Atome Plc (ATOM) Earnings Call Transcript & Summary

Good morning, and welcome to the Atome Plc investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review the questions submitted today, and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand it over to Chairman, Peter Levine. Good morning to you, sir.

Good morning, and thank you very much, and thank you for everyone, existing shareholders, new shareholders, investment advisers, analysts who have joined this call. Thank you very much for showing interest in our company, Atome Plc. Before I hand over to our excellent CEO, Olivier Mussat, I'd be asked us to say a few words. Now I follow Atome a long way from an idea over dinner in the latter part of COVID times, and it's come a long way. We're impatient. We want to get there fast, just like everyone else does, but what we have achieved in that relatively short period from a standing 0 start from a company not involved in our industry prior to that is nothing more than extremely rewarding and commendable. We set ourselves a challenge when we started, and that challenge was to concentrate on actions, not words, not to effectively build up things unnecessarily, to be humble where it's appropriate, and to be aggressive in terms of the business case where it's necessary. But above all, to focus on the fact that we are generating a business here. And that business must be a business which must be led on market demand and must be profitable and must be a market leader. And finally, must have an attitude towards costs and delivery of true shareholder value. And I'm pleased to say that we are well on the path to this. We have risen to the challenge within a relatively short period of time. And within that time, we actually have become, the industry leader and at the forefront of green fertilizer, which is an exciting business. It's got plenty of scope for growth. And we are here, we have developed strategic partnerships. We want to be judged by the companies we are with and the quality of those companies. And the quality of those companies can be assessed by Casale, our EPC contractor, a world-leading company in ammonium fertilizer construction and technology. By Yara, critically important because with Yara, we have again, a world-leading off-taker, 43% owned by the Norwegian government, who will be taking all our uptake on a long-term basis. Critically important for measuring finances and also for the finance. And the reason for today is, of course, yet another strategic partner, Hy24, a leader in its view critically important as far as equity funding is concerned. And not only a partner now, but we hope they partner going forward, and we're absolutely delighted that Hy24 has joined with us and with our other strategic partners in building this. It is a significant step towards delivering a Final Investment Decision, FID, and completion of full financial close during the course of the next few months. We are with the team very much focused on this, and I'm delighted to say that we've got a full management team and some really, really good and dedicated people. Of course, led by our CEO, Olivier Mussat, you'll hear from in a moment. So this is an occasion where we want to demonstrate to you and show you how far we've come, but the most important thing is where we're going to. And not just delivering the projects because that's the means to an end. We have a very profitable business in the Atome, which is the subject of this call, delivering green fertilizer effectively to South America and the world, but we've got a pipeline. So we've got much more than that. We haven't -- we've just started and we have exciting prospects. We're going from strength to strength, and you'll hear more now. We view the future with confidence. Step-by-step in a serious way as a world leader in our field. At the forefront of what we do, we expected and indeed, copied by our peers, which is, of course, the utmost comp. I'll now hand over to Olivier Mussat, our excellent CEO, who will take you through the presentation. Thank you for your attention.

All right. Well, thank you, Peter, for the introduction. And indeed, right, we -- it's about the people who are able to deliver business and the company. So at home, for those of you who don't really know as well, I mean the best way to resume it is we are the first and still the only U.K. listed company focused on the development of green-zero carbon molecules and especially fertilizer. So why fertilizer because there's a climate issue with it, and I'll explain that later. But also it's a question of food security, and it hasn't -- it wasn't lost on anyone that since the start of the Ukraine war, the realization that our fertilizer and food channels are actually quite weak. And so the ability to do something about it, not only for the climate aspect, but also to make sure that we continue to be able to feed a growing population was quite important. And the final point is really we have to realize that fertilizer industry itself, it's a $200 billion industry, which have never really been disrupted for a number of reasons. So whilst we will be talking about the project, Villeta and the status of the project and why Hy24 came in and why it is quite transformational for us. We really want to go and explain the value proposition of Atome, not only today with one project, but then it is a project that unlocks everything else and the business proposition. So with that said, I will just go now into the presentation. So hopefully, everybody can see the PowerPoint. Grateful if you can confirm.

