EQTEC PLC – EQT – Trading Update

EQTEC PLC – EQT – Trading Update

EQTEC plc (AIM: EQT), a world leading gasification technology solutions company for sustainable waste-to-energy projects, is pleased to provide the following trading update.

 

Highlights

 

·    Partnerships deliver 80%+ growth in pipeline

·    EQTEC development capital to accelerate deal conversion and enhance EBITDA

·    Financial forecasts indicate profitability in 2021

·    Innovation projects futureproof EQTEC technology leadership

·    Aries Clean Energy patent infringement complaint dismissed

 

Pipeline Growth

 

In line with its go-to-market strategy of working with local partners in target markets, EQTEC has experienced considerable growth in its non-contracted project pipeline, especially in Europe, with notable, new interest from Asia, the Middle East and Australia. Since the announcement of the Group's interim results in September 2020, the number of opportunities has grown from 41 to 75, an increase of 83% over six months. Additionally, between July 2020 and February 2021, the Company added non-contracted tender opportunities worth a total potential of €316 million for a total potential pipeline value of €657 million. Over the same period the Company sent full commercial offers worth a total of €246 million.

 

Of 14 pipeline opportunities prioritised by the Company for immediate pursuit, 12 have been introduced through five partners. This indicates that at the heart of EQTEC's growth is a core group of go-to-market partners that bring local pipeline, local relationships and local delivery team candidates to accelerate entry and expansion into markets actively seeking newer and cleaner solutions for waste management and energy production. These key relationships are expected to assist the Company in driving rapid pipeline conversion, quality project delivery and sustainable operations that can prove the value and capability of EQTEC's advanced gasification technology in a variety of environments, with a variety of feedstock and offtake applications.

 

Adding to acceleration of deal conversion with these partners is investment of development capital by EQTEC ("EQTEC Capital"). Injection of this investment at the earliest stage of deal pursuit accelerates development, engineering and project planning work toward Financial Close of the project and allows the Company to direct and assure the quality of preparations and mitigation of risks. Assuming a projected healthy return on capital deployed, EQTEC Capital can also generate additional income and support EBITDA. The Company's growth forecast for 2021 - 23 is built on success with this approach.

 

·    Biomass-to-Energy. EQTEC has two plants currently under construction. The Agrigas 1 agricultural waste project in Larissa, Greece is establishing that country's first, advanced gasification waste-to-energy plant. The North Fork Community Power forestry waste project in California, USA is also under construction, supported by extension through 2025 of the Bioenergy Market Adjusting Tariff (BioMAT), which incentivises installation of small-scale bioenergy renewable generators smaller than 5 MW.

 

Pipeline growth has been especially strong in Greece and Croatia for biomass-to-energy projects, with additional opportunities emerging in Italy, Spain, France and the USA. In Greece, partner ewerGy GmbH is driving pursuit of the Nobilis project, for which project delivery team and permissions are now in place and planning application has been made for a grid connection. Over a dozen new opportunities in Greece are identified for 2021 - 23 with a handful of those targeted for 2021. In Croatia, the Company is finalising legal execution of a joint venture with local partner Sense ESCO d.o.o. that will pursue a portfolio of projects there including two in 2021 and a further two in 2022.

 

·    RDF-to-Energy. The UK's first plant employing EQTEC technology will be in Billingham, Teesside. The development is advancing at pace, with the land purchase agreement completed, additional planning approval achieved and pre-enablement works underway. Additionally, the Company is pleased to confirm that the deal is currently under review by Idex Group ("Idex"), a European owner-operator of waste-to-energy infrastructure. Idex has become a leading name in the renewable energy industry with over 40 energy-from-waste plants in France. Idex has succeeded in anticipating and taking action in response to climate change and has always taken a progressive stance with innovative technologies. It is currently expected that, subject to completion of a final review and requisite documentation, Idex would provide the financing required for the construction phases and then own and commercially operate the plant. Assuming the requisite funding is provided, EQTEC expects to act as the co-developer on the project, providing the design and core advance gasification technology and retain the maintenance portion of the O&M contract.

 

Two other UK RDF projects are expected to progress in 2021 with similar milestones to the Billingham project: one in Deeside, Flintshire with co-developer Logik Developments Limited and one in Southport, Merseyside with co-developer Rotunda Group Limited. The Company also recently announced that it has agreed to collaborate to explore an innovative, circular and sustainable waste-to-energy solution for Toyota's engine manufacturing plant in Deeside. Subject to Financial Close, construction is expected to commence at Deeside and Southport in 2022.

 

·    Biomass-to-Bioenergy. The Company is pleased to report progress toward application of its Advanced Gasification technology capabilities to the production of biofuels including bio-SNG, starting with opportunities in Ireland. Within the Company's collaboration agreement with Carbon Sole Group Limited two biomass-to-bioenergy plants are being developed, with one additional site under review. These projects will focus on production of advanced biofuels as well as electricity and heating. Discussions with strategic technology partners are progressing for joint development of biomass-to-biofuels solutions based on EQTEC technologies. A planning application has been submitted for the first project, in Shannon. Updates on technology partners and planning progress are expected shortly.

 

·    Recommissioning EQTEC technology. The Company is excited to announce that it is pursuing recovery of two plants built with EQTEC technology where operations were previously suspended by their owner-operators for lack of technical integration capabilities. Not only does this demonstrate the Company's commitment to ensuring its technology sustainably delivers value for communities, but it will see EQTEC lead consortia to acquire, repower, own and operate its technology in target markets such as Italy and Croatia. The two plants are expected to be acquired in 2021, with the first acquisition nearing contract completion.

