Pryme NV

OSE:PRYME

Earnings Call Transcript 2021-Q4

[Rik H.K. Van Meirhaeghe, Executive Director]

Hello, good morning. I hope you can see the presentation. I want to walk you through our Q4. My name is Rik Van Meirhaeghe. I'm -- I've been with the project since 2013 and have been responsible for technology, now focusing more on business development. I want to start -- of course, you will see in the written presentation some warnings, but I want to start with reemphasizing the Pryme positioning in this market, then walk us through the developments we have done since the IPO, reconfirm our expansion philosophy, which together leads to some funding needs that we will comment. And my colleague, Stephan, will give you the Q4 financials, after which I will conclude. In terms of positioning, it is very important to note that Pryme is focusing on a pure-play pyrolysis and that we are part of the supply chain, whereby we pass on a feedstock to the petrochemical companies. And saying that means that the petrochemical companies need a scalability of the volume going to them because the most valuable route for them to use our feedstock is to be able to transform it in their existing naphtha crackers, for which most of them will need to build some additional pretreatment capacity and to support their investment case that requires substantial volumes of pyrolysis oil.So scalability is a key issue to deliver circular plastics in this world. The approach Pryme has taken is to try to limit the complexity of the technology and work with proven technology. Our key differentiator is effectively in that scalability, leading also to cost efficiency. We have achieved that by not developing our own reactor, but working with existing technology and taking advantage of a long-term proven performance by German manufacturer that has solved, I would say, the many technological challenges on other types of applications.We have an electrified solution, which, of course, will possibly lead us to additional, yes, CO2 reduction. And so a very low carbon footprint. But it technologically gives us also a much higher control over the process conditions and a much faster time of reaction.I want to say that this is a technology very similar to what Plastic Energy has and is using. And for me, this is, today, the benchmark company in the market as it has been operational on this technology already for more than 5 years.So this proven elements and -- of which we will get the validation in Rotterdam, plays in a market that, today, is extremely strongly driven by consumer sentiment that is requiring the fast-moving goods companies to get plastics that are of circular nature or at least have a very high recycling content. That is, again, supported by regulatory environment that forces these companies to do so.We have seen, in the past -- especially the past 3 years, I would say, that the major -- oil majors and petrochemical companies have now taken over also that motivation, certainly driven partly by protecting their quite lucrative plastic business models. And we see also a final piece in the chain converting more and more towards this on the, I would say, waste collection and sorting capabilities, where EU regulation is forcing these companies to take more plastic out of any waste stream and, in fact, trying to avoid incineration as a solution for plastics. All of this leads to a very favorable market with significant volume potential. Maybe focusing on what we have done since the IPO, I will focus more in detail on what's been happening on our PlantOne construction site. Of course, we are continuing to mature and stick to our rollout plans, for which we've started on implementation and identified interesting sites. One of the cornerstones in this all has been the strategic agreement we have signed with Shell over the summer. That is also accompanied by an offtake agreement. And we are, at the moment, fully in implementation of, let's say, adjusting logistics between the 2 companies and things like that, also the ISCC PLUS certification reach, et cetera.All of this is only possible because we've gathered a good team with the right competencies. And we believe that now we have a quite complete team to deliver all of this. Maybe an element that we have expanded more than in the original plans is a very important collaboration on R&D, which I will also highlight a bit more. In terms of the Rotterdam development, one of the important things that has happened is that by the end of the year, last year, we saw that lease agreement we had with the PlantOne, which is the name of the site where we are locating, was not adequate for the size of activities we were having. The original idea was that they would provide all the OSBL, the Outside Battery Limits of our process units. We noticed or we came to the conclusion that it was risky to leave all that responsibility to them and decided to take more control over the facilities surrounding our equipment. It means now we have concluded a new lease agreement with them that we can fully proceed with the construction. The concrete slab was already [ poured ]. The steel structure was already manufactured and is waiting to be brought to site for construction. We are already in factory acceptance tests with some of the equipment suppliers, but there's also some essential equipments that -- from German origin that have a few months delay, which, all together, brings us in construction completion over the summer, starting off commissioning in Q3 and still first oil and potential commercial production as from somewhere Q4. These are some of the pictures. It's a quite big walking floor that is our waiting bunker. Our steel structure that is ready for, I would say, installation and the full engineering of the plants that you see there.What does it mean if we compare CapEx intentions at the IPO and now? Yes, there is a very significant change, but it is, of course, not just due to expansion of cost. It is mostly due to changes of scope. First one, of course, and the most major one is that we negotiated lease