'll go ahead and place the introduction. Tone Leivestad, our CFO, will review the financials for the quarter and Philipp Morgenthaler, Circa's Head of Manufacturing will update you on progress on both the ReSolute plant.

There is a good build and any developments relating to the next plant and greater than 10,000 plants we've got FC6. Thanks, Tone. So very stable, the war in Ukraine and some shortage in the gas and now that petrol rates in Europe is obviously having an detrimental as said to our many markets particularly as you know previously where we have a lot of competition.

The traditional manufacturers and suppliers on solvent significants in Europe. I've been saying for our renowned and drive more sustainable and lower carbon products has been and will cause some duration on chemical companies who have struggled with their fossil based business oil. And in fact all traditional companies are working to decarbonize and inverse substantially.

We are now in seeing 2 points than we were just. What you look on these traditional manufacturers, who are almost entirely amended on fossil base stocks. Our experience, we are experiencing a major risk to the business and as one example are attempting a slowdown in traditional on EU regulations warranted and then order down definitions of sustainability with EU regenerators. Other group, on the other hand, of traditional chemical suppliers is adheres this situation as a major often and our ways of moving to reshape the business to incorporate the demands and levies a safer and more sustainable products. The Circa, this is about a major opportunity in both the long and short that we can provide some of the first group, an opportunity to produce CO2 driven includes safety and this all comes in short term.

While much greater and more sustainable opportunity that Circa is already developing, as demonstrated by recent approaches for long term supplier from Tier 1 and Tier 2 players focused on the sustainability as an opportunity. At the same time, we continue to receive very good support from French Government agencies and the recent unanimous confirmation of a grant for sales, where sales represents more than 70, 7-0, in sales are down around the ReSolute site. We've recently seen this as an unanimous confirmation of CASAS on the grant for all the gases to Circa to support the ReSolute development. Circa's focus will discuss more detail post the ReSolute progress and the developments with Valmet, with under suppliers and also an update on Gazel. And finally, I would just like to comment on the work we are doing to bring this Circa enabled in to team that is recipient team that deal with the issues that we face at the moment.

Firstly, the Board of Circa initiated the strategy overview of Metz which included on this ReSolute site, this also included on the roadmap. So roadmap is the base of the ground based region where we are located. And this was an opportunity for the Board and management is to place based for the first time and discuss progress risks, issues and gain of appreciation of the work underway. Following this, we bought the widest and intend workshop based around this Circa's program that we discussed in the presentations. There's an old range of challenges, leadership programs and problems all includes. Both of these events proved in value face-to-face discussions and the Valmet contract signed were already apparent.

So with that, I would like to give the webinar to Tone Leivestad to review the quarterly financials, Tone. You're on mute.

[Tone Leivestad, executive]

Sorry. We have published today the financial report for the third quarter. And here, we have some of the highlights in the following slides. Starting with the profit and loss, where we can see that we are very much in our spending in line with the plan and the levels that we have been for a while. So we have a very disciplined spend and are very -- keeping us very close to the plan.

The revenue that we're having so far is related to Cyrene sales from our pilot plant in Tasmania. We do not expect any significant revenue before the start-up of ReSolute. If we move to the balance sheet, we see that at the end of third quarter, have a cash balance of EUR 39.5 million. This is in line with the plan. For the quarter, we had a cash spend of EUR 1.2 million, which is a balance of spending of EUR 2.5 million and grant payment that was received from BBI of EUR 1.2 million. We do expect spending to increase in the time to come from fourth quarter and onwards as the work at ReSolute is commencing.

Yes, and the tangible assets of EUR 2.2 million that consists of ReSolute CapEx of almost EUR 4 million and grant contribution of EUR 1.8 million so far. And then on the equity side, we have an equity as per third quarter of EUR 37.2 million. And the main item here in the balance sheet is other current liabilities, which is a prepayment of the BBI plant that was received from BBI. So that's basically, in this situation, we are in line with the plans and both with cash lending and our expenses. And expect to be picking up the volume and speed going forward.

So over to Philipp.

[Philipp Morgenthaler, executive]

Hello, everyone. I'm pleased to give you an update on the progress on ReSolute. So Tone, could you go to the next chart, please.

So the progress on ReSolute remains consistent with plan. We have a cost estimate of EUR 50 million to EUR 55 million, consistent with what we have communicated before. And also the start of our commissioning is planned for the end of the fourth quarter 2023. We have hit a major milestone on the 4th of November with the signing of the equipment delivery contract with Valmet. Also, the final negotiations with the vendors for distillation and hydrogenation packages are ongoing. We target the conclusion of these negotiations and contract signing for the end of this November. We also have issued the application for the construction exemption permit that has been issued to the prefect at the beginning of November. We expect approval for beginning of January. And with this exemption permit, we can start the site preparation. So all works above and below one meter of the ground can start with that.