 

New partnerships continue to be established and the Company is pleased to announce that it has entered into a Framework Partnership Agreement (FPA) with MetalNRG plc (LON:MNRG) ("MetalNRG"), to develop biomass-to-energy, RDF-to-energy and sustainable, clean energy projects in the UK and Europe. MetalNRG's Special Purpose Vehicle, MetalNRG Eco Limited, will participate in the equity of shovel-ready projects in EQTEC's pipeline. EQTEC will advise the SPV technically, financially and operationally, becoming MetalNRG's preferred technology partner. To strengthen and add substance to the relationship, the Parties have agreed that when MetalNRG finalises its prospectus, EQTEC will acquire £500,000 in value of MetalNRG shares through the exchange of the same value of EQTEC shares with MetalNRG, based on the respective share prices at that time.

 

In terms of new markets, the Company has seen a significant increase in new interest from Asia, the Middle East and Australia, including direct approaches by potential delivery partners, including EPC companies and their suppliers.

 

Financial outlook

 

The Company's annual results for the financial year ending 31 December 2020 will be announced in April 2021. Revenue for financial year ending 31 December 2020 is expected to be broadly in line with market expectations, and the Company expects to report a loss not lower than €4 million before any potential one-off adjustments.

 

For 2021, the Group is targeting considerable, contracted sales growth from 6 - 8 projects across Europe, including new technology collaborations and the Company's biggest project yet, the RDF-to-energy facility at Billingham, UK, a single project valued in excess of €30 million in engineering and technology sales to the Group over the construction phase of the project. Invoiced sales from each project, linked to milestones, will be realised as revenue over the entirety of the respective project delivery periods following Financial Close. Depending on the size of the plant, the project delivery period may be anywhere from 12 to 36 months.

 

Revenues from inflight projects, new projects and gradual growth from maintenance and consulting contracts are forecast to be approximately €15 million in 2021, with positive EBITDA, which would make 2021 EQTEC's first year of profitability.

 

Covid-19, Brexit and forest fires have all impacted the pace of business. Whilst no deals dropped from the Company's pipeline, some were delayed. Lockdowns, furloughing, home working and impacts from domestic and international travel restrictions have prevented physical site visits and adversely impacted logistics and progress with documentation, financial approvals, planning or other administration. These in turn added delays to progress of specific projects. With operations in Ireland, the UK and Spain, the Group has been well-placed to mitigate impacts of the Brexit process in relation to political, administration and policy changes. However, some delays were experienced with regard to timely approvals of documentation, funding, planning or other administration. In California, the added complication of forest fires, some of which occurred on the boundaries of the project site, caused delays with building work and further slowdowns with future projects in that pipeline.

 

The Company anticipates that these impacts will subside through 2021 and therefore expect significant growth in the number, size and types of deals that were closed in this period, with further growth forecast again for 2022 and 2023, based on the breadth and variety of deals in the Company's pipeline.

 

Innovation Projects

 

Even as EQTEC pursues projects to further demonstrate its strengths with biomass-to-energy and RDF-to-energy, the Company remains committed to keeping its position as a leader with advanced gasification technology development. The Company expects to co-invest with partners in a number of significant R&D projects in 2021.

 

With long-standing partners, the University of Lorraine (France) and the University of Extremadura (Spain), as well as with private sector partners with whom the Company is currently finalising collaboration agreements, it will pursue tests and research to enable usage of new types of feedstock, including all variations of RDF, sludge and plastics; as well as a range of joint technologies for applications in biofuel, bio-SNG and green hydrogen.

 

Aries Clean Energy patent infringement complaint dismissed

 

EQTEC is pleased to announce that Aries Clean Energy LLC ("Aries") of Franklin, Tennessee, USA has withdrawn its patent infringement complaint. The joint stipulation that the action be voluntarily dismissed with prejudice was filed in the United States District Court Eastern District of California on 19 March 2021 and operates as a final determination on the merits of the case, forbidding Aries from filing another lawsuit on the same grounds. The with-prejudice dismissal will thus confer upon EQTEC a right to continue producing, using, and selling the relevant EQTEC technology without further harassment from Aries, either directly or through suits against EQTEC's customers for using that technology.

 

The move follows EQTEC's filing in December 2020 of a Motion to Dismiss the lawsuit for failure to state a claim. EQTEC had steadfastly asserted that the case lacked any merit, and that the Company's technology did not infringe Aries' patents, particularly given that EQTEC's own accused technology was actually prior art to every patent claim that Aries asserted.

 

Since early in 2020, and well before Aries filed its complaint, EQTEC had offered repeatedly to provide Aries' outside legal counsel with EQTEC's technology specifications that would prove non-infringement. Aries resisted that review through most of 2020, continuously requesting that its own engineers and even its CTO be given direct access to EQTEC's specifications, which are subject to EQTEC's own confidentiality and intellectual property ("IP") protections. Such sharing of IP under legal pressure was never warranted and would not have been required even by the Courts. In January 2021, Aries finally agreed to have its outside counsel review EQTEC's IP under a strict nondisclosure agreement and Aries' legal team completed that review in February. Following the review, EQTEC received Aries' proposal to dismiss the case "with prejudice," which EQTEC accepted.

 

EQTEC does not expect to give any further attention to the matter.

 

David Palumbo, CEO of EQTEC, commented:

"I am pleased with our progress to date - not only because amid a global pandemic crisis we grew the influence and reach of our business by further developing partnerships, pipeline and impact of EQTEC development capital, but also because of the increasing operational and managerial discipline we established. The business platform we now have in place is exactly what we set out to build and has grown our reach and impact toward building more advanced gasification plants in more markets with a greater, cleaner impact on local communities and greater returns for our shareholders. Supported by our strategic partners, we are better positioned than ever for growth and profitability in 2021 and beyond."

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