CF Energy Corp

XTSX:CFY

Hello, everyone. Good morning. My name is Charles. I'm the Executive Assistant to CEO and Chair of the Board. And on behalf of the management of the company, I would like to welcome you all to CF Energy Corp.'s Q1 2021 Results Investor Conference. [Operator Instructions]Before beginning the call, let me deal with the formalities. CF Energy would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts or projections in the remarks that follow may contain forward-looking information, which reflect the current expectations of management regarding future events and performance and speak only as of today's date. Forward-looking information requires management to make assumptions or rely on certain material factors and are subject to inherent risks and uncertainties. And actual results could differ materially from the statements in the forward-looking information.In discussing CF Energy's financial and operating performance and in responding to your questions, we may reference certain financial measures, which do not have a meaning recognized or standardized under IFRS or Canadian generally accepted accounting principles, and are, therefore, unlikely to be comparable to similar measures presented in other reporting issuance. Non-IFRS measures should not be considered as alternative to net income or comparable metrics determined in accordance of IFRS as indicators of CF Energy's performance, liquidity, cash flow and profitability. CF Energy's men use these measures to aiding, accessing the -- assessing the company's underlying performance and provide these additional measures so that investors can do the same. Additional information about the material factors, assumptions, risks and uncertainties could cause actual results to differ materially from the statements in the forward-looking information. And the material factors or assumptions that may have been applied in making such statements, together with details of CF Energy's use of non-IFRS financial measures are described in more detail in CF Energy's public filings, which can be found on our website, www.cfenergy.com, and www.sedar.com.As with the formalities having been now dealt with, let me introduce the team present. I would like to introduce senior management representative of the company, who are present. We have Ann Lin, CEO and Chair of the Board; Frederick Wong, Executive Director; Cao Ling, CFO of the company; Mike Liu, VP of Capital Markets; Vivian Tong, Financial Controller.So without further ado, Frederick Wong will lead the Q&A session. Before you raise your questions, please tell us your name and the organization you represent. Okay. Now the floor is open to questions, and I'll let Frederick take it from here.

Thanks, Charles. Yes. If you have any questions, please go ahead and raise them, please.

Okay. Can you hear me?

Yes, I can hear you. How is it, Tony?

My name is Tony Wong, and I'm with Haywood Securities. I've got a couple of questions. I read through the updated company presentation that is now on the corporate website. And I have a few questions -- 2 questions. On Page 14 of the presentation regarding the integrated smart energy projects, the Haitang Bay Integrated Smart Energy Phase 1 project is on track for commercial operation by early Q3 2021. And full completion of the project could lead to more projects and consulting work. So my question is, can you explain further what do you mean by full completion of the project, which could lead to more projects in consulting work? What exactly do you mean by completion of the project, like how long will that take and how many phases are there? And that's my first question.

Okay. Thanks, Tony, for the question. Regarding the question on the consulting work, I think we expect to be in a position to procure further projects of similar nature once we have proved capable of taking on the project of such scale to operation. Piggybacking of this and with our knowledge, know-how and experience, we would not totally rule out the opportunity to assist others in developing similar projects in the capacity as a consultant and thereby earning consulting income. A very good example, which comes to mind, is Enwave Energy Corp. And after completing the Waterfront Project in Toronto, I think they have successfully procured further similar projects. In fact, something we have not actually mentioned in the PowerPoint presentation, but it has been, I think, factored in our plan all along. I think we mentioned that in some of our previous releases, that it has been our plan to replicate the Haitang Bay project across the rest of China. As we all know that there is more than 1 way to skin the cat. Projects of such scale are very capital-intensive. So to replicate rapidly, I think we will not rule out for us to act as project manager, maybe provide the know-how, the experience in managing and operating the projects. And also if everything is equal...

In China?

In China, yes. And also, well...

Did any CDs in China show any interest at all at this point?

Well, we have naturally been exploring the opportunities, but that's already definitely in our mind right at the beginning, particularly with the approval of the project at the state level. So I think we will definitely have an opportunity to replicate it across China. Yes. And also, I was going to say that if everything is equal, I mean to fast-track the -- sorry, can you hear me? Sorry, can I continue? I could hear someone talking.Okay, maybe continue then. I was going to say that if everything is equal to fast-track the development across China we can most certainly consider if it's beneficial for us to actually procure investors to invest. And we can retain a smaller stake and then share the return of a bigger pie. So that could well be something that we could look into based on down the line depending on the circumstances. I think that covers the consulting work side of it. In respect of the completion of the project, from recollection, the corporate presentation, when we refer to the completion of the project, I think we are actually focusing on the development over the coming 5 years, which is based on Phase 1 development only as the current plan. That will give us the capacity, I think, to deal with 780,000 square meter of commercial space, which is the first phase -- sorry, the first phase. And from part of the 5-year plan that we have put out, I think, on Page 15. Currently, I think the plan for development is actually over 4 phases. Ultimately, I think the pace of development may have to be adjusted or aligned with the actual future development plans, particularly of the uses, which, as we know, are the new hotels, the government and public establishments, and also the existing establishments, which are going to be converted to our system. So 4 phases, but right now, only homing in on Phase 1. As we all expect, projects of such kind will have to be developed over several phases. And the Haitang Bay project is no exception to that. So I hope that Tony I've answered your question.

Okay. That sounds actually pretty good. My second question is regarding this part, mobility segment of the business that will be one of the major contributors to the company's [indiscernible] going forward. Can you give us the numbers so far until like the end of June, which will be like Q2? Can you tell us the gross and net profit margin for this battery swap business?