Yes, we have the slide up in front of us.

Perfect. So obviously, it's all about decarbonizing the global food value chain and making sure we have secure food on the table. So our first project, which some of you have followed now for a couple of years, it's really the 145-megawatt Villeta Project. And today, it is the world's largest dedicated green fertilizer facility, and it is the most advanced. Why is it the most advanced? As you heard from our Chairman, in 2020, when we started thinking about our role into the green molecules revolution, what we saw is that there was a massive gap in that market and nobody was really looking into. And whilst it is the largest green fertilizer facility from an industrial scale, it is actually not that big because we really wanted to make sure we were not going to have technology risk or market risk attached to it. It is a demonstration in a way, but more importantly, it will become the blueprint for the next projects to deliver more and more projects. So we have a 300-megawatt Yguazu project, also in Paraguay, that is in early stages of development and as well as one in Costa Rica with the intention, of course it's copy paste. And whilst we've taken the time to do Villeta right, then everything will become a lot faster, thanks to the lessons learned. So what is Villeta, right? It's about 260,000 years -- 260,000 tonnes per year of green fertilizer. And you make green fertilizer using renewable power. And you have to -- and if you want to make it competitively, as Peter said earlier, it's all about making sure that it is a workable business without subsidies. You need competitively price of power in the middle of one of the largest fertilizer market in the world. And you may be in a very, very big market in Latin America. You still need to have the right partnership on the offtake side, so the one who will sell your fertilizer at the highest possible price. And this is where Yara comes in. Because obviously, they're able to go and crystallize these premiums, and they have been at the forefront of zero carbon fertilizer. And obviously, you need to finance it. And we've talked about the way on the debt side. The idea for us is that whilst Atome itself is a developer, each project that we develop will have its own SPV, so special purpose vehicle, which will be financed at the asset level. And this is where, obviously, we have been working very actively on the lending side with IDB with Natixis, but also on the equity side in the process that we have run. And we're following that process, we were very pleased to have Hy24, the largest fund dedicated to green molecules, coming on board at the project level, and giving what is the equivalent of a pre-money value of $60 million net to Atome for each share at Villeta. So it shows that we are actually showing value very early before we have even started producing. You heard about Casale, who will be doing the EPC on a fixed-price turnkey contract. And obviously, the intention is to target final investment decision, which means the start of construction by the end of H1 this year. What does that mean in terms of cash? Well, the reality is the first full year of production of the Villeta project alone on an EBITDA basis will be around $70 million if we assumed a price of fertilizer of about $420 a tonne. That's actually quite conservative. This is the price of high-carbon fertilizer. And looking at the markets that we are in today, actually, the cost of fertilizer is higher than this, but we just wanted to give you a sense of what it means price-wise. So as I mentioned, it's a -- company is great, but it's only as good as the people that you have behind it. So obviously, you heard of Peter, our Chairman and largest shareholder, who's come from a world of EPC, engineering, entrepreneurship and energy infrastructure. Personally, I came from studying as an engineer in the power sector and then moved on to the financing side. And my last job was with International Finance Corporation, which is part of the World Bank Group. Importantly, is to have the right people on the ground which is where Jim comes into play as the Head and President of Atome in Paraguay, who has experience both on the policy side and obviously on the power side. And Mary-Rose, who joined the Atome team early on, who comes from a background of hydrogen as well as innovation and energy as she was the Head of the International Energy Agency's Partnership on hydrogen. And of course, Terje Bakken, who is our Head of Fertilizer, who had over 30 years career within Eurochem, North quid and Yara, which are the largest European fertilizer company with global footprint. And in here, what you see is obviously our shareholders and partners, and we are very grateful to have a continued support of Shroders of Baker Hughes and Trafigura and so on. But what I want to point out is, obviously, you see Peter at 18%, myself at 5.5%. Every single person in the management has invested their own money into the company, right? And that is for us, it is very clear. And I think it is also one of the things that