agreements on the facilities where we take responsibility of our Outside Battery Limits. That's an expansion of EUR 6 million.During the final design reviews and also taking some clues from competing installations, we see that very often the plastic melt flow and transports to the reactor causes them problems. So we've decided to shorten as much as possible the distance between our extruders and our reactors, but that has a significant cost increase because we need to put the extruder at a certain height, which increases a lot of engineering complexity. But I would say it will certainly derisk the plant in a further way. Also in the feedstock discussions, we've noticed that we need some more control over storage and pretreatment, which we have also done some [ additional CapEx ].As I explained already, the R&D was originally very low. We have increased it, but we see beyond, of course, a very strong know-how development [ project ]. It is also a strong generator of subsidy potential. And we've already been able to get an invitation for Horizon, an EU project, that will lead to substantial subsidies. All of this still, of course, results in the delays and CapEx estimation, that due to the situation with COVID and general inflation, has still increased also to some extent.One of the other elements that drives our additional CapEx is we've had the rare opportunity to book or to conclude the purchase of a site in Amsterdam. Why do we consider it a rare opportunity? Because, okay, it has all the features for the necessary facilities in this side, especially in terms of logistics with the case side, and good accessibility by road. But mostly, it has already a permit for pyrolysis activities. Although the permit is limited at the moment to 30 -- so let's say, more or less the size of PlantOne, the discussions with the authorities have led us to confirm that they would be open to an extension of that permit to a typical size, which for us is 160,000 tonnes. And all of this means that we now have a strong control over our potential development plan in the rollout.The fact that on top of that, there is already a concrete slab on which to produce the factory and that the mere cost of that slab is higher than the price we are paying for all the assets together is, of course, an interesting element.R&D center, the main point there is that we've noticed that we have a strong offer as a strategic partner to our off-takers and our waste suppliers if we can do fast testing of the relation between waste feedstock and the oil quantities. And so we've built mini simulation plant of 10 kilos per hour at the research facilities in Ghent. The center in Ghent, where we are, is a center of excellence for the petrochemical industry with an extremely strong track record and about 80 researchers that both work on plastic feedstock, but conversion, and there is even a naphtha pilot cracker on the site. So we will be able to do a lot of testing in favor of our offtake partners and be able to develop a database that allows us to optimize a much more efficient value chain from feedstock to output pyrolysis oil.Okay. The team, especially the bottom line, you see a lot of very experienced people with relevant background in the trade of the petrochemical industry that will deliver, I would say, on the technical and development side. I think, in particular, my former CTO role has been taken over by our Joeri Dieltjens, who has both in terms of process engineering, but also in project management, construction of modular approach, the right experience to deliver this. So we stick to our expansion philosophy, and that is that upon validation of the engineering metrics through PlantOne, we should be in an investment -- final investment decision position, i.e., have access to permitted sites and the right development plans in the course of '23, which will then lead to production sites end of '24, early '25. Also in terms of the discussions with our strategic partners, that is a very relevant time line because it will also lead to adoptions in their assets.Of course, Amsterdam is now a piece of the puzzle, but we are simultaneously pursuing permitting actions in Rotterdam 2 plant for -- which will still, let's say, convert to the potential mega plant in a phased approach. And also in Le Havre, where both [ Exxon and Total ] have their assets nearby. Furthermore, we will still continue with permitting sites in Mediterranean, Baltic, Rhine and U.K. because that gives you a kind of distribution of access both to feedstock and oil markets and assets. All of this is still built on very attractive project economics. It is clear that the evolution in oil prices, energy prices in general, are having an influence on what we are doing. But I think the main element we see is that the premium being paid for pyrolysis oil is robust and allows, I would say, to take -- add a good protected margin still the increase of feedstock prices, partly driven by it being an alternative in incineration potential still at the moment. PlantOne will, of course, be -- because of its limited scale, will be less profitable. But our typical scale, I think, is our standard metric we have to be looking forward to, with a 32% EBITDA return on invested capital. It means that once also you consider some debt leverage in that construction, we can deliver very profitable projects.All of this, of course, leads to some additional funding needs, which we believe is with EUR 15 million we can deliver absolutely the startup and profitability, so cash flow positive situation with Rotterdam PlantOne. We will by then, at that time, also have our different development projects for growth, ready for investment decision. And our research center continues to help us to be at the forefront of the development and make us a very interesting strategic partner for the offtake markets. We have entrusted this fundraising to Pareto Securities, and we'll certainly be in touch about that with several of you in the coming weeks and weeks.I leave the words to Stephan for comments on the financials.

