ReFuels N.V. (REFL) Earnings Call Transcript & Summary

Good morning, and welcome to ReFuels' Q3 2025 Results, representing the period October to December 2024. The presentation today will be given by CEO, Philip Fjeld; and CFO and Managing Director, Baden Gowrie-Smith. [Operator Instructions] With that, I hand it over to Philip.

Thank you very much, Alan, and good morning, and welcome to everyone who's tuned in or who is watching this on Catch-up. So I'm pleased to go through our Q3 presentation 2025. For those who are a bit confused by Q3 2025, that is for the October to December quarter. Just a brief reminder who we are and what we do. We are on a mission to decarbonize Europe's truck fleet. We're starting out building and running a network in the U.K. That network today is refueling on a daily basis, close to 2,000 trucks a day. We've got 15 grid-connected stations operational. And we're proud to say that in calendar year 2024, we larger zooming forward. We hope our customers save close to 200,000 tonnes of greenhouse gas emissions. Sometimes we get a question, why do we continue to have this slide in there? I think it's been there for a year now and so on and so forth. And every time we -- when we're making these packs, we think should we take it out. We have a discussion around it and then we conclude to leave it in. Why? I think it's an apt reminder as to visually what we do and why putting biomethane into trucks the way we do it is such an elegant and efficient way. So this is our station up in Newton Aycliffe, Northeast England, can refuel 14 trucks simultaneously, about 800 trucks a day. It's grid connected. So it pulls gas in off the grid. It's unmanned. As of today, this is the most efficient way of putting a renewable energy, whether that's through electrons or through molecules into trucks. And I think that's important for everyone sort of to reflect slightly on why because there is a lot of focus on electrification. But if you look at comments coming out of the EU, just as recent as yesterday in relation to potentially rolling back on the mandates they had planned to ban internal combustion engines for cars and of course, they haven't gotten there to trucks yet, we believe that this type of infrastructure, this type of way of putting huge quantities of renewable energy into trucks is going to be around for a lot longer. And then it's important to have infrastructure that is scalable, efficient and that is very customer-friendly, such as our stations. Some of the key highlights. We're up 18% year-on-year, okay growth rate. We expect that to accelerate as we move through 2025. I'll let Baden later on touch upon some of the financials. But what we're starting to see now is that the margins in sourcing biomethane, putting it into trucks is finally increasing. Yes, there is a lag as to when that effect comes through and shows in our accounts, touch a bit upon that later on, but we are now starting to see the biofuels markets that we are linked to and reliant on are starting to rebalance. Also, it's important here to say that we've got customers who are on an ambitious or a lot of our customers are on an ambitious decarbonization journey. They can't wait for solutions to maybe be around 5, 10, 15 years from now. And when they are looking at what type of infrastructure and what type of vehicles they can run, they are focused on what is here and now. And here and now, biomethane, we are seeing amongst a lot of our customers is the most attractive option. If you then look back at some of our growth, we're now close to 2,000 trucks going through our network as customer vehicles that have been ordered are put on the road. That will continue to grow. And that, of course, then drives the higher volume of dispensed biomethane into trucks on the right-hand side here. Now you will see there is some month-on-month variability. Why is that? Well, we have months where we have Christmas, of course, and holidays where trucks get parked up. And then we have months such as February, which is 28 days versus January 31 and March 31. So there is some month-on-month variability. What you should really be paying attention to is the overall trajectory, which we expect to continue going forward. So far, and for those of you who followed us for a while, we have so far been hemmed in slightly, if you want, because we've only been able to address a fairly small part of the overall articulated truck market in the U.K., the so-called 4x2 market. Now that's not a small market per se. It's north of 20,000 trucks. But that has essentially been the market since we founded the company that we've essentially been able to address. Why? Because the larger market, the so-called 6x2s haven't been available from the truck manufacturers before only recently. And now we have both Iveco and Scania producing 6x2s. And as this goes into serial production, factory production and we start to see orders get delivered later this year, we expect that, that will accelerate our growth going forward because now we are able to address a market which is essentially 6x as large as the market that we've only been able to address so far. There are ongoing trials of the 6x2. Feedback has been really good. There are more trial vehicles coming in. So this is something that we remain very excited about and that you will soon start to see affect our growth rate going forward. We've got 15 operational stations today, the most grid-connected stations, I will stress, we'll talk a bit about mobile stations in a bit. The most recent one we opened was in Doncaster in December. We've got Livingston build in Scotland, which should be our second one in Scotland. And then we've got more stations that we're looking to put into build later on this year. So we've got 15 grid-connected stations. What's important to understand with these stations is that pretty much all of them have so-called trailer loading base. So that means you can fill CNG trailers at these stations and then take those trailers to a, let's say, a customer facility where we can then deploy something we call an MRS, a mobile refueling station. This is something we developed in 2019. We only thought we need to develop 2 or 3 of them. They were for a very specific customer need at the time. We didn't expect it to be as successful as we've seen today. And what do I mean by that? Well, today, we've got 10 deployed. We've got another one that's going into construction very shortly. And what we're seeing now is that, whilst these were intended to be mobile, hence the name, we're now starting to see that this might indeed become a more permanent solution at some customer sites, which are in locations where we are unlikely to build grid connected stations. And we're currently involved in several processes with large customers where we're looking at such solutions. And what is actually driving this growth? Well, of course, customer -- overall customer adoption, but also the fact that we now have 15 nodes, if you want, spread around the U.K., soon to be 16 with Livingston, where we can fill these trailers. If you look at LNG in the U.K., it is currently only coming from one location, which is the Isle of Grain, Southeast of London. We, however, have 15 nodes around the country, we can fill trailers and take it to customer sites. These are very efficient as such and can be deployed much faster than us expanding our grid-connected network. So this is one of the, I think, key metrics here to look for going forward, is not only to focus on how many grid-connected stations we build, we'll continue to do that and we'll continue to ramp up that growth going forward, but also how many MRSs are we deploying. For those of you who have been following us for a while, we've spent a lot of time speaking about how the biofuel markets in Europe and globally, but in Europe and the U.K., have been out of balance. They've been oversupplied, and that has caused the certificate, so-called renewable transport fuel certificates that we rely on to source biomethane and also on the revenue side has caused them to be depressed in 2023, '24. What are we starting to see now? Well, over the last 3, 4, 5 months, RTFCs have started to come up, which is a reflection of a market that is biodiesel market or biofuel market that is gradually becoming more healthy and more balanced. We're now back up to basically the average price we've seen before, around GBP 0.26. Where will that go going forward? Our crystal ball is probably as good as anyone else's. But if we look at the state of the market, it's something that we're expecting to probably remain where we are, maybe trend higher. If you then look on the right-hand side here, now what is the effect of various RTFC prices for us? I think the graph speaks for itself. There is huge upside potential here in the value that we can derive from sourcing biomethane and putting it into trucks. We signed a term sheet with Foresight Group or funds managed by Foresight Group in August, I think it was last year. We are in advanced stages of legal drafting. This is a structure that we are very excited about. It will simplify our structure, ease future funding, make it easier also for our shareholders to see exactly how value accrues and how value builds up for ReFuels over time. We are in advanced stages of the legal drafting and we'll come back to the market when we're done with that deal, which we expect within the first half of 2025. And with that, I will hand it over to Baden.

