Pryme NV

OSE:PRYME

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Christopher Herve, executive]

Good morning. This is Christopher Herve, CEO of Pryme. Joining me here today at Pryme One in the Port of Rotterdam, Ferdie Lupescu, our CFO; and [indiscernible], our General Counsel, who will be taking questions at the end of this presentation.

Sliding to the fine print. Focus in the quarter 3, 2023 highlights. Safety is paramount for Pryme and being transparent on our safety track record is equally so. On an HCQ side, we unfortunately witnessed 1 safety incident doing an off-site activity where our operational team was connecting sport activities as a team building. One operator was injured with an anchor issue. He has since recovered. And after a few days, was back on site, working with the team.

We're happy to share that Pryme One has mechanically completed construction early September 2023. Hot commissioning, which had started already in quarter 2 continued during the quarter with the successful commissioning of both extruders, but also the heating up of the reactor who reached the targeted temperature of 600 degrees, and with the internal rotation systems turning at 30 rounds per minute. Corrective actions are necessary for the reactor. They will be detailed further through this presentation. The works are expected to last 4 to 6 weeks and we now anticipate first oil in January 2024.

Pryme has continued to build its workforce ahead of startup. We now have 35 full-time equivalent people on site, 20 of which being operators working in 5 teams of 4 people, 24/7, the installation being manned full-time since October 2023.

Looking quickly at the financial data. Our quarter 3 operational cash flow printed at minus EUR 0.7 million and is expected to land in quarter 4 in the range of minus EUR 2.5 million to EUR 3 million. With construction ongoing, our quarter for investment cash flow printed at minus EUR 2.4 million and we estimate to completion in a range of EUR 3.5 million to EUR 4.5 million that will be spread over the quarter 4 and the beginning of quarter 1. Based on these figures, Pryme now anticipates its funding to extend into the quarter 2 of 2024.

Pryme has built an organization that is now primed for growth with the successful onboarding in the previous months of our CTO and our CFO. We have also appointed our new COO, who was already in the company and brings along a substantial petrochemical experience and we now have a rollout team, man with an industrial rollout manager and our build director who successfully completed the buildup of first plant will also be joining those efforts. We have a streamlined experienced technical team. It is a small but focused team who is capable of troubleshooting issues on the spot in our installation and multiple of these issues were successfully solved during the quarter. Feedstock is secured for startup, including ramp-up and is now projected based on our recent commercial development to fully cover the needs of our installed capacity.

And last but not least, based on most recent forecast for first oil. We anticipate our first line plastic waste and therefore first revenues to occur in the first quarter of 2024. Bringing the focus 1 step back and reminding the impact that Pryme ambitions to bring to the market, advanced recycling has clearly become a societal issue at par with reduction in carbon emissions in order to handle the challenge of plastic waste. Pryme is not here to take volumes away from mechanical recycling, but very much show to take volumes that cannot be managed by mechanical recycling, hard to convert plastics and by doing so, we will produce or at least enable the production of [indiscernible] line plastics. We'll be reducing the dependency on fossil fuels by bringing plastic back into the system. And last but not least, coming in with [ limerations ] from the plastics that we will be diverting from incineration. Regulatory and consumer demand is clearly driving our future growth and asking for a transition from linear to circular packaging.

And last but not least, it's extremely clear to say that petrochemical players have joined the party with substantial investments happening both at the technology level but also at downstream capacity buildup. Pryme's impact objective is to enable circular plastics through advanced recycling and industrial scale, therefore, reducing waste emissions and the subsequent demand for fossil fuels. In order to do so, Pryme has successfully funded with the backing of its shareholders EUR 69 million in funding since its IPO, 2 subsequent private placements, debt financing and subsidies.

With these fundings, Pryme has deployed its actions towards 3 key focused objectives, the first 1 being to design, build and start up of first installation. The second being to secure the adequate feedstock to run the installation and last but not least, of course, to be able to commercialize our production.

