Circa Group AS

OSE:CIRCA

Earnings Call Transcript 2022-Q4

[Anthony Duncan, executive]

[Technical Difficulty]

[Tone Leivestad, executive]

Yes. Thank you, Tony. So, over to the financial report that was published this morning. We will start with a profit and loss where you can see that spend is or the cost control is a key element for us and we are in line with the expected quarterly run rate also this quarter. So, we had some revenue in quarter 4 related to the R&D income in Australia. And the other employee and other operational expenses are on the normal quarterly level.If we move to the balance sheet and the asset side. To start with the biggest item first, we had a cash balance at the year-end of EUR34.8 million. That is very much in line with our forecast and plans. The cash spend in the fourth quarter was EUR4.7 million, which is a little bit higher or quite a lot higher than previous quarters, but in accordance with plan. It's related to the big equipment contracts that we signed in that quarter. So -- but the investment is at the same time then also balanced by prepayments of grants received also in the first quarter. They are related to the France Relance grant and the Coal Fund grant, where we have received the initial tranches of those in the fourth quarter.If you look at assets, the fixed assets, this is related to ReSolute and yield on the plant in France. Accumulated, we have a CapEx of EUR10 million as per end of the fourth quarter and EUR6.1 million was capitalized in the quarter. This is mainly related to development contract with Valmet. The CapEx is offset by grant contributions of EUR3.1 million accumulated.And then moving over to the liability side of the balance sheet. At year-end, we had EUR36 million and the biggest item on the liability side is the of the current liability [Technical Difficulty] realte to prepayment of grants. So, we have received quite a big prepayment for the Horizon 2020 grant. And now the last quarter, we also received prepayments for France Relance and the Coal Fund. So, these are the main items in the balance sheet. And also to mention that cash does not include the grants that we have not received yet, but that has been announced and we still have around EUR12 million of announced grant that we haven't received yet.So, that's the financial update. And we will move over to Nick.

[Nick Smith, executive]