Thank you very much, Philip. So yes, just for the benefit of those who haven't listened to all of the quarterlies previously, we've had historical gross profit margins on RTFCs sold around the 30% level over the history of the business. A year ago, obviously, we had these very substantial price dislocations in the entire biodiesel market, which drove our margins very low. And as you can see in this quarter, we've now -- margins have recovered on RTFCs sold in that quarter from 6.7% last year in the same period to 22.6%. There's a couple of things which are worth noting on the RTFCs. So we generated and sold GBP 68.6 million in the quarter, up from GBP 48 million in the same quarter last year. And that was at an average price of GBP 0.21. Now you've just seen on the slide from Philip that the price in the market is currently much higher -- currently around GBP 0.25, GBP 0.26 level. And so why have we got an average around GBP 0.21? That's because we're able to forward sell RTFCs when we see that we've got healthy margins and lock those in against biomethane that we're also purchasing. So the GBP 0.21 is largely reflective of forward sales we made earlier in the year and those RTFCs then were generated and sold in the December quarter. What you don't see here is an additional 13.7 million RTFCs that we actually also generated in that quarter. However, as they were sold in the spot markets in the following -- in January, we -- under the way that these are accounted for, we are not able to include those in the quarter in which they were actually generated. We have to account for them in the next quarter. So there's another 13.7 million were actually technically generated in December. And just as I say, you'll see those next quarter. Now that is one of the sort of 2 distortions you see when trying to work out how many RTFCs we generate and sell in a particular quarter. One is the question as to whether or not it's been sold in a forward contract or it's being sold at spot, which may mean that it's recorded later. And the other factor is that we have a period we are able to balance -- we are able to supply our biomethane over the course of what's called an obligation year, which is a calendar year. So the obligation year for last year finished at the end of December, which was the end of this period. Now we are in the new obligation year. So what that means is that, if we have periods where the margins on biomethane are very low, we can actually trim back our sourcing in those periods and look to catch that back up later in the year, which is something we did actively last year because as you can see, the margins are much lower at the start of the year they were towards the end. So we're able to catch up a lot of biomethane towards the end of the year. And that resulted in us being fully sourced for our customers at 100% biomethane for the whole of 2024. So obviously fantastic for their carbon savings and obviously, what we always intend to deliver. These favorable market conditions we now have where the biomethane markets are well supplied and RTFC prices are now reflecting a healthy biodiesel market means that we're actually being able to really source very effectively for the 2025 year. We are nearly fully sourced for the whole of 2025. And of course, then are able to be active in the RTFC market to lock those margins in. And we already started focusing on 2026 volumes because, of course, with a very rapid growth in biomethane, we have a lot of -- we are always looking to buy into the future years and secure as much supply as we can. So EBITDA for the period, negative GBP 1 million. Just to remind everyone, this doesn't include the profitability from the stations, which I'll touch on in the next slide. So this is exclusively, this is the ReFuels level, CNG fuels level as a development company and renewable transport fuel services, the biomethane entity. We have an adjusted EBITDA of negative GBP 0.8 million in the quarter. But there's a couple of factors in here which we've adjusted for which are slightly different to previously. We always adjust out the share-based payments and fair value re-measurements. We made a profit on our EPC timings because, of course, we are now developing the Livingston station. And so those timings on the EPC contracts -- development contracts can mean that we record profits in periods which we shouldn't account towards our EBITDA, so reduced the profit there by GBP 736 million or so -- GBP 736,000. We then have transaction costs associated with the transaction with Foresight, which we've accrued for in the period of GBP 640,000, so we removed that. There's an exceptional item, which is detailed further in the report of GBP 507,000 and we have not adjusted for that in the adjusted EBITDA. The final item, of course, is that we haven't accounted for about GBP 1.1 million of gross profit that would have been made on the 13.5 million RTFCs that we deliver next quarter. So that will be recorded in next year's -- next month's -- next quarter's EBITDA. So you'll see that additional gross profit associated with the December biomethane generated. So you can see station profitability. This is purely the station network itself. This, of course, sits within the CNG Foresight joint venture at the moment and is not consolidated up into the ReFuels -- up into ReFuels, but it's important to understand how the underlying stations are performing and what's happening with the truck numbers there. So with station -- the EBITDA in the quarter of GBP 1.6 million, up from GBP 1.3 million the prior year. We have had slow truck deliveries based on the orders that we know are placed over the last 6 months or so. And that, of course, that has slowed the additional trucks we have anticipated coming into the network. However, those trucks are still on order. We do anticipate they will arrive and we are not changing our guidance that once the existing order book is delivered, we should have around EBITDA contribution rate of about GBP 1 million a month or GBP 12 million per annum, which would be, of course, a very healthy run rate across the entire business. Margins have been slightly affected, leading to a relatively flat growth in EBITDA by higher electricity costs in the period and some higher operating costs over the period as well of the stations. So all in all, obviously, increase in revenue in the year-to-date, GBP 107.5 million, up from GBP 80.7 million last year. But we're seeing much higher RTFC sales now and we've had EPC revenues obviously come in over this quarter. And gross profit has more than doubled in the year-to-date from last year's year-to-date from GBP 4.7 million to GBP 10.1 million, which is obviously a vast improvement in the cash flow we're generating to cover operating costs. Same time, we actually did -- we had relatively high operating costs in the period due to taking out the options -- taking options on some additional land sites for development in the future and the associated legal costs with that. But overall, we still had a decrease in our operating cost per kilo down to GBP 0.27 per kilo from GBP 0.30 per kilo in the prior year. So still cost-focused, but we did have a relatively expensive quarter because we were locking in value for future development. And lastly, on cash flow, GBP 1.8 million used in operations. Again, this doesn't include the station network. We have made some investment revenue from the transfer of the Livingston project from predevelopment to development coming through and about GBP 400,000 worth of refinancing on truck vehicles, leading to a decrease in cash from GBP 8.3 million to GBP 6.3 million in the period. And with that, I will pass back to Philip.