Pryme is currently in the process of starting up Pryme One, which will effectively become once operating the Europe's largest advanced plastic recycling installation. If we look at the IPO happening in quarter 1 2021 and the start of build in end of '21, the first half of '22 was focused on civil works and [indiscernible] erections, per the photo you can see on the left. In the second half of 2020, we focused on installing all process blocks. In the first half of '23 on the piping, electrical and automation works and commissioning actively starting in quarter 3 and pursuing into the fourth quarter of '23. Effectively, Pryme has transformed a PowerPoint concept into a near fully operational petrochemical facility in just over 2 years going through the terror of COVID, supply chain disruption from the Ukrainian situation, and last but not least, substantial shortage of labor when it came to piping works in this Rotterdam area.

With commissioning well underway. We have identified 2 key points that need to be dealt with by our technical teams. The first 1 is linked to the connection point between our extruders and our reactor, namely the melt pipe. As a reminder, Pryme operates 2 different extrusion technologies that have a primary objective of homogenizing the waste and take and secondly, of increasing its temperature above 300 degrees to reduce the temperature differential between the feed entering the reactor and the operating temperature of the reactor. Both of these extruders have been successfully tested with post industrial waste and successfully produced melted plastic. The pipe connection between the extruders and the reactor has been identified as requiring an upgrade in terms of pressure capabilities. The flanges have been replaced and we will be recertifying in the pipes through hydro testing [ lava bits ] in order to be able to test the melt pipe once the reactor is available. In the meantime, and as was already planned in our start-up activities, we have the ability to feed cold waste directly into the reactor, effectively bypassing the extrusion step and the melt pipe step. This will enable us to individually commission the reactor, produce first oil and subsequently, while troubleshooting potential problems on the melt pipe, we can continue to feed the installation and ramp up capacity. So we do not see this as a critical towards first oil.

Moving on to the reactor, following its final connection and battery limits end of September, we initiated what we call the in-and-out testing, which essentially consists of testing all the electric connections and instrumentations of the reactor in early October and then initiated heating sequences in October 16. Over a few days, we heated the reactor up to 600 degrees and successfully at that temperature operated the internal rotating shafts at 30 rounds per minute. The rotating shafts are critical in order to be able to homogenize the melt and enable the gas bubbles to evacuate from the top of the reactor.

Technical issues were faced, not from a process perspective, but from an electric connection perspective for the following reason. Our reactor was redesigned based on an existing technology that usually operates under covered routes while our reactor operates outdoors. The installation calculations conducted by our technology partner concluded that the wiring connection points between the electric cables and our heating rings could be enclosed in the insulation panels. Unfortunately, these calculations were wrong, and we occurred overheating inside of the heating panels which will now require us to externalize these connection points. On a unit basis, this would be a quick work but our heating reactor has more than 500 heating rings, and therefore, the operation will need to be repeated 500x. We estimate this time of modification to last 4 to 6 weeks. After which we can reinitiate our commissioning works.

Once again, we insist that the target of the commissioning was to reach a temperature of 600 degrees, which was successfully achieved and therefore, from a process perspective, this testing was a success.

Looking at our technology and our key differentiators. The #1 advantage that we see of operating electrically heated reactor is the ability to have a homogenous heat dispersion on the reactor, therefore, avoiding either hot spots or cold spots in the reactor, but more importantly, to ensure a much higher superior core temperature inside of the reactor. When operating a reactor at 600 degrees on the externals, we will effectively have an internal temperature in the range of 400 to 450 degrees, which is substantially higher than any existing technology from competitors currently in operation. This increased temperature will allow us to, first of all, yield increase quality when it comes to our output product, liquefied plastic waste, also known as pyrolysis oil. But more importantly, it will also allow us to fully complete the reaction and therefore, ensuring that our ash residue is free of plastic residues and that can be witnessed through a dry and free-flowing ash as we have successfully produced in our get facility operating on an R&D setup with a reactor with the same electric technology.

Last but not least, having opted for an already existing technology our reactor is capable of delivering up to 7x the capacity of any competitive reactor. And therefore, in our subsequent plans takes away the requirements of scaling up our technology.