makes that gives our ability to find the right partners is that they see that we are personally incentivized and totally aligned with all of them to make sure that we deliver the project, in the right way and in order to generate profit. So -- and here in this slide, and I should mention that this presentation will be available this afternoon on our website. It gives you an area of what is the value proposition of Atome on existing projects, and its existing pipeline of projects, which is where what we have on all of -- obviously, the production of Villeta, the potential of our pipeline and also the way we have financed our projects. What you see is that today, we have an average analyst target price of around 187p a share. Obviously, when we look at what the market share of as on today is quite a large multiple, but what we also saw is that just the $60 million value that Hy24 is giving us is a multiple of our current share price. So all that to say that we are really ripe for growth. And what we are seeing is clearly that as we deliver that value is going to crystallize. So a little bit of background of the market itself, right? Why is it that we need fertilizer and especially green fertilizer. So what we are seeing is over the next 20 years, our population is going to grow by more than 1 billion people. And that means that we need 60% more calories, more food on the table than what we today have. And it's going to put a lot of pressure on fertilizer. This graph on the right is quite important because it shows you in green what are, let's call them, the organic-based fertilizers, which have been obviously growing slowly but surely, but only feed about 3.5 billion of the population. Then even in the early 1900s, when the Haber-Bosch process was invented, that creates ammonia that creates green nitrogen fertilizers. What we really saw is that it has helped the growth of the population and feed us, right? And so today, 50% of all fertilizer are synthetic nitrogen-based fertilizers. And all of these fertilizers are based on hydrocarbons. And this is the problem in itself where these 50% of fertilizer, which are feeding the population is responsible for 5% of all global gas emissions, number one. Number two, what we also see is that because this is derived from natural gas, is that most of these fertilizers comes from jurisdictions, which are also not immune from political risk. To give you an example, 30% of all of the fertilizers you see in red, all of the nitrogen-based fertilizer come from Russia, Belarus and Ukraine, which obviously creates a massive risk and a massive risk on food security. So the idea for us is that green fertilizers, zero carbon fertilizer by making nitrogen fertilizer using renewable power, you are able to ensure that you will have supply of fertilizer, no matter the political risk, and on top of that, it will be a carbon free. So it's all about producing more with less and to ensure that we can continue to feed the world in the right way. The idea is also that when you look at the fertilizer market, obviously, it is first to farmers that we think about who are using the fertilizer. But actually, what we have to realize is the carbon footprint, although it is very high for the farmer, it represents a tiny, tiny, tiny bit of the cost when it comes to your end product. So to give you an example, in potatoes, 30% of the emissions made from producing potatoes comes from nitrogen fertilizers, but actually going green represents less than 1% of total cost of potatoes, which is why it is the absolute lowest hanging for companies like that on Starbucks or M&S to go and tackle right away and reduce the emissions right away in the right way, right? Because obviously, that is going to make sure that they meet the sustainable goals, but also ensure that they have a security of supply over the long term. And we've seen really interesting movements where even in Latin America today, Yara is providing low carbon fertilizer to the sugar industry. And because there is a demand, not only for green, but in an end of security of supply. So that's what basically we call the pool model. So it is the market which is pooling fertilizer companies to produce at lower carbon emissions. Then there's the push issue, which is what we are seeing is the reason that these companies are going green is both for helping make the world a better place, but also because they have increasingly carbon taxes applied to them. So there is a profit element, there is a cost element. And what we are seeing now is that in Europe, in the U.K., there are carbon border adjustment mechanism, basically taxes, which will be enforced on the import of fertilizers. And that is going to have an impact of possibly increasing fertilizer costs by 20% to 30%, if it is highly -- if it has a very carbon footprint. So it is an opportunity for us to play a very significant role and to provide a solution today and other solution tomorrow. So the process to make green fertilizer is actually relatively simple. Today, regular nitrogen-based fertilizer is made using basically