The permanent and building construction and then the environmental permit dossiers are under preparation and are scheduled to be submitted to the authorities at the beginning of December also on track with the plans. And we are discussing and finalizing the agreement with Gazel Energies, our host about the lease, utilities and labor agreement. So everything is well progressing and on track.

Next chart, please, Tone. We have now concluded interviewed with the potential site manager candidate and can announce that we had new site manager for ReSolute starting yesterday. He has a vast background in the Chemical Industry French National. And he joined us yesterday and will now help us to move forward with the ReSolute plant.

We also are continuing our plans to set up an engineering team in the EU to support ReSolute, but then also the FC6 and further plants continuing, ongoing. Also for the preparation of the ReSolute work, we have finalized the coordination plan for the safety and health protection. This safety plan meets the requirements of the French Labor Code has been written and has been issued and will be issued to all contractors actually working at site to be in full compliance with the French laws.

And also discussions started down the road on the operation of the plant with a potential outsourcing of the plant maintenance to Valmet with ReSolute being a first of its kind and with Valmet delivering the core piece of equipment, we feel it will be very valuable to have Valmet also take care of the maintenance of site equipment. So these discussions are starting.

Next chart, please, Tone. So way forward, we have signed also a conception engineering agreement with Valmet on the FC6. So this work will start in January. Also, we had a kickoff meeting for a joint R&D program between Circa and Valmet that has been agreed already earlier in order for us to develop and further improve the pyrolyze boiler technology together. Kickoff meeting took place on the 9th of November, the program will mainly be about the optimization of the pyrolysis conditions, biomass feeding, process monitoring and quality methods. So a full package. Also part of this team is Arson research partners Circa has.

We have visited 2 potential sites in France from -- with the local partners, that has been good. And we are planning further visits to sites in additional European countries in the first quarter 2023, and then we'll have a set of potential locations for FC6, which we will bring forward to the Board for a decision. So this is the update to FC6.

Now, Tone, next chart, please. So this is a sketch of the ReSolute site, if we're starting from the top right, you see there, this is biomass storage and then the dryer. Then you see the small conveyor going into the tallest building on the site. This will be the location of the boiler and pyrolyzer unit from Valmet. Then the big square building in the middle, that is an existing building. Today, in there, we will have the electrical room and some other utilities house to this building will be taken over. Down the road from that building, you see the distillation columns. Further to the left, you have the hydrogenation unit. And at the very bottom left corner, this will be the hydrogenation storage.

The building -- the rectangular building there on top south of the forest. This is also an existing building. It's currently a warehouse building. This building will be transferred to host the control room, the laboratory, canteen, offices -- administration offices and also small storage and maintenance warehouse. And in the middle of the plant, you see there the -- this will be the storage for the Cyrene. So this is a sketch of the ReSolute plant as it will be.

Next chart, please, Tone. This is a closer or a bigger building here from you see there, you see the dryer and then the conveyor going up into the core of the plant of the Valmet boiler pyrolyzer building there with the Circa logo. The stack you see there on the right will be 35 meters high. And as said, the building there in the background, that's the Kiwash building, an existing building on the site here at the ReSolute in Carling.

And now next chart, Tone. This is the boiler pyrolyzer building from the back where you still see the Kiwash building on the right of the Kiwash building, again, the distillation units with the hydrogenation and storage and in front, the current warehouse, future maintenance warehouse and office buildings. So a view from the plant from the other side, the compact location here towards the north of the Emile Huchet Site where Circa will be located.

And to conclude, we will now show you a little animation. You are not sharing, Tone.

[Presentation]

[Philipp Morgenthaler, executive]

Thank you, Tone. And with this video, I would like to hand it over back to Tony. You're on mute, Tony.

[Anthony Duncan, executive]

Thanks. I mentioned earlier that we are making progress or other discussions for offtakes for FC6. And at this stage, we think, we sold all ReSolute plants, however, do more than things left on the Circa's commercialization capatilize opportunities to re-look in more depth and value added opportunities for Cyrene as goes in Tasmania. And also that this drive these could be the product ranges already being raised from others. So issued like those solvents are purely differentials drive Cyrene, a damaged free Cyrene, and those are the things that this has been already mentioned by the market and the issues we're looking at the moment. And then on top of that as the next 12 to 18 months this is the opportunity to drive commercial opportunities for derivatives we can make and supply in FC5 plant in Tasmania. ReSolute remains our core focus for the manufacturing team.

However, as it just being confirmed, work is being undertaken, not just for ReSolute but even for late stage developments in FC6. Our partnership with Valmet allows for this work to go in parallel with the development of ReSolute and we are very great that it creates the way this partnership, with one of the world's largest and most experienced manufacturers of biomasses and Valmet is adding value to Circa and shorts Circa a road to scale.

