Active Energy Group plc (LON:AEG), the AIM-quoted renewable energy business focused on the production of next generation energy pellets, has announced its unaudited interim results for the six months ended 30 June 2022.
HIGHLIGHTS
Operational highlights
· Publication of the results of independent co-fire testing completed under Rocky Mountain Power’s Sustainable Transportation and Energy Plan (the “STEP Program”) in late 2021, which concluded that CoalSwitch® could be co-fired with coal producing heating values:
– equivalent to coal; and
– at a 12.9% premium to white pellet.
· Obtained Chain of Custody and Controlled Wood certification compliance in accordance with the Forest Stewardship Council® (“FSC”) standards for CoalSwitch® in March 2022.
· Completion in June 2022 of the independent study, by LifeCycle Analysis, on the carbon impact of CoalSwitch®, confirming significant CO2 reductions relative to both coal and natural gas.
· Completion of the sale of the Company’s property at Lumberton (the “Lumberton Site”) in June 2022.
· Engineering and project planning completed for a large scale CoalSwitch® production facility, to be constructed by Player Design International Inc (“PDI”), at Ashland, Maine (the “Ashland Facility”).
· Commencement of the purchase, by PDI, of additional equipment for future CoalSwitch® production operations at the Ashland Facility.
Financial highlights
· Sale of the Lumberton Site completed on 30 June 2022 with:
– gross consideration of US$4.65 million; and
– net cash proceeds of US$3.92 million received.
· Results for the six-month period to 30 June 2022:
– operating loss from continuing operations of US$1.3 million for the period (H1 2021: US$1.0 million); and
– net cash position at 30 June 2022 of US$3.9 million (31 Dec 2021: US$1.8 million).
Post period end activity
· Expansion of AEG’s US operations, including hiring of additional sales personnel in the US.
· Completion of the transfer of all CoalSwitch® production equipment from the Lumberton Site to the Ashland Facility.
· Award of Malaysian Patent for future CoalSwitch® production to expand in Southeast Asia.
· Completion of the share consolidation, resulting in 1 new ordinary share for every 35 existing ordinary shares.
· AEG’s shares commenced trading on the OTCQB Venture Market in the United States on 5 August 2022.
Outlook
· The Company has a number of exciting opportunities as a result of the recent passing of the Inflation Reduction Act in the US.
· AEG is focussed on securing long term offtake contracts for CoalSwitch® in North America, Europe and Japan.
· AEG continues to deliver test samples for customer analysis, with recent deliveries to potential customers based in Europe.
· PDI continues to undertake all preparatory work on the Ashland Facility and remains confident that first deliveries of CoalSwitch® fuel will commence in Q1 2023.
· The Board continues to believe that CoalSwitch® will play a significant role in the development of next generation biomass fuels derived from lower value wood waste feedstock.
Michael Rowan, CEO of Active Energy Group plc, said:
“In the first half of the year, AEG has continued to make significant progress towards commercialising CoalSwitch®.
The testing programme for CoalSwitch ® is consistently demonstrating its advantages and economic benefits versus traditional biomass pellets. We have completed the construction planning with PDI at the Ashland Facility and await the next stage of equipment deliveries so as to allow PDI to commence construction activities at the site during the fourth quarter of this year.
Since the AGM we have already expanded the Company’s sales function, both in the US and internationally, to address increasing customer enquiries for CoalSwitch ® . For the remainder of this year, AEG will be focused on converting these commercial discussions into orders for CoalSwitch® for delivery in 2023 and beyond. We will match these orders with the scale up to industrial levels of production at the Ashland Facility.
The Board and the management team look forward to the remainder of the year with confidence as AEG brings CoalSwitch® into the market.”
CHIEF EXECUTIVE’S STATEMENT
Introduction
AEG’s strategy remains to commercialise CoalSwitch®, a proprietary technology which transforms lower value wood waste into high-value biomass fuel that can either co-fire with coal to produce immediate environmental and emissions benefits or replace existing biomass feedstock supplies. The energy market requires a scalable solution to produce next generation pellets in the volumes required by customers and which can also accommodate the current volumes demanded for traditional carbon intensive fuels, such as coal. AEG believes that CoalSwitch® has the operational and environmental benefits to be one of such fuels and is therefore working to produce CoalSwitch® at industrial scale as soon as possible.
The first six months of 2022 have presented AEG with both opportunities and challenges as it seeks to market its CoalSwitch® product. Since the start of the conflict in Ukraine in February of this year interest in next generation biomass fuels has increased substantially as existing biomass customers attempt to secure fuel supply from across the globe (Ukraine and Russia being significant suppliers of biomass before the start of the conflict). Traditional sources of biomass supply are already committed under long term contracts and prospective customers have been investigating new supply options. AEG is now able to offer CoalSwitch® to these existing biomass customers and also to new customers who are examining alternatives to expensive traditional fossil fuels.