There are 2 stations operating right now in Hainan. I think the revenue numbers up to March quarter this year, it's actually been reflected in the MD&A. I have to say that not a lot of revenue so far, but this is actually in line with our plan. Because as we know that we need more stations to actually create some kind of momentum to achieve the critical mass, which is critical, I think, for the development of the project. So give us more time to get to that.The second part of your question, regarding the gross profit margin and the net profit margin, I think we have not actually been disclosing project or segment gross margin or net profit margins in the past, and we're not expecting to do that now. And we hope that Tony and other shareholders, investors would understand that we do operate in a very competitive environment. While we appreciate the need for information by our -- from our investors, shareholders and so on, both in respect of historical and most importantly, I think, forward-looking information so that you guys can actually make adjustment on your investments in our company. But I have to say that to maintain our competitive edge, particularly in the development business like the EV Battery Swap station, for the interest of the company and you guys, I think we have to keep some of the more sensitive data or information, I think, close to our chest without giving it away to -- potentially to our competitors. So I hope you could understand that. In time, once we get to a certain stage, I think we will be more than happy to divulge information on the public platform. Yes.Any other questions from the floor?

Actually, it's Tony again. I just got an email from Al Verma. He is with BMO Nesbitt Burns. He's actually unable to join the meeting due to his prior engagement. So he actually just emailed me his questions, and I have been a friend with Al Verma for the last 20-odd years. I used to work with him. So I've got a couple of questions from him. The first question is -- he is asking is how much additional capital debt or equity do you estimate will be needed to get the integrated smart energy project to completion?

Okay. Thanks, Tony, for relaying the question for Al. In fact, I believe that in answering your question, Tony, earlier, I mentioned about there are 4 phases of development for the Haitang Bay Integrated Smart Energy project. So because right now, we're only homing in on Phase 1, so for the second and the fourth phases of development, we haven't actually revisited the CapEx numbers since the feasibility stage. And that will be something that we will be doing later on down the line. And we could -- we will certainly consider at that stage to actually share more information with you guys. Like we have done so with the PowerPoint presentation, particularly on -- and also on the MD&A, I believe that we have tables there actually showing the equity that we put in, the total CapEx to date and so on and the status. I think if Al can have a look at that, and then maybe he could actually take note of the CapEx for the -- for Phase 1 and maybe extrapolate it from there as an estimate for -- to give him some idea. But something that we will be working on later on down the line.

Okay. And the second question is actually pretty similar to the first one. He is asking how much additional capital debt or equity do you estimate will be required to get to your goal of 60 battery swap stations?

If I remember correctly, I haven't got the PowerPoint in front of me, but I believe, Page 11, actually shows the estimated CapEx for the EV battery swap stations that we are working on right now, including the ones which are completed and the other ones which are being worked on. I think I suggest that maybe Al can take a look at the -- that table, which should give him a rough idea. But as a ballpark figure, you're looking -- we're looking at about RMB 4 million to RMB 5 million per station, as a kind of indication, yes, of the cost. So you could actually work it out 60 stations for the next 5 years, how much the CapEx is going to be. Yes.Any more questions from the floor?

Hai Lin, private investor. I have a question. I just got a question about your cash position and I guess your debt and your capital. Just could you go over it and maybe describe how the cash is held within your subs? Or how much flexibility you have with that cash?

Okay. Well, I haven't actually got the consolidated -- consolidation schedule with me. But well, I believe that all the cash that we have in the bank, at least as at the end of March '21, they are free cash, which we can use for the projects. Yes. I don't know what else I can say on that. What else do you want to know? Or what you want me to go into in more details?

Well, I guess I'm just -- we always seem -- I mean, it's fluctuated up and down. And I think it's RMB 141 million right now. I don't know what that's, like CAD 30 million in Canadian. And I guess, I'm just -- I guess you're holding that money for the future projects, and you're going to need that money. But I'm just wondering if we have too much sitting in cash, or if we can find other uses for that? Or you think it's a good position right now given the future capital requirements?

Well, I believe that we have been maintaining a cash balance of over RMB 100 million. I think that's been the way, I think, since maybe a couple of years ago. And we believe that keeping cash of that amount would actually give us the flexibility to -- just in case if we face any unexpected outflow of cash, which we have to use. But beyond that, I think we have sufficient unutilized facilities, I would say, for the project as well. Part of the cash will be for the project -- earmarked for the project. But we feel comfortable, I think, with that sort of the level of cash. As in the past, I think experience would suggest that, that seems to be the comfort zone as far as the cash balance is concerned. So unless there are other reasons for us to change that, I think we're happy to keep it at that level. Yes.

Right. Okay. So you're going to continue to, I guess, expand your credit facilities, and for example, like Haitang Bay, the first phase, you need another, let's say, CAD 40 million or CAD 30 million and you'll just continue to increase cash at a suitable level and borrow to fund those projects, I guess, as well?

Well, second phase, as I said that earlier, in answering Tony's question, that's not something that we will embark on straightaway, but the cash itself plus the undrawn facilities, I think it should be ample enough to see us fill for the financing of the -- of Phase 1. But obviously, as I mentioned before, that we'll -- per our plan for the next 5 years, we have to build quite a lot more battery swap station. So part of that cash will be earmarked for that as well. Yes.Any other questions from the floor? Okay, if there are no further questions, maybe, Charles, you could take over then. Thanks, Charles.

Okay. No problem. So given that there are no more questions from the floor, we'll now call an end to the Q&A session. But before we let you go, we hope -- on behalf of our directors and management, we thank you for taking time and attending our conference call. And I hope that you'll stay safe and join us again in the next conference call. Thank you again for attending. Enjoy the rest of your day. Bye for now.

Yes. Thanks, guys. Bye for now.