Now finally, Valmet, the share price, I will now take any comments relating to buying or selling, and I'm not going to give obviously at the moment, we are certainly riding a share market trough and some considerable geopolitical turmoil.

I will say, however, the fundaments in Circa are stronger, much stronger now than they have ever been, our progress is very good in both the scale building program and market interest. And government and our current regulatory supporting. And I'm in the end careful and very conservative with, what I'm saying here. The whole business and the demand stuff, in order case out there, where Cyrene has not got any leads or whether what I'm talking about. We talk about is rubbish, just tied Cyrene solvent individual.

Okay. I think that you were saying they never look at the number of results that would come up. I do this for now, and now the math, and the answer is 49,000. So I would stay steered at the moment, where the work that we've been doing desiring over the last 2, 3 years is getting results, but we got -- this is a 50,000 results we just those 2 words in Google. And then we've seen that in the market, we don't necessarily talk about if it was in the market place at the moment, but these are times where negotiating to everyone. So for us thanks to everyone who stayed with us for this journey around this business. It's been fairly reference always and we really do appreciate your commitment and courage to a degree. We are working very hard to deliver issues that are in Circa and I continue to commend to you that Circa is a very well based company. For this new lowering armor, Circa, industrial relationship in an environment. And that's the end of the formal presentation. We'll now be happy to take any questions that are just over the phone. Thomas?

[Unknown Analyst]

Do you have any updates on any firm offtake agreements, when we could expect those? And secondly, what price level we should expect to see them at?

[Anthony Duncan, executive]

Price level hasn't changed on the indicators we've given in the past might be slightly more positive. But at this stage, I'm not going to comment on that. We are working on during the moment, we're expecting -- we are in the final discussions or the last 2 calls is on one of them and we expect that within the next 3 weeks, depending on our lowest base themselves going back within forwards with those.

[Unknown Analyst]

Okay. And can you give any guidance on when you expect the CapEx expenses to ramp up? I mean you're not ordering any equipment as of now, but I guess that will start soon.

[Anthony Duncan, executive]

Tone.

[Tone Leivestad, executive]

Yes. It will actually come. Some of it will come already now in the first quarter and with the signing of the Valmet agreement and some of the other agreements. So you will see it already from next reporting.

[Unknown Analyst]

And on that note, considering also that you are progressing on FC6, how do you expect the capital requirements moving forward throughout 2023.

[Tone Leivestad, executive]

I would say what we're doing now on FC6 is very early kind of this, not requiring anything yet. Of course, when we are approaching more work, more preparations that will require capital, of course.

[Unknown Analyst]

And would you -- would it be a realistic time frame to expect an FID on FC6 ahead of ReSolute being operational? Or would we expect to see that operational first and then an FID in 2024.

[Anthony Duncan, executive]

It's going to be very close. Both of them. We are not going to wait until we've been running ReSolute first to all that announced, they're falling in the range of financings in the late stage, because the grant of late stage is, we'll indicate it. Hereby, 2 quarter, 3 quarter, actually we'll decide on which site. There were things coming on at the moment, while some of this related to FC6 so due diligence. But all the workers are going on with regards to FC6. So and waste mine that is been with straightforward.

While that we know, a major design change heading into FC6. There are opportunities towards this, for example, at the moment in the -- in our live product streams out, there are 5 other streams, there's a whole quantity of chemicals that we hold out it might be sitting as at the moment of the fold. It always road sized, it is just not worth trying to explain those or purified streams related to actually express those to sell, directly in towards a plant besides FC6. It becomes a lot more attractive to look at separation technologies that can pull out similar technology below 1,000 from quantities of our products that are relative good molecules in all markets more. So that's why the work is coming off as well as the market subdues. So that enables actually going forward basis. Enter some of that worth while with the recently optimization of ReSolute going forward.

So those are some things that we end up the cost base. Because there is a end to end drive work that we until next year, which is related to that sort of activity is very much in FC6 rather than always would have actually sort of the medium, the medium call for plans to all that if we see that it is work that is worthwhile doing and worthwhile doing particularly for FC6.

[Unknown Analyst]

Okay. And just one last question for me. How long will it take from hot commissioning until you expect full utilization of ReSolute? Maybe to rephrase the question, how much output you expect from ReSolute in 2024, and please give a conservative or highly realistic estimate on that.

[Philipp Morgenthaler, executive]

The hot commissioning will be around 3 to 4 months. So if we take, I would say, 500 to 700 tonnes output.

[Anthony Duncan, executive]

Okay. If there's no more questions, then from us, from Circa, again, thanks for the attendance tonight. Obviously, we are available only in managing great things specific to raise with this both are happy to answer. Thank you, again. I understand, if how nearly we will see you there in the fall presentation. Thank you.

[Tone Leivestad, executive]

Thank you.