Operational review during the period
i) Development of the Ashland Facility and future CoalSwitch ® production capability
In 2022, the Company has continued to work closely with PDI, its strategic partner, to move towards commercial levels of production of CoalSwitch® from the Ashland Facility. To achieve this, PDI and AEG have completed a redesign for a more efficient manufacturing process, including an increase in the size of the core process reactors to accommodate production of industrial volumes of CoalSwitch®. The redesign work was completed in Q2 2022 and key components have been ordered to ensure that future production timelines can be achieved.
During Q2 2022, PDI assumed full responsibility for permitting, financing and the future construction of the first CoalSwitch® production facility (at Ashland) and AEG has now focused its efforts toward establishing a global sales platform for CoalSwitch® and developing the Company’s existing intellectual property. In July 2022, PDI stated that first production volumes would commence at the Ashland Facility during the first quarter of 2023. PDI remains confident that this will be achieved.
The Ashland Facility will: i) demonstrate the ability for PDI and AEG to operate a CoalSwitch® production facility; and ii) be used to market CoalSwitch to both off take customers and potential production partners. Construction activities at the Ashland Facility are expected to commence in Q4 2022.
ii) CoalSwitch® testing program and prospective customer analysis
In order to accelerate customer interest, it has been essential for AEG to co-ordinate test programs which demonstrate: i) the economic and environmental benefits of CoalSwitch® against existing biomass products; and ii) the ability to co-fire CoalSwitch® with coal showing both the economic and environmental benefits in such an exercise. All test results to date indicate that CoalSwitch® has both competitive and environmental advantages for customers.
In January 2022, AEG announced the results from the first phase of the ongoing combustion testing programme of CoalSwitch®. CoalSwitch® fuel had been delivered to PacifiCorp in June 2021 as part of the STEP Program in Utah. The programme has been funded by Rocky Mountain Power to analyse next generation fuels. The results demonstrated that CoalSwitch® has superior qualities over white pellets, including its hydrophobic properties, ability to burn at higher heating values and reduction in ash, nitrogen oxide and sulphur dioxide emissions. AEG remains in continuous dialogue with teams involved in the STEP Program and is planning additional testing over the next 12 months.
Alongside this, the Company has been undertaking a rigorous testing programme with prospective customers in Japan, North America and, most recently, in Europe. The testing programme demonstrates that CoalSwitch® offers a new pathway for heavy, hard-to-decarbonize industries in the US and globally, who remain under pressure to reduce emissions and pollution. CoalSwitch® provides a unique ability to achieve these goals without requiring costly, complex and yet-to-be-proven mitigation technologies. The testing conducted earlier this year also confirmed that CoalSwitch® can be burnt in existing furnaces without the need for additional capital expenditure.
iii) AEG establishing industry standard environmental credentials
In addition to the product testing program, AEG continues to focus on the quality of waste feedstock which is utilised in CoalSwitch® production and the underlying processes to attain this feedstock. With this aim, in March 2022, AEG received its Chain of Custody and Controlled Wood certification compliant with the Forest Stewardship Council® (“FSC”) standards for its CoalSwitch® fuel produced at Ashland. The certification confirms to AEG’s prospective customers that protection of the environment is at the heart of its operations and that CoalSwitch® is produced from responsibly managed sources.
The FSC certification is the basic market prerequisite to permit any biomass products to be sold into many of AEG’s target markets, notably Japan, which is rapidly becoming one of the Company’s key potential long-term customers.
In June 2022, Life Cycle Associates LLC, an independent business and environmental consultancy based in California, also published a report which demonstrated that CoalSwitch® is not only sustainably sourced, but also that pellets made from lumbermill waste, including CoalSwitch®, reduce CO2 by 99% relative to coal and 97% relative to natural gas.
iv) Announcement and completion of the sale of the Lumberton Site
In late 2021, AEG appointed agents for the sale of the Lumberton Site in North Carolina. A sale and purchase agreement was entered into with Phoenix Investors LLC (“Phoenix”) on 31 March 2022 and the transaction was completed on 30 June 2022. The gross consideration was US$4.65 million and net cash proceeds of US$3.92million have been received by AEG. All post transaction closing conditions were successfully completed following the end of the period. In addition, AEG generated additional cash proceeds of approximately US$100k from the sale of supplemental equipment at the Lumberton Site that is no longer required at the Ashland Facility.
Lumberton Energy Holdings (“LEH”), the subsidiary of AEG that held the Lumberton Site, has continued to receive legal challenges from the Southern Environmental Law Centre (“SELC”) based in North Carolina. The allegations claim breaches of existing wastewater treatment obligations at the Lumberton Site applicable to both LEH, Phoenix and former owners of the facility. The Board remains confident that LEH and its associated companies have at all times remained compliant with all applicable environmental and permit obligations at the Lumberton Site. Due to the false and defamatory nature of the public statements made by SELC, the Board continues to explore all legal options available to hold SELC accountable.