With our plans nearing final startup, our commercial teams have been very active on the feedstock side. Pryme's technology flexibly handles [indiscernible] and contamination contents. Our plan currently starting up has created traction in the marketplace with multiple both feedstock traders, plastic waste traders, but also processes approaching us and proposing material.

Pryme's strategy from the start has always been to have a very focused approach. Our approach is delivering on our build, which is converting waste to liquid through our electric heated reactor. We have, by no means, ambitions of integrating upstream into the sorting and densifying steps of plastic waste. We have, therefore, partnered up with existing waste management systems, namely producers of refuse-derived fuels. And by integrating into these existing steps, we are also ensuring that no additional capital investment is required from our upstream partners in order to enable our first plants. [indiscernible] operations are engineered to handle plastic barrels from post-consumer and post-industrial sorting facilities efficiently. Their process, which takes in bales that have already been processed once involves a further processing through shredding of these bales, a gravity-based separation, which enables to take out any residual hard components inside, ferrous and nonferrous metal extractions. And last but not least, a densification step that essentially yields a densified pellet or agglomerate. These densified products have very low moisture very much standardized density and being hazardous free can enter with no risk into our installation. Final poly [indiscernible] content is obviously a function of waste intake in the densification step. But we have identified sufficient material to be able to be processed through our partners and deliver our installation.

Pryme partnering with [indiscernible] producers also aligns with our impact purpose of diverting plastic waste from incineration, while, of course, reducing emissions. Availability of preprocessed densified plastic waste is expected to meet, if not exceed Pryme's demand for its subsequent plants.

Pryme foresee strong tailwinds showing our growth prospects with our focus being clearly on converting efficiently plastic into liquefied plastic waste priority volume and scale. And in the meantime, we've upgraded having made substantial investments in capacity demonstrating flexibility on their liquid plastic waste in tech specifications in order to be able to meet their commitments and supply circular products to consumers, Pryme has successfully secured offtake contracts for its first 2 plants and is currently in the process of finalizing a fourth supply contract where pre-agreed commercial terms are currently in final draft.

Last but not least, Pryme sees effectively limited competing advanced recycling capacity actually coming online, even though there has been multiple projects, only few of them have made it to the stage of putting online and industrial unit. Pryme is a primary waste converter. We are focusing on translating waste into a liquid that then gets further upgraded by the petrochemical industry. By having this focus, we position ourselves at the juncture of the value chain where at the existing waste conversion players or the petrochemicals have a strong appetite to operate and our build owning operation model makes on its sense.

Looking beyond our first plant, which will, of course, offer valuable insights for future designs, Pryme is actively developing multiple options for its net locations. Construction will follow site location permitting and the derived learnings from our first plant. In order to pursue our technology developments, and future rollout activities, Pryme aims to raise up to EUR 12 million in short-term fundings. This will enable ongoing and permitting activities for plant 2 and 3 and extend our funding into the start of 2025.

Bringing it all together, our ongoing commissioning is delivering tangible progress towards first oil in January '24. We have gathered a dedicated and committed team of industry veterans to premiere a new value chain. A state of when flexible industrial process, combining existing proven technologies will enable this ambition. We have an attractive growth potential for increasing circular demand for plastics, strong regulatory support bolstering this adoption.

And last but not least, Europe's largest advanced recycling plant once operating backed by significant investors. Pryme therefore expects to deliver above-average returns through large-scale plants by leveraging purpose developed established technologies.

We are now very happy to take questions that will be funneled through by Rene and myself and our CFO, will be happy to reply to them.

[Unknown Executive]

Thank you. Until now the audience has not posted any questions. Feel free to do so, please feel free to post your questions for Christopher Herve and Ferdinand Lupescu to address in this opportunity. I'll leave you a couple more minutes. Dear audience, we'll leave a couple of more minutes during this conference call to post any questions you may have for management to address. If there are no questions, we'll close this call in 2 minutes.

Dear audience, thank you for your attendance. We'd like to thank the presentation has met with your expectations. Other questions that you may have, please route these via our known general at [e-mail]. We will pick them up for address to the extent possible other than the information that was shared here today. Thank you for your attendance.