EQTEC plc (AIM: EQT), a world leading gasification technology solutions company for waste-to-energy projects, is pleased to announce its interim results for the six months ended 30 June 2020.
David Palumbo, CEO of EQTEC, said:
“Our mission is to help the world reduce waste and generate green energy. Our greatest contribution to that mission is producing the world’s purest syngas for the widest variety of applications. We believe there is a growing awareness in the market of both EQTEC’s mission and proposition. As evidence, H1 2020 has seen the acceleration of growth that the Group forecast in sales activity, contracting, and partner, pipeline and portfolio development, despite the challenging conditions experienced by companies around the world due to the Covid-19 pandemic. Our continuing focus on growing EQTEC’s pipeline has, in the first half of the year, created additional non-contracted tender opportunities worth a total potential of €341 million amongst which we sent full commercial offers worth a total of €205 million. Although we see pipeline growth continuing in H2 2020 and beyond, we are also taking the opportunity to put in place greater discipline with financial close and with project execution.
“The acceleration of pipeline growth is built on our market-leading waste gasification technology capabilities and boosted by the partner relationships we have established in nearly every one of our target markets. In Europe, we have solid foundations from which we are expanding. In the USA, we remain focused on further strengthening our relationship with Phoenix Energy in California. In Asia, we have received numerous enquiries, based on the strength of our technologies and the significant advantages our technologies have over alternatives in Asian markets including South Korea, Japan, Indonesia and Malaysia.
“We expect strong pipeline growth to continue through H2 and our partner portfolio approach to continue bearing fruit. However, we are starting to experience some delays in closing deals on account of banks and government institutions continuing to grapple with the impacts of Covid-19. As a result, we expect delays with a small number of deals previously expected to close in H2 2020, shifting instead to close in H1 2021. Given the size of our growing pipeline and market enthusiasm for our waste gasification technology, we see 2021 as potentially exponential in terms of deal closures and revenue growth as governments across the globe seek to encourage a green economic recovery. Fuelled further by investment from EQTEC’s own development capital in a majority of these opportunities, we believe we can both accelerate and secure financial closure of these and future deals. Through combining EQTEC technology, capital and strengthening partnerships around the world, we intend to scale our business and more effectively position ourselves to lead the growing gasification industry and to drive sustainable revenue and shareholder value.”
Operational, Commercial and Corporate Highlights
· Pipeline growth: Accelerated increase in H1 2020 by 41 non-contracted tender opportunities worth a total potential of €341 million, amongst which 17 full commercial offers worth a total of €205 million were provided to potential partners.
· Gasification into Greece: Signed agreement for the construction of a 0.5 MWe (megawatt electrical) gasification installation in Larissa, Greece, with Greek project developer, Agrigas Energy SA (“Agrigas“), via German EPC partners, ewerGy GmbH (“ewerGy“).
· Collaboration with German EPC, ewerGy: Framework agreement completed with ewerGy for 13 potential new projects in the Balkan region (notably, Greece and Bulgaria), with exclusivity.
· Collaboration with Carbon Sole Group, Ireland: Framework agreement completed with Carbon Sole Group Limited for joint participation in projects in Ireland involving biogas and district heating, waste to energy and advanced biofuels applying EQTEC’s gasifier technology. With immediate pipeline of three deals, currently applying for permission to build up to 25 MWth (mega watt thermal) each.
· Progress with Billingham, UK project: Extension of Memorandum of Understanding (“MoU”) following good progress made: EQTEC secured grid connection; completed technical due diligence with technology insurance providers; and progressing well with ongoing discussions with potential funders. The proposed project includes a plant with capacity of up to 25 MWe.
· Equipment sale to Movialsa in Spain, with plant access: Sale of €300,000 worth of equipment and spare parts to Mostos Vinos y Alcoholes S.A. (“Movialsa“). As part of the contract, the Group is able to arrange visits to Movialsa’s plant in Spain to showcase the Group’s technology, which has been fully operational on the site for nearly a decade, to potential future stakeholders in the Group’s projects.
· Upgrade of syngas facility at University of Extremadura, Spain: Signed contract for upgrade of existing syngas research and development facility at the University of Extremadura in Spain. Installation of a Fisher-Tropsch unit supports the production of sustainable biofuels utilising high quality syngas produced from EQTEC’s advanced gasification process, in use at the university since 2010.
