REG - EQTEC PLC - Trading, Business and Funding Update

EQTECAnnouncement

02/05/2024 08:15

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RNS Number : 9855M  EQTEC PLC  02 May 2024

2 May 2023

 

EQTEC plc

("EQTEC", the "Company" or the "Group")

 

Trading, Business and Funding Update

 

EQTEC plc (AIM: EQT), a global technology innovator powering distributed,
decarbonised, new energy infrastructure through its waste-to-value solutions
for hydrogen, biofuels, and energy generation, is pleased to provide an update
on 2023 financial results and progress with execution of its business strategy
and transition to a technology innovator, licensor and engineering services
provider.

 

Highlights

 

·      FY 2023 unaudited revenues of c.€2.5 million, in line with
Company guidance

·      Steady monthly revenues being earned in Q4 2023 and Q1 2024

·      Equipment sales and commissioning revenues expected in H2 2024

·      Italia MDC moving toward continuous and sustained operations

·      Financial restructuring, cost reduction and anticipated
conditional strategic investment

 

2023 results

 

The Company expects to report 2023 revenues in line with its guidance
announced on 20 September 2023. The Company is currently progressing its
annual audit and expects to report its 2023 audited results later in Q2 2024.

 

Strategic 'pivot'

 

The Company has since late 2021 highlighted its withdrawal from high-risk,
large-capital project development, to focus on recurring revenues from
technology innovation, licensing and provision of targeted engineering
services that support deployment of its unique syngas technologies into
projects and plants owned by the world's leading Industrial, Utility and Waste
operators.

 

The Company believes that this strategic 'pivot' will allow it to deliver
services across a larger number of projects owned and driven by clients, thus
mitigating the risk of dependency on any single project or set of projects.
This in turn would allow the Company to establish and maintain more
consistent, revenues by diverting its resources to the projects with the
greatest demand for EQTEC services at any given time.

 

The only specific exceptions are the reference plants in which the Company is
directly involved in the equity, including the EQTEC Italia MDC in Tuscany,
Italy, the waste-to-syngas reference plant under development in Belišće,
Croatia and a prospective, waste-to-fuel plant at a location to be determined.
All three plants will support future business development on the basis of
three, distinct applications and lines of business built on EQTEC technology,
namely the conversion of biomass to syngas, waste to syngas and waste to
biofuels. Updates will be provided in due course on the progress and status of
each reference plant.

 

Reduction in liabilities

 

In 2023, the Company took action to reduce its corporate risks, liabilities
and engagement with non-strategic work or partners. Key actions included sale
of project company Grande-Combe SAS (France) to Idex in July 2023,
discontinuation of the Billingham project in Teesside, UK, in September 2023,
and formal legal action to recover project development loans at the Deeside
project in Wales, for which a settlement agreement has recently been signed,
in April 2024.

 

As part of its review of its 2023 financial results and in conjunction with
the FY 2023 audit process, the Company is considering an impairment provision
of development assets on its balance sheet.

 

The Company continues to drive its strategic transition, or 'pivot', through
its careful selection of clients and projects, and of delivery partners that
can be relied upon to minimise development and execution risks, maximise
project funding potential and reliably recompense the Company for delivery of
services and technology throughout the stages of a project's lifecycle.

 

Revenue generation and margin improvement

 

The Company has delivered steady monthly revenues in the first quarter of
2024, with c. €600,000 in revenues for the quarter, and it expects this
trend to continue and grow throughout the remainder of 2024, in particular
from engineering services and revenues from early-stage equipment orders on
specific projects.

 

Unaudited gross revenue margins for the Group in 2023 were c. 15%, increasing
above 30% in Q1 2024, as the Company pivots toward core competencies,
established clients and steady monthly revenues driven by engineering
services, testing services and certain O&M support services.

 

The revenue split in the second half of 2023 were c. 70% from Engineering
Services and c. 30% from Development Services. While early in the financial
year and subject to change, the Directors currently expect revenues for 2024
to be derived from Engineering Services (c.55%), Equipment Sales (c25%),
recurring revenue from Operations, Maintenance Services and Licensing (c17%)
with only 3% from Development Services.

 

Revenues in late 2023 and early 2024 have been primarily from clients based in
France, USA and Greece and the Company is ramping up work again on its Croatia
reference plant with a view to generating revenues from the plant in late
2024.

 

The steady, month-on-month revenues delivered in the first quarter of 2024 and
forecast to grow through the second quarter and rest of year are relatively
smaller revenues coming from engineering services, testing services and some
O&M support services. In most projects, the first two of these typically
lead to equipment orders as engineering work completes and once clients
achieve financial close on their projects.

 

Although EQTEC cannot control the timing of clients' financial closings,
certain initial equipment orders are expected in the second half of FY 2024,
including a first equipment order from French utility infrastructure owner
Idex, continuing into FY 2025.

 

EQTEC Italia MDC Srl

 

The Company's first reference plant, EQTEC Italia MDC Srl ("Italia MDC"),
became operational in March 2023 and has over the past year focused on a
number of business management and operational challenges, most of which had
been expected during the early stages of operation. Although the Italia MDC
has exported electricity numerous times to the national grid and produced a
considerable amount of biochar, it has been unable to sustain continuous
operations. The plant now finds itself in a strong position to operate
continuously and is due, after some significant maintenance, to restart in
April 2024.

 

Business management challenges included difficulties finding local staff,
establishing and maintaining a strong operations team, securing sufficient
property to support operations, building relationships with the local
authorities and suppliers and establishing corporate standards that ensure
compliance with local, Italian and EU requirements. These challenges have now
largely been surpassed and the team's focus is on continuous and sustainable
operation of the plant.