Thank you, Baden. So we will -- oops, sorry. No. So then just to run us through and provide some commentary on summary here. We are seeing steady volume growth. I think it was 18% year-on-year for the quarter. That's something that we're expecting to accelerate going forward as some of the truck deliveries catch up. If you then look at the biofuel markets today, they are considerably more healthy than they were last year and certainly in 2023. Now what does that mean for us? Well, it means that we are probably going to be in a slightly less volatile environment. As such, the genuine supply-demand dynamics of biodiesel supply versus demand, also sustainable aviation fuel and other uses of biodiesel feedstocks will actually start to be reflected in the pricing so that some of these external factors that have distorted the picture are now being removed. If you then look at our stations, yes, you should be focused on how many grid-connected stations we have, utilization of those, absolutely. But if you look at an MRS, mobile refueling station, that is a solution that if -- in theory, if a customer came today and said, we want one of these at our site, how quickly can we deliver it? Well, if we haven't got one available or it's becoming available as part of our existing fleet, it will take us 8 months compared to a grid-connected stations where, of course, you need to acquire land, planning and so on and so forth. So the focus here shouldn't only be on our grid-connected network. It is really about the total coverage we have across both solutions. And as I say, that's something that we haven't really seen before or the interest in them as strong as we're now seeing. And that's why I think a more balanced approach in deploying capital here is sensible, not only grid-connected, but also mobile refueling solutions. And I think Baden mentioned this previously as well, there are timing effects here with regards to when RTFCs come up in value, with regards to how we dispense volume and so on and so forth. And therefore, some of the better RTFC values that we now see in the market aren't reflected necessarily in our previous quarter, but they will be reflected in full in the quarters going forward, which is something that we're quite excited about when we know the upside potential we have of this. Okay. Thank you for that. And then -- well, thank you, Baden. And then we'll go into the Q&A, I think, Alan.