hydrogen. But as I mentioned earlier, it's hydrogen coming from natural gas as you separate CH4, carbon-hydrogen. But what we can do at scale now, and this is relatively recent. It's only been for the past 5 years, you've been able to do large-scale green hydrogen is by using water, H2O, and using a lot of electricity to split the H2O into a H, hydrogen, O, oxygen. And that hydrogen goes into the regular Haber-Bosch process, which means Hydrogen is mixed with nitrogen that then through the Haber-Bosch process becomes NH3, nitrogen and 3 hydrogen. And once you have your ammonia, you run it to make it ammonium nitrate through basically mixing nitric acid, which is made from ammonia and concentrated ammonia, and adding regular ammonia. That becomes ammonium nitrate. And once you have your ammonium nitrate solution, it's a liquid, you add dolomite or limestone to make basically use calcium -- to calcium ammonium nitrate. And that calcium ammonium nitrate is essentially a bag of fertilizer that can be shipped anywhere in the world. But clearly, we are in Latin America. This is a market which imports huge quantities of power. So it is very easy to put it on the truck and then deliver it to the market that needs the fertilizer. So this goes a little bit further into the project and what we have done to date. So as we've announced back in 2022, we signed a long-term power purchase agreement with ANDE the National utility. So as I mentioned, you need power, a fair amount of it, and it needs to be green, right? It needs to be zero carbon renewable power and which is why we have cemented our partnership with ANDE, which managed -- which takes power from the second largest hydroelectric dam in the world called Itaipu. We have bought the site. We have brought in all of the advisers and contractors needed. We have gotten environmental and operating license, which means that all of the permitting is done, so that we can start construction now. And we've done all of the environmental social impact assessment using the World Bank performance standards. Because for us, yes, just because it's a green project, doesn't mean that you shouldn't do things right, unenvironmental and a social point of view. Because this is your long-term social license to operate. The government has provided further support by allocating us a free trade zone. And on the engineering side, we have finished for front engineering and design. And this is the first time ever that was a full engineering design study was done for a large-scale green fertilizer plant. So on the next steps, obviously, the financing side, and we've mentioned many times that Natixis has been our financial adviser and helping to deliver -- putting together the debt package. And so we are looking at about $400 million of senior debt. And so IDB Invest has already indicated sort of up to $200 million. We've talked also that IFC has also been engaged. And we're also talking with a number of GFIs and ECAs into finding the best possible structure for the project. And we will make some announcements on that in the next couple of months to tell you exactly who is going to be the lender. At the moment, we are very fortunate that because this is a project which is climate positive and food security. It had a lot of interest with the financing institutions, which is why for $400 million, we had received nearly 5x of other subscription. But of course, if you have the debt on one side, you still need equity on the other side and which is where the Hy24 announcement is so important because we have always said that we were going to target 60% at 40% equity, which means that we -- in the process that we have run with Natixis, we really went. And in a very methodical way, we went and reached out to a number of private equity player, a number of expressed interest and through that competitive process, we were very, let's say, honored, but at the same time, happy that we have basically found an alignment with the fund, which is the best fund in the hydrogen and green chemical world in Hy24. In the next steps, so we had signed the heads of terms on the EPC with Casale, our technical partner for the construction of the plant. And we are now in the final stages of completing the EPC contract, which we will announce in the coming months. And from Yara as obviously, we had announced the heads of terms the commercial terms and completely agreed on the commercial terms with Yara. And now it's all about moving this commercial terms from a heads of term into the final form of agreement, which comply with the requirement of project finance. And again, expect some announcements coming through that. And so once we have all of the steps, and we finish the book build on the debt and the equity, we will reach final investment decision. So I mentioned about Hy24. Obviously, the -- it was quite important for us to present to the potential investors, a deal, which was what we would call fully baked at the end of the day. And I mean that the project is here, it's permitted. You have all of your major contracts already there or in route. You