· North Fork Community Power (“NFCP”) in USA: Financial close on NFCP project in California, USA, including sale of equipment and engineering and design services worth €2.2 million, concurrent with the acquisition of a 19.99% interest in NFCP by the Company. EQTEC values NFCP total project value at US$20 million and capable of generating annual revenues of US$4 million. This project and a pipeline of others is being developed with US partner, Phoenix Energy.
· Progress toward work in Napa, USA: Full planning permit is in process for a new location in California, working in partnership with Phoenix Energy. EQTEC has quoted for both 2 MWe and 3 MWe plants.
· RDF testing at University of Lorraine, France: Achieved approval to carry out tests utilising Refuse Derived Fuel (“RDF“) at the Research and Demonstration Plant located at the University of Lorraine (“UL“), in France. The Plant was built in collaboration between UL and EQTEC and will accelerate technology validation tests of different types of RDF to satisfy adoption by key stakeholders.
· Employee Incentive Warrant Pool: Warrant instrument allows for the issue of warrants over new ordinary shares in the Company to employees to incentivise performance and align the interests of employees with those of shareholders.
· Appointment of broker: Appointment of Arden Partners PLC as the Company’s Broker, with analyst research produced.
· Revenue: For the six-month period through to 30 June 2020, the Company recognised revenue from an accounting perspective of €0.77 million (H2 2019: €1.56 million). During the period, the Company invoiced and received cash for the provision of technology and engineering services, to North Fork Community Power LLC. Included in trade and other payables at 30 June 2020 is revenue of €958,837 that has yet to be recognised in the statement of profit or loss, arising from the contract with North Fork Community Power, LLC.
· Operating loss: For the period, operating losses of €1.3 million (H2 2019: €1.1 million), principally the result of an increase in administrative expenses over the period. Overall loss for the period decreased due to a reduction in finance costs, primarily as a result of the reprofiling of existing debt.
· Assets: The net assets of the Company were €14.6 million at 30 June 2020 (31 December 2019: €15.5 million), principally the result of losses incurred in the period.
· Cash: The cash balances of the Company at 30 June 2020 stood at €1.7 million (31 December 2019: €0.5 million), with the Company receiving €1.03 million from the exercise of warrants during the period.
· Debt: Agreed a reprofiling of existing debt plus interest of €2.6 million due to mature on 31 July 2020, with a new maturity on 30 June 2021.
Post period Highlights
· Completion of oversubscribed, institutional led fundraise: £10 million raised through offer of new EQTEC shares at 0.45 pence per share.
· Debt to equity conversion: In conjunction with the £10 million placing, existing lenders converted debt of c. £1 million into equity further improving balance sheet debt to equity ratio.
· Patent infringement claim from USA: Claim by Aries Clean Energy (“Aries”) of Franklin, Tennessee, USA that NFCP project in California, undertaken by EQTEC with US partner Phoenix Energy, is due to deploy technologies that might infringe specific Aries’ US patents. The specific EQTEC product identified in Aries’ lawsuit was sold years before Aries’ patents were filed. In addition, detailed technical analysis reviewed by three patent law firms engaged by EQTEC-two in USA-support EQTEC’s view that it does not infringe in any way Aries’ patents. Aries and EQTEC have since jointly agreed to extend the court’s deadline to formally respond to Aries’ claims. During that time, EQTEC will make certain non-infringement evidence available to Aries’ counsel for review, while, in parallel, the parties will engage in direct commercial discussions toward resolution.
· Exclusivity Agreement for RDF Deeside Project in UK: Exclusivity agreement signed with Logik Developments Limited for recycling and anaerobic digestion project in Flintshire, Wales, for which EQTEC will seek additional permission for deployment of advanced gasification technologies. EQTEC will act as lead developer for the Project.
· Appointment of interim Operations Director: With a view to improving go-to-market and project execution performance, appointment of interim Operations Director under short-term, consulting contract. Specific remit to review, define and deploy targeted operational strategies, tools and best practices by Q4 2020. Remit includes supporting the Board in structuring the organisation to support the continuing growth and scaling of the Company and its revenues.