Post period end activities
i) Expansion of sales and marketing activities for Active Energy
As a result of the increasing commercial interest in CoalSwitch®, AEG has, since the period end, expanded its sales and marketing personnel in the US. These individuals bring expertise and sales experience from the coal, utility and biomass industries in North America and Europe and can provide the technical sales support to prospective customers in North America and Europe.
Commercial discussions continue in Japan combined with dedicated fuel testing programs with prospective customers and engineering partners. The confirmation of definitive delivery schedules for CoalSwitch® in July 2022 has assisted AEG in all its current sales negotiations and has provided greater confidence to these prospective customers of AEG’s long-term commitment to supply large scale volumes of CoalSwitch®.
ii) Patent awarded for the CoalSwitch® production process in Malaysia
In July 2022, the Company was awarded a Malaysia Patent No. MY-191174-A (the “Malaysia Patent”) by the Intellectual Property Corporation of Malaysia in respect of the process for beneficiating and cleaning biomass. The Malaysia Patent combines with patents awarded in the United States in 2020 for the manufacturing and production of CoalSwitch® and in Canada in 2021 for beneficiating and cleaning biomass. Based upon current prospective customer discussions, AEG continues to believe that Malaysia can be one of its primary target markets for the production of CoalSwitch® fuel utilising the waste wood residues from palm oil plantations.
The Company continues to file further patent applications globally, targeting additional markets including Europe and will file additional supplemental applications as the new process reactors are finalised.
iii) USD quotation for AEG’s shares in the US
The Company also successfully completed its listing on OTCQB in the US in August 2022 which will provide enhanced investor benefits, including easier trading access for investors located in the US, greater liquidity due to a broader pool of potential investors and an increased profile in the US.
iv) Board changes
The Company announced in August 2022 that Andrew Diamond will be stepping down as CFO of AEG in December. The Board has commenced the search for a replacement CFO and further updates will be made in due course. The Board would like to thank Andrew for his contribution to the Company during the past 18 months.
Financial review
i) Performance
The Group generated no revenue during the six months ended 30 June 2022.
Profit for the six months ended 30 June 2022 was US$1.8 million (H1 2021: loss of US$2.0 million), resulting in a basic and diluted total earnings per share of 0.03c (H1 2021: loss per share of 0.06c).
Unrealised foreign exchange gains, resulting from the strengthening US dollar relative to UK Sterling, account for the net finance gains which are reversed in the translation adjustment within Other Comprehensive Losses.
ii) Net cash
The Group had a net cash position at 30 June 2022 of US$3.9 million (30 June 2021: US$ 1.1 million and 31 December 2021: US$1.8 million) and reflects the receipt of the net proceeds from the sale of the Lumberton Site.
iii) Cash Flows
Operating cash outflows during the period were US$1.4 million (H1 2021: US$3.5 million) reflecting the Group’s efforts to reduce and preserve available cash resources.
Investing inflows of US$3.8 million reflect the sale of property proceeds (H1 2021: outflow of US$3.5 million). Intangible and PPE additions during the period utilised project advances made in previous periods.
Aside from minor loan repayments there were no financing activities during the period (H1 2021: inflows of US$8.0 million resulting from issues of share capital less convertible loan note redemptions).
Conclusion and outlook
The first half of this financial year has seen AEG continue to make progress. The CoalSwitch® product, the underlying production technology and AEG are each obtaining increased profiles which the Board believes will deliver the favourable results CoalSwitch® truly deserves.
The production process is proven and in PDI we have an excellent partner to build, finance and operate the first CoalSwitch® facility at Ashland. Our continuous testing programme has resulted in CoalSwitch® obtaining recognition as a proven, next generation biomass fuel with strong environmental credentials and improved heating values over existing biomass fuels.
In the last 3 weeks, the US market opportunity has been invigorated with the recent passing of the Inflation Reduction Act. AEG believes the legislation will either help accelerate demand for CoalSwitch® fuel, unlock new funding opportunities for the sale of CoalSwitch® technology, accelerate project development of additional CoalSwitch® production sites in the US, or potentially all three. This can be financed in a number of ways including loan guarantees, tax incentives or grant funding. AEG is now working with advisers in the US to better understand the opportunities and how best to seize them. We expect to be able to report back in the coming weeks and months.
Our focus for the remainder of 2022 will be upon converting the numerous commercial discussions, which we are currently having, into firm orders for CoalSwitch® or additional production facilities using the CoalSwitch® technology. The Board and management look forward to the remainder of the financial year with confidence as AEG seeks to bring CoalSwitch® to market.
Michael Rowan
CEO, Active Energy Group plc
9 September 2022
