Quadrise Plc (QED) Earnings Call Transcript & Summary

Today, I'm joined by Jason Miles, CEO of Quadrise plc. Quadrise is an innovator and global supplier of emulsion technology that produces synthetic enhanced fuel oil called MSAR and a new biofuel called bioMSAR. The technology provides lower cost to cleaner energy solutions for the marine, power and industrial sector providing accelerate -- providing an accelerated transition to a lower carbon future. Jason, welcome.

Hi, Harry.

So Quadrise recently announced the signing of the collaboration and operational trial agreement with MSC Shipmanagement and Cargill. How significant a step in the company's journey is this signing? And what are the benefits of working with partners such as these?

Yes. I mean for Quadrise, this is an exceedingly important next step in our journey in terms of -- we're a tech transition technology company, previously tested our main fuel MSAR or the large container ship, which was very successful. And this really provides the first opportunity with a major client, which is MSC to demonstrate both our MSAR fuel as a proof of concept. And then essentially, first of a kind, demonstrates a brand new biofuel called bioMSAR, which is really champions our technology, which is able to blend oil-soluble materials with water-soluble materials. In the case of this project, we're getting -- we're partnering up with Cargill who's a collaborating partner in this particular agreement and they're supplying the glycerin and then they're supplying -- helping supply the fuel to the ship as well. So in terms of the partners we're dealing with, they are 2 hugely significant entities. MSC is now the world's largest container shipping company. In the last 4 years, they bought another 400 vessels, secondhand vessels to really extend their fleet, which is an amazing expansion of growth, huge investment. And they're investing not only in buying ships, but they're also upgrading them to make them extremely efficient. And this is really -- we are seeing it serves as part of that fit with really using existing assets and making it more efficient. And in the case of Cargill, huge supplier of biofuels. They've got one of the largest biofuel manufacturing facilities in Ghent, in Antwerp. But really, we're taking the opportunity to work with them for the first time, obviously, with a view of the future.

So you touched on that a little bit, but could you possibly specify in a bit more clarity some of the individual role of each entity within the project agreement.

Yes. So MSC assisting us in terms of getting the vessel ready. So this is a 50,000 tonne [indiscernible] containership. It's a feeder vessel. It's got a very large parts of the Flex engine on there. So they're supplying this commercial vessel, deploy it on a route, which would be agreeable to where we're going to be located in Antwerp. And then basically, they're going to be operating the vessel. They're also hugely helpful in dialogue with the engine manufacturers and also class society. So as we commercialize our fuels, it's extremely important to collaborate with a partner like MSC that can make things happen. And in the case of Cargill, really, they're the supply partner potentially for bioMSAR in the future as well, certainly from Antwerp where they're extremely well located. So again, you've got 2 very large entities who've got many things to do, right? They don't have to quite collaborate with Quadrise, but they see that we have something that's unique and it's extremely important opportunity for us.

So you mentioned going back slightly earlier in the year to the agreement with Cargill and MAC² facility in Antwerp. What the initial next steps to get the installation of Quadrise's technology into the Antwerp facility, the MAC² facility in Antwerp. And when do you expect this to be completed?

Yes, good question. I mean given the MAC² agreement that was announced, I think, back in February of this year for us was important as a precursor to signing the 3-way with MSC because we needed to demonstrate that we had somewhere to actually physically make the fuel and MAC² were very kind to offer a location. They basically prepared the permits to operate as well. So they've already invested in that in terms of time. And they've also concreted the site. So the site is actually ready for us to go previously. It was a grassy area, and now we have a nice flat platform to put our equipment in. From our perspective, in advance of signing the agreement with MSC, we'd already invested in some of the important long lead items, which could have delayed the project. And the next steps now are essentially containerizing the parts that are not already containerized delivering our equipment to site, plug it all together, testing it and make sure it works, and then we should be up and running. Timing-wise, we expect to be really on site probably the early part of Q1. The end of this year was just preparing the equipment to get it shipped out there. And then Q1 will be very much an integration exercise with the team on site to pull it all together and working with obviously the MAC² team on the terminal. So there should be lots of stage-wise news to keep shareholders up to date with in terms of progress as well.

Perfect. And then next up after that is obviously then the trial. When do you expect the trial to actually begin follow after -- how quickly after the installation of the equipment do you begin? What does the trial actually consist of? And what is it that determines it to be a success?