 

Operational requirements centred mainly on non-EQTEC equipment that appeared
to be in good condition, even according to the relevant manufacturers, but
which for various reasons were unable to run consistently. This has resulted
in continual shutdowns and restarts of the plant, something unintended for a
plant due to run 24 hours per day, seven days per week all through the year.
The regular shutdowns and restarts has have had a knock-on impact on other
components and has resulted in significant maintenance.

 

Although these challenges, many of which are typical for any plant in its
first year of operation, have commanded great time and attention from the
Company, they have also resulted in formation of a highly resilient and
proactive operations team with strong leadership and an ability to rapidly
diagnose and resolve issues. The Company looks forward to seeing the return on
this investment as the plant achieves uninterrupted operations in the coming
weeks, months and beyond.

 

Additionally, the Company is considering a number of improvements to the
business model and to the plant itself that will reduce costs and enhance
revenue potential. These include migration to more favourable feedstock
contracts, application for additional feedstock permits to increase the range
of feedstock and improve associated economics, establishment of longer-term
biochar contracts with larger brokers, pursuit of carbon credit sales,
investment into new infrastructure for sale of heat and automation of more
processes.

 

The Company is one of several investors in Italia MDC. Its Board of Directors
meets formally once per month and informally on a weekly basis. Weekly
operations and finance reports are provided by management, which has been
under the direction of Company COO Jeffrey Vander Linden. The Italia MDC Board
of Directors has directly engaged with and overseen the various issues,
initiatives and decisions taken in the interests of the plant and associated
business.

 

Financial restructuring and funding update

 

In 2023, amidst worsening market conditions and following the 'Focus Plan' it
had announced in 2022, the Company restructured its finances and engaged with
investors committed to the long-term development of the Group, based on the
strength of its technology, business strategy and management.

 

In November 2023, the Company announced a financial restructuring, with the
support of existing stakeholders Altair Group Investment Limited and Pitcole
Limited, that included refinancing of existing debt and a reduction in the
Company's operational expenditure of c. 20%.

 

In February 2024 the Company announced a proposed equity investment of £1.5m
into the Group by Verde Corporation ("Verde"), subject to receipt of the
investment funds by the Company and to shareholder approval. While the Company
has extended the settlement date for receipt of funds, it expects to update in
May 2024 on the progress towards completion of this investment and the receipt
of funds.

 

While the Company awaits funds to be received from both the Verde
subscription, together with the anticipated proceds of the Logik settlement
announced on 1 May 2024, the Company expects to shortly draw down £245,000
(net) under the existing syndicated facility to augment its short term working
capital. Following draw down, the Company retains access to c. £1.80 million
under the syndicated facility.

 

David Palumbo, CEO of EQTEC, commented:

 

"We believe the Company is successfully executing its strategic pivot, with a
very visible change in the mix of our revenues and with good, strong and
reliable, month-on-month revenue delivery. Whilst the process has been tough
at times, I am confident in the delivery of our vision by the EQTEC team. Our
pipeline remains strong and we are now more selective and deliberate about
where and how we do business. We anticipate continued, strong growth as our
client projects mature. We are gradually introducing additional projects into
our portfolio in a more discerning and focused manner. Underpinning all of
this effort are our reference plants, where we are making strong, steady
progress as funding is secured to propel projects forward. We have had to make
some some difficult decisions in 2023, but this has focused and strengthened
our platform for future growth of the business, built on our world-leading
technology."

 

This announcement contains inside information as defined in Article 7 of the
EU Market Abuse Regulation No 596/2014, as it forms part of United Kingdom
domestic law by virtue of the European Union (Withdrawal) Act 2018, as
amended, and has been announced in accordance with the Company's obligations
under Article 17 of that Regulation.

 

ENQUIRIES 

 

 EQTEC plc                                        +44 20 3883 7009 

 David Palumbo / Jeffrey Vander Linden 

  
 Strand Hanson - Nomad & Financial Adviser        +44 20 7409 3494 

 James Harris / Richard Johnson 

  
 Global Investment Strategy UK Ltd - Broker       +44 20 7048 9045 

 Samantha Esqulant 

 Fortified Securities - Broker                    +44 20 3411 7773 

 Guy Wheatley 

  

 

About EQTEC plc

 

As one of the world's most experienced thermochemical conversion technology
and engineering companies, EQTEC delivers waste management and new energy
solutions through best-in-class innovation and infrastructure engineering and
value-added services to owner-operators. EQTEC is one of only a few technology
providers directly addressing the challenge of replacing fossil fuels for
reliable, baseload energy. EQTEC's proven, proprietary and patented technology
is at the centre of clean energy projects, sourcing local waste, championing
local businesses, creating local jobs and supporting the transition to
localised, decentralised and resilient energy systems.

 

EQTEC designs, specifies and delivers clean, syngas production solutions in
the USA, EU and UK, with highly efficient equipment that is modular and
scalable from 1MW to 30MW. EQTEC's versatile solutions process 60 varieties of
feedstock, including forestry waste, agricultural waste, industrial waste and
municipal waste, all with no hazardous or toxic emissions. EQTEC's solutions
produce a pure, high-quality synthesis gas ("syngas") that can be used for the
widest range of applications, including the generation of electricity and
heat, production of renewable natural gas (through methanation) or biofuels
(through Fischer-Tropsch, gas-to-liquid processing) and reforming of hydrogen.

 

EQTEC's technology integration capabilities enable the Group to lead
collaborative ecosystems of qualified partners and to build sustainable waste
reduction and green energy infrastructure around the world.

 

The Company is quoted on AIM (ticker: EQT) and the London Stock Exchange has
awarded EQTEC the Green Economy Mark, which recognises listed companies with
50% or more of revenues from environmental/green solutions.

 

Further information on the Company can be found at www.eqtec.com
(http://www.eqtec.com/) .

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