[Stephan Anzenhofer, Chief Financial Officer]

Thank you, Rik. Good morning, everyone. Focusing on Q4 financials.For me, there's a few line items that jumped out and needs some clarification, the first one being the increased employee expenses, personnel costs. Of course, we have hired 2 new people in Q4, our CTO/Rollout Manager and our CQ Director, Legal Counsel and R&D Manager joined in the beginning of 2022, not in these figures.But on the back of the new structure of the Boards, there are some annual costs that related to that restructuring that are fully hits Q4, where normally it would hit sort of the quarters before then as well and be spread over the year. Impact on our run rate of the total on the employee expenses is about EUR 100,000, that we have more costs in Q4 than normally.The other thing that jumps out, of course, the legal expenses. As Rik described, we renegotiated the contract with PlantOne, giving us a lot more control. And we also had the acquisition of the Amsterdam site in the Port of Rotterdam -- Port of Amsterdam, I'm sorry, both requiring quite a bit of legal support. So those are the 2 items that are special in the Q4 P&L. On the cash flow statement. In Q4, as you can see, we spent EUR 6.1 million. Of that EUR 6.1 million, EUR 5.2 million was spent on CapEx. If you look at the CapEx increase, it's only EUR 4 million, but there's EUR 1 million hidden in the movement on accounts payable due to an invoice, a large invoice of one of our equipment pieces, having arrived just at the end of Q3, hence an increase in Q3, a decrease in Q4 and the cash out in Q4. Remaining as we spent on CapEx, which you just detailed a little bit in the P&L discussion, so there's nothing more to add here. On the balance sheet, Rik, the balance sheet, please?

[Rik H.K. Van Meirhaeghe, Executive Director]

Yes.

[Stephan Anzenhofer, Chief Financial Officer]

The balance sheet reflects all of the above. As discussed, items continued increase in our tangible fixed assets. You will see an increase in our intangibles as due to the reallocation from the tangibles of the engineering related to development of our IP. That's now been reclassified to intangibles. Still a very sizable equity position, 83% of the balance sheet total. And we're left with EUR 8.2 million cash at the end of 2021.Those were the highlights. I mean you can go to the highlights of all of Q4. It's a sort of rehash of all the above. The renegotiation agreement with PlantOne is essential for us and gives us a lot more control of what we're doing there.What about planning change in scopes? Rik, [indiscernible], construction of the steel structure. The main thing for me, I think, it is against the EU Horizon project that we have been awarded. And if you look at the top Q4 and you sort of take out the one-offs, the regular run rate of our OpEx is at about EUR 700,000 per quarter.

[Rik H.K. Van Meirhaeghe, Executive Director]

Okay. So I think that all reconcludes that's in our investment case, we seek a position in very large market or a market with a large potential both in terms of supply and volume offtake, with a very narrow positioning on being a core competence and developing a cost-efficient conversion of waste plastics.We will have validation starting somewhere at the end of '22 and confirmed in '23 of our engineering metrics, which will then allow us to fine-tune the further investment and larger scale plants. Scalability is clearly an essential component, for which makes that many of those oil majors are coming to see us. It's after 10 years of hard -- trying to get them to the table. It's very interesting to see that they now invite themselves to my table. Of course, we respect the partners that were with us and helped us from the beginning, and Shell is certainly one of them. But as it is a nonexclusive relationship, we certainly will engage and do engage with other partners to see where we can, let's say, play our cards best in our rollout scenario.I would say the maturing of the pipeline, of course, is -- remains important to make sure that by the time we get validation, we are in a position to take advantage of the value creation we are able to do in this market.I would like to thank you for listening to us. In view of the fundraising exercise that is coming, we kindly ask you to direct your questions directly to Pareto, because they will be coordinating all the further steps in our process. So thank you very much, and I would say, have a nice day.