Thank you, Tone, and good morning, good evening to you all. Before I start my presentation proper, perhaps I would like just to give a short introduction about myself for you all. I just joined Circa, as Tony mentioned at the beginning of this year. So, I'm about 6 weeks into my tenure. I bring with me almost 25 years of global experience in the chemical industry, that's included extensive time in Asia and lots of time also working in bringing new technologies to market and in several segments that are quite relevant to Circa's growth, for example, paint and coatings and the textiles industry.Speaking about my mission at Circa, could you bring the next slider, please, Tone? Yes. Thank you. Speaking about my mission at Circa, it's all about leading the build-up of the commercial side of the business. So, that means building strategic road maps, partnerships, covering sales, channel build-up, and market selection, business models, product development and of course, as mentioned also by Tony, organizational capability. Over the first few weeks, I've been getting to know the colleagues and also getting out already to key customers and other partners.What I can say is that I can see from the first visits already a strong demand for Cyrene and of course, other highly functional, yet still low product carbon footprint products that we could make from our core technology in the future. So, my focus for the first 100 days is very much on the one hand, setting the commercial structure. And on the other hand, setting the organizational focus for the rest of the year. And the organizational focus is very much on firstly, securing further capacity reservations for Cyrene, whilst also sowing the seeds and laying the foundations for the high-value derivative side of the business.If Cyrene is one watchword for me in terms of focus, the second watchword is Europe. And so we will focus our business activities, our development activities firstly, in Europe, secondly, in North America and later in Asia. And when we do that, we're also focusing on key market segments that pass a set of strategic criteria, for example, volume, value, obviously, but also the development cycle.Finally, in terms of the route to market, I'm working on setting up a hybrid sales channel model, meaning both across distribution channel and also building up a direct key accounts business. And the aim there is, on the one hand, to leverage the customer access, the big distribution companies out will come on to a Oqema in a second. But at the second -- on the second side, also to develop the markets via direct access to these big players in the market.So with that, I'm moving on to the second slide, I'd like to talk a bit more specifically about the sales channel and the business development. As mentioned, we see a very strong logic to developing the distribution channel with companies and particularly companies that have a similar focus, sustainability focus and business interest to our own. So, I'm pleased to tell you that in addition to our existing agreements, which you already know about with Merck, for example, and Will & Co. We took a very, very significant step forward early in January in signing the strategic partnership agreement with Oqema, including several thousand tonnes of capacity reservation initially for Cyrene and in Europe.Oqema is a European-based German-headquartered distributor in the specialties area, has 1,300 employees and importantly, covers markets that are essential to the growth of Cyrene and they, Oqema, are seeing a strong demand from these markets for bio-based solvents as replacements for petrochemical types. The agreement gets exclusivity for some 20 European countries and completes our footprint, our European distribution set up. And as mentioned by Tony, we very much like Oqema's focus on sustainability.We will be dedicating a significant part of our resources in a partnership manner to build up the business jointly with Oqema over the coming months and years. I should add that there's also additional potential to leverage Oqema's other capabilities, namely solvent recycling and also solvent blending. And I think here, here there's also -- we shouldn't underestimate the bigger impact of this Oqema deal. And that's, if you will, creating more fear of missing out in the market because there's a significant capacity reservation there that Oqema have made.And with that, I'd just like to move on to talking about the Direct business. As mentioned, alongside the distribution channel build up, we're building a portfolio. Still on the previous slide, Tone. We're building a portfolio of key accounts that we will serve directly. And a couple of interesting developments from my point of view. Firstly, our positive results from leading players in the agrochemical space, agrochem formulations. And on the other side, a European textile recycler has gone through the lab trial phase with us during last year and has placed a 1-tonne industrial trial order. If I'm not mistaken, it's the biggest order we have yet for a single customer application. That material will be delivered very soon. And that, as I said, is to the European textile recycling industry.And finally, just referring back to the fact that I mentioned before, a balance always between a bias towards development of Cyrene business, while making the right investments to lay the foundations for the longer-term high-volume LGO business. We just started in January with an engagement in TransPharm. TransPharm is an EU Horizon-backed project, which aims at building more sustainable pharmaceutical active ingredients.Could you move on to the next slide, please, Tone. So, I'd just like to spend a couple of minutes before completing my update and talking about sustainability because you all know that Circa is a company founded and based on sustainability, given our product basis. And you know our mission is Changing chemically for good. And I would like to talk just for a minute or 2 about what that actually means, because it is extremely tangible for us and sustainability is still an emerging concept and it's not always that tangible and I'm very proud and very impressed with how tangible sustainability is at Circa.So, we have -- we consider sustainability in terms of decarbonization, circularity and well-being. And I could point very clearly to some examples of that with just the points I've mentioned this morning. So, decarbonization is the reason and one of the drivers behind the interest from the agrochems company and obviously, the pharmaceutical active ingredient manufacturing project that we're involved in.Circularity is very important in terms of not only the circularity of our product, but circularity in terms of how our product enables circularity and our product in that textile recycling application is enabling the textile industry to become more circular. And you might know, of course, that the European Commission is expecting with this white paper for the European textile industry to become much more secular over the next years. And finally, of course, well-being, whereby Cyrene is significantly safer for workers in use than the traditional petrochem-based solvents that it's replacing. So very, very tangible implementation of sustainability from Circa side. That will complete my update. I hope that's interesting for you. It's very nice to address you in this circle of investors.And with that, I would pass on to Philip. Thank you.

[Philipp Morgenthaler, executive]