already have a financial structure that is well understood and with, let's say, a P90 risk on the price, so that you can present the best case to your investors so they can give you the most value to the project. And so once you have all of these things set, which is what we have done, you approach investors and say, "Well, this is the project. This is the type of returns you could expect to make. Can we discuss the structure and how you would align with us?" And so for us, it means that what we have, where we are now having had this agreement with Hy24 is we can move every single thing that we've done today into firming up and into delivering to the FID. And from a let's say, reputational point of view, it's also very important to us that it really shows, as Peter mentioned earlier, you don't do these first-in-kind projects without having the right partners. Credibility is extremely important. And obviously, Hy24 brings more than just money, right? They have some of the best investors in the green chemical world. So they're bringing skills as well and the right contacts. And that's quite key to have them as part of the project because it demonstrate that actually this is a solid project which has gone through, let's say, a number of gating events. And whilst Atome obviously maintains the day-to-day management through the life of a project so that we can show and develop more value on the project itself, but also they will accompany us into the next projects that we have on the pipeline. And that's quite key to have a very strong partner so that they can grow with you. A little bit of Hy24. It was basically created with a FiveT Hydrogen management team in partnership with [ AXA ]. And AXA, it's one of the world's largest asset manager, it's about $177 billion of assets under management. And jointly, we have created the Hy24 fund focused on clean hydrogen chemical infrastructure. And here below, you see the partners that they have, who are basically limited partners, investors into the project. So we're talking about Air Liquide, EDF, Itochu, ABN Amro, CDPQ and so on. So it really shows that this is pretty much the growth standard of investor, which is coming in. And obviously, coming in into the first time into a bit in Latin America, and first time for Hy24 looking at the fertilizer project and in Latin America. So it really shows the strength of the project. Overrode every single risk that could have been seen on that. So in the heads of term as we talked about it, right? It's a binding exclusivity for us to continue building together the equity group to get to $230 million. With them anchoring the investment. And actually, we have already talked to a number of investors who will come in the project. And this project -- for this part of the process is ongoing. And the idea is they will invest between $100 million to $115 million. So depending on the appetite and the type of partnership that comes in, although they're coming at $115 million, but can create space to create the best equity club together. And obviously, for us, from the value today and the pre-money valuation, as we discussed, it's about $60 million. And it represents roughly what we call in the oil and gas world, a carry-type mechanism, which means that we are getting about 20% of the value of the project for what we have done to date, right? So it's an extremely compelling valuation, and it is pretty much within the guidance that we have been given to the market. So as far as the next project, I mentioned earlier, Yguazu, and I'm -- I think, accelerating just a little bit because I really want to give time to Q&A. So on the 300 megawatts where we have already earmarked the -- sorry, say, reserve the power capacity from ANDE. And we will go into full development once we reach FID on Villeta for us. Getting Villeta across the line is the top priority because then it will help unlock and accelerate everything else. And as I mentioned, on Costa Rica. So we have a framework agreement with ESIA, the state power company. And again, this project is maturing, but we need to focus on getting the project to start up construction in Villeta. So from a time line point of view, this kind of goes about what we have been saying earlier. And so the next steps is going to be the definitive EPC contract. The definitive Yara offtake and, of course, the definitive equity agreement as we finish book building the Equity Group. And then after that, we get into the debt financial case. So that is the summary at the end. So what you see is really, we continue to be the world's most advanced developer of green fertilizer project and by a long shot, nearly more than 2 years ahead of anybody else. This will be the first dedicated green fertilizer facility par none. This represents real value, not only on future EBITDA, but on the current value. And most importantly, and again, I can never stress that enough is that now we have the best possible anchor within the project with Hy24 to get these near-term catalysts done and get to financial close. So with that said, I will move to questions, if I can.