· Equipment sale to Greece: Signed equipment sales and services contract worth €2 million with ewerGy toward 0.5MWe waste gasification project in Larissa, Greece, to be owned and operated by Greece based promoter and project developer, Agrigas.
· Disposal of Pluckanes Windfarm Limited: Sale of Pluckanes Windfarm Limited for maximum net proceeds of €383,503 (dependent on certain milestones relating to planning permission). The asset was previously owned by EQTEC through a wholly owned subsidiary.
· Agreement for Southport Hybrid Energy Park Project in UK: Co-development and option agreement with Rotunda Group Ltd. for waste management project in Southport, Merseyside for which EQTEC would seek additional planning permission for the deployment of its advanced gasification technologies. The proposed plant could convert annually over 55,000 tonnes of RDF for an estimated 6 MWe to 8 MWe of ‘green’ electricity.
Covid-19 and California, USA forest fires
As with most businesses around the world, Covid-19 has impacted EQTEC’s business, resulting in specific delays, but never in the termination of contracts or in loss of commitment toward financial close or other key milestones.
Due to the impact of Covid-19, in H1 2020, and now even into H2 2020, we have encountered delays and postponements toward financial close with specific opportunities. These were nearly always related to delays in formal documentation or approvals required by banks or government institutions, where understaffing due to employee furloughs or downsizing resulted in an inability to keep up with workloads. We are moving decisively with our partners to make up for lost time, but nonetheless foresee the potential for financial close on some projects being delayed by a full quarter or more.
For our NFCP project in USA, the impact of Covid-19 has been compounded by the added impact of forest fires across multiple states on the west coast of the USA and in the Sierra, where the project is located. Fortunately, the fires have not reached the NFCP site itself but the impact of both the threat and adverse environmental conditions on local communities has changed the pace of work and requirements for working people. This has slowed progress on the NFCP project, but we are continuing to closely engage with Phoenix Energy and other partners to work successfully through the challenges.
For both our employees and our partners’ employees, their health, safety and wellbeing are our priority, which remains the case with both Covid-19 and the California fires. We are in regular communication with our partners and colleagues and receive regular reports on both situations and any impact they are having, so that we best manage through any challenges that they face. We are well advanced with virtual working and we have supported all countermeasures required to ensure the safety of our partners and stakeholders in fire zones.
Despite the impacts of both Covid-19 and the fires on businesses, we have nonetheless grown our pipeline of project and partners such that we expect even greater momentum as we all learn to mitigate and effectively navigate through them. We do not view Covid-19 as a passing threat but as a fact of life from which we need to learn and for which we need to adapt. To the extent that Covid-19 has given the world cause to pause and reconsider its relationship with its environment, we believe EQTEC’s proposition and capabilities will become increasingly attractive in a world pushing harder for sustainable, clean energy and waste management.
· Pipeline health continuing through H2 2020 with 14 non-contracted tender opportunities worth a total potential contract value of €66 million, with a forecast of 13 new commercial offers and seven exclusivity contracts in H2 2020.
· Of over 40 opportunities and projects in our pipeline at end of H1 2020, more than half are expected to receive development capital from EQTEC as well as our partners. The acceleration is expected to drive us to closing deals more rapidly and deepening our partnerships.
· We will continue building and deepening partnerships in Europe, the USA and Asia toward increased support from EPC and development partners who can drive projects that deploy EQTEC technology in those markets.
· In parallel, we will continue to focus further on technology innovation and roadmap development toward maintaining our pre-eminence in advanced gasification, further developing it for a wider variety of applications for now and for the future.
· In H2 2020, we face some slowdown in closing deals as banks and government institutions grapple with the impacts of Covid-19 and we anticipate delays with financial close for some projects. We do not anticipate any contract cancellations or long-term postponements and expect to recover pace in 2021.
· As our sales and deal closing expertise scales, we will look to invest in the further development of our partnerships and disciplines with execution and project delivery. We expect to invest further in operational leadership and capabilities to ensure our technology is deployed to ensure the best value for our shareholders and wider stakeholders.
The unaudited interim results for the six months ended 30 June 2020, which are contained below and form part of this announcement, include further important information and disclosures. The announcement should be read in its entirety.