Thank you, Nick. Good day, everyone. I'm -- give you an update on the operational side of ReSolute and the other sites. Can you please go to the next chart, Tonet? So, Circa strength is based on a well-coordinated bio-manufacturing base. I'm starting at the FC5 plant in Tasmania. This operations support market and process development. So, at the end of last year, we had the current Operations Manager, [ Daryl Crawford ] retire, and we are happy to announce that we have been able to appoint Sophie Stevens as Operations Manager. Sophie is a long-term Circa employee and part of the FC5 team since several years. She has been working in the quality and R&D field, and that was an important part of developing Cyrene and bringing it to the market.On the picture there, you see Sophie on the left-hand side, sided by some other employees. In the middle the tall person is the Process Engineer and the other 2 are Operators. They are at around an IBC. This IBC was a 1,000-kilogram delivery of Cyrene to a textile recycling company in Europe and another 1,000-kilogram transfer of Cyrene has been to our U.K. site for Circa's European distribution network. As Nick said, the development is focused on Europe as a primary step. So, with that delivery, we make sure we have enough product to supply customers for trial material. We also have positive multi-kilogram trials of Cyrene as a solvent in agrichemical formulations in Europe and also delivered Cyrene as a trial product for cosmetic applications in Asia.On the operations side, we launched a value stream mapping project last year to improve the process optimization. This project is currently still underway and this will be one of the primary focuses from Sophie as the new Operations Manager to implement all the identified improvement potentials stabilize and then improve the output from FC5 to sort the market. We have successfully implemented a prototype online monitoring system for Cyrene purity. And as well, the FC5 team, one of those things is they provide analytical resources and data for ReSolute, for the Valmet trials and VTT trials for University of York projects, but also for the FC6 R&D project with Valmet, which I'll mention a little bit more later on. And also major improvements to the analytical methods and procedures to monitor process streams in preparation for ReSolute and FC6 are [ done ] with the Fc5 production and R&D team.So next chart, please, Tone. So, the development from FC5 to ReSolute. The ReSolute plant continues to progress well and to confirm Circa's Furacell technology at scale. To strengthen the sites there with the operations, we actually employed a Site Manager, Cyril Lepretre. Cyril joins us from other chemical companies. He has a vast background in chemical with chemical degree and a lot of experience in chemical plants, including some start-ups, happy to have him on-board. The start of decommissioning activities have been postponed to June 24 due to permitting process. I'll go a little bit more into detail here later on. We have signed an equipment delivery contract for the hydrogenation package with a German company, Ekato. On the top right picture, you see a classic EKATO Modular Hydrogenation Plant, which you see mounted on a Skid and our plant, ReSolute will receive such a similar unit on a Skid.We're currently in the finalization of the equipment delivery contract for the distillation package that will be finalized in February. Also have the site preparation works at the site started by Gazel Energie. You see on the bottom right there, this is a part of Circa's plot. There used to be a parking lot. This parking lot has been now taken down. And the site clearing is underway with some excavation works and taking down of some old auxiliary buildings. On the engineering activities, the progress is that the layout has been completed and the detailed engineering is well underway. So, progress on ReSolute, but also progress on FC6.Tone, you could switch the chart, please. Thank you. So, the FC6 will deliver on the promise of a competitive large-scale bio-refinery. For that, we have signed a partnership agreement for the development of the hydrogenation packages for FC6 and FC7 with Ekato, similar to the partnership agreement we signed with Valmet also earlier. So with Ekato, idea there certainly is to use their excellence in mixing technology currently for the hydrogenation of Cyrene, but also potentially down the road for other derivatives. And also one big [ MM ] project will be done trying to find a replacement for the current catalyst.With Valmet, we have started a joint R&D development program with Valmet, but also University of York is part of it, our institute that has started. 15 projects have been identified, which focus mainly on process and cost improvements for ReSolute and FC6. So, to name a few, we are looking into biomass fractionation. We are looking into [ sulfur line ] replacement. We're looking into improving online monitoring systems, not just for Cyrene, but also other parts. So, this is just to name a few projects out of these 15 together with the Valmet team and the University of York and Circa teams.Location for FC6, also these discussions continued. We have looked at a site within the Chemesis platform in Carling. So, where ReSolute is located. Looked also at a site in Grandpuits, which is southeast of Paris. A site in the Northwest of France, [ Loire ] area and also potential site in Norway, North of Oslo. With Valmet, not just the R&D program has started, also the conceptual engineering work with Valmet has started. The boiler and pyrolyzer concept are in the finalization stage. And Valmet confirmed, as indicated before that for 12,500 tonnes of Cyrene production, one standard Valmet 100-megawatt CFB boiler will be sufficient. On the sketch there you see a first conceptual sketch of how such a plant could look. The financial remodeling of FC6 is also underway based on current cost structures, plant configuration and market analysis.So, this to the operations now, update on permitting. So, the permitting process is controlled by 2 separate government organizations. There is first DREAL, which is the Direction Regionalede l'Environnement, de l'Amenagementet du Logement of the Division Moselle. This is the French government agency who controls the environmental permitting. And then there is a second authorization involved, which is CASAS. CASAS represents approximately 80 local towns, sites and villages there around the area [indiscernible] and CASAS has the responsibility for the construction permit.After recent discussions with DREAL, we took a decision to change the permitting strategy and apply for a permanent permit application instead of the initial planned temporary permit application. The permanent environmental permit is a more efficient appropriate process for Circa's technology as it eliminates an upgrade of the file later on and with that additional time required. In order to ensure a complete file and a right first time application, we have a third-party look at our file.Our file has been audited and all the findings from this party have been taken into consideration to make sure that our file goes through and is deemed complete by the authorities the first time. Discussions with CASAS confirmed that the construction permit process will not impact the new timeline. Also to improve the time schedule, our engineering company, De Smet engineers and contractors and all vendors have been now prioritized to identified increased prefabrication options in order to have a most efficient and time-efficient installation process at the site.And then there's another chart, so the EU makes pressure on traditional permitting timelines. This continues to grow to meet global competitive pressure. So, we have here 2 statements from the -- Ursula von der Leyen, the European -- Head of the European Council and from Mark Rutte from the Dutch Prime Minister, which clearly states that the European Union understands that permitting is delaying many projects in the European Union. And that with that, there is a risk that a lot of green investments, new investments in this industry are moved over the Atlantic to North America. So with this, we will see more pressure on the permitting processes but will also help the Circa's installations of the sites.Tony, you are on mute.