Yes, very good question. So in terms of the -- what does the trial consist of, when is it going to start, first of all. The expectation is that towards the end of Q1, we should be ready to supply fuel to the vessel. The vessel depends a little bit on when the vessel is next going to be calling in Antwerp all that region because normally though, it's on the transatlantic routes. The routes get to be finalized, but currently on the transatlantic routes, which means it only comes in every sort of 4 to 6 weeks into that particular location. So the exact timing will obviously be vessel governed. We also, with Cargill, need to charter the barge that's going to be used to from the terminal in Antwerp. It's going to be used to supply the fuel ship. And then in terms of what that entails, it tells us basically loading the barge with 1,000 or 1,500 tonnes worth of fuel, transferring that bunker budge to the ship and then the ship-to-ship transfer, load the fuel, on board the vessel and then it goes off with its merry way. It's journey around the world. So the plan is the first test will be a proof of concept with MSAR. The vessels previously run on MSAR before, but it's been -- MSC has spent money on it and improved it since it was last run. So we need to get a baseline run with MSAR to compare with the past and also compare with [ fuel oil ]. And then after that test, then we load another batch with bioMSAR for the first time, then the fuel will be used on the ship, again, make sure everything is okay in terms of emissions and initial performance. And then after that, it's basically, we need to generate hours of experience, generally to get a letter of no objection from the OEM, which in this case is Wartsila. We normally take 4,000 hours in total. And in the midway stage or even at the earlier stages, they take -- they do regular inspections of the engine to make sure everything is working properly. So in terms of what the success criteria, obviously, the fuel needs to perform as build. Ideally get some efficiency measurements as well, because previously when we ran the ship on MSAR, we saw a 5% lower fuel consumption per unit energy. So that was beneficial, and we expect to see something similar with bioMSAR. And then with biofuels because of the fuel where supply has 40% bio components, we need to make sure that the NOx emissions are much the same, but we expect that they're going to be lower, much lower than conventional fuels as well. So emissions are another part of the [ public ] success criteria. And then it's just the day-to-day operation, the fuel itself is designed to be akin to a drop-in fuel, easily switchable between conventional fuels and our fuel and the crews on board need to be able to use the ship, as they would do normally without having to worry about the fuel and manage it, which we achieved last year in the last MSAR trial, but we need to do that again with MSAR -- sorry, bioMSAR. So that's success criteria.

And then on the back of a successful trial, what does that then mean commercially for Quadrise in the marine sector?

Yes. I mean for us, I guess, the idea is that midway through this particular trial, we'll have a good idea in terms of how this fuel is performing. And there's a discussion to be had, I guess, with MSC on the commercial demand for biofuels at that particular moment in time. So that's one opportunity. In parallel, with MSAR, conventional MSAR, we're also speaking with MSC, again, for conventional MSAR supply, which may not happen in Antwerp, it may happen in the Mediterranean refinery. So from a commercial perspective, obviously, MSC is a very large client that get us up and running. But this offers also an opportunity in Antwerp to also bring in other shipping companies, potentially in other sectors who might be willing to try the fuel. So the discussions are ongoing now with other clients and to make use of this Antwerp facility to start continuing the testing and the commercial sale of the products. And for us, it's a game changer. I mean one of our MSAR modules can supply sort of 15 to 20 ships, container ships. So each of those modules generates revenue for us as a pre-revenue company is extremely important. And with essentially 2 modules in place around the world, we are cash neutral. And that's really where we wanted to be. We've not made that leap yet, but it can happen quite relatively soon in the next 12 months, we believe.

And then just to kind of finish off, at your AGM last Friday, you mentioned about new engagements with marine channel partners and then the following Monday released the collaboration agreement with Auramarine of Finland. Could you kind of briefly update us on this kind of new strategy and then any other further developments we can expect in the future?

Yes. We can put it as a small company with a technology that needs to collaborate with other partners to make things happen. Obviously, in the case of MSC, they had a vessel already with a fuel system on board that have been previously installed with another OEM. So essentially, when you convert a ship to run on emulsion fuel, the recommendation from Class Society at the moment is to put another fuel system in. That's not something Quadrise can supply some of the components, but we're not doing that on a regular basis. And partnering up with a company like Auramarine who has 50 years of expertise and is doing exactly that in installing fuel systems is really important for us to be prepared for the growth of the company. And we're not going to be in that space, it's not our expertise. So we need to work with other companies like Auramarine to make that happen. We're also doing things on other fuels as well and it's a really good fit in their portfolio. So it's a win-win. And we have our own sales network pipeline, but they also do as well. So it helps us get the message out there a little bit more as well and brings in the expertise of both companies. And there are other companies and other areas where they're offering similar opportunities such as that. So this is the beginning of the journey with Auramarine and hopefully one of many in terms of other channel partners.

Is there anything else in the future that kind of we can expect to come up?

Yes. I think as I mentioned in the AGM, we just completed some testing on -- our current bioMSAR is equivalent to a B30, i.e., 30% biofuel, 70% hydrocarbon equivalent. We've been developing some further progressive products, which essentially get us all the way to a full B100, 100% biofuel, which we call bioMSAR Zero. We've been testing that product in Aquafuel and some intermediate products as well. So we're looking forward to publishing some of that information very soon. We have our 2024 sustainability report that will also go out around the same time because we want to make sure that, that information is in there as well. And then we have some other projects where -- which we'd like to offset shareholders on in terms of developments as well. One is in Utah with Valkor. Obviously, we have a project with OCP in Morocco and then some other -- a couple of other projects, one of which in Panama, the other in Southeast Asia. So both of those projects are progressing towards the agreement phase, and we'd like to try and get that closed out, at least one of those anyway, the latter ones before the end of the year.

Amazing. Thank you for your time. It's been great to hear about all the recent developments. For more information on Quadrise, please see the Edison website.