[Anthony Duncan, executive]

[Technical Difficulty]Sorry. Chris, yes.

[Unknown Analyst]

I'm wondering, Tony, what the quantum of financial resources required for FC6? Do you have a ballpark figure?

[Anthony Duncan, executive]

Yes, we do. [Technical Difficulty]

[Unknown Analyst]

I'm sorry, I missed the start of the presentation, but is there any -- what's the current anticipated commissioning date for ReSolute?

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

Well done with the presentation and it's good to see you.

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

Sorry, I don't have a question. All good. Thank you.

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

Right. Can you hear me?

[Anthony Duncan, executive]

Yes.

[Unknown Analyst]

Thanks very much for the presentation. It's a nice positive presentation and giving a lot of detail. One of the things that the delay because of the permitting application is that we -- the ReSolute project finish date is 30th of September this year. What impact does that have? What is the relationship with the BVI or whoever is managing it now with regard to the milestones for further issue of grants, et cetera?

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

Could I also ask about another permitting-type issue. And that is the REACH Annex is and what the progress is, presumably, you'll need to get Annex X before ReSolute is opened or in full production. And certainly, for FC6, you will need it. So, what is the part runway towards getting those? And what's the progress?

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

I don't want to hope -- the -- you've as an organization, Circa Group seems to be showing a lower carbon product as opposed to carbon neutral or carbon negative. What is the aim of the company to position itself in the market in that area?

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

My question was maybe partially answered regarding the positioning of the company, FC6 in Northeast of France. What would be the competitive advantage? Or is there something specific for this reason, like customer being close to customers? Or it's more funding related? Can you break us more on this?

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

I know your concentration is on LGO, but the carbon component of what we're actually producing, have you had any time at all to analyze the makeup of that carbon derivative and how we might be able to use it in the future.

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

Yes. Tony, good to see you again. I just got a question for the FC5 combined. We're supposed to have what 50 tonnes per annum. IF FC5 currently on, still on trial production or on actual production now?

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

I understand that the more we produce, the more I think impact the matter. And in that sense, we are sending signals to the market and that will actually have a positive impact on the share price.

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

You said it doesn't matter about the FC5 production or increasing FC5 production. But the impact on the management of FC5 and the product of FC5 will give confidence to the market for the production in ReSolute and for the -- so I'm just wondering what was the tonnage that came out of FC5 last year compared with its design and compared with the previous year from that market impact?

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

My question is about the feedstock's location and variation with the quality. So, does it vary from FC6 to FC5? Will it be the same quality of products or it will change regarding the origin of the feedstock and location?

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

One of the major factors that've put in the foreseeable future yet, positively on the share price.

[Anthony Duncan, executive]

[Technical Difficulty]

[Unknown Analyst]

Just one last comment from me anyhow. I think under trying times, you're doing fantastic work, right? And I complement the Board, in particular, Tony and your staff here in Australia. Just we say, keep up the good work, all right? And I'm sure you will and we'll all be successful. So, keep going Tony, keep going mate.

[Anthony Duncan, executive]

[Technical Difficulty]

[Tone Leivestad, executive]

Thank you.