So first, we have a question here on the CNG truck order book. So how certain are the deliveries and the timing of these as there has been certain slippage in deliveries?

Alan may be frozen.

Yes, that's fine. I can hear and see Alan. So that's fine. All right. Yes. So truck order book, truck order book is certain, as certain as we can be with regards to knowing that they haven't been canceled. We have seen slippage in deliveries. Absolutely, it's a very pertinent question. A couple of things there. First of all, the U.K. haulage sector has been and is going through a pretty tough time at the moment. There has been overcapacity in the sector. And therefore, some of our customers have chosen to take delivery of trucks later and have chosen to postpone them and take delivery 3, 6, 9 months down the road. But we don't see any large cancellations here, so they will be on the road. I think the other effect here, which is worth mentioning as well, of course, we report total number of trucks on the road that use our network every month, every quarter. We are now -- the industry is now so mature. There are also certain CNG trucks that go from the first owner to the second owner. So basically, they get parked up for a month or 2 or 3 until they go into the hands of a second owner into the secondhand market. That means, of course, they are removed from our list and from our stations and therefore, there's an effect there as well. That's not massive, but it does add to the picture as well. When it comes to the order book, no, we are confident that those will be delivered. It's just a matter of time that things have been pushed out slightly.

We have a question on the dynamics of between...

I'll -- what is behind the GBP 20 million increase in borrowing over the last 9 months? Yes, quite simply, that's the CNG Foresight provided a large working capital loans to the business for its ongoing operations over the course of the last 1.5 years or so. And as detailed, I think it's in the presentation, but also in the report, we're looking to convert that into CNG Fuels shares in the near future. So that will remove the borrowing element on this currently sitting on our balance sheet.

Thank you, Baden. Alan, do we have any further questions?

Yes, we have one question on the volume growth here. So 18% dispensed volume growth for the quarter. Is this around the growth rate you expect for 2025? And when was…

Pre-submitted ones, which I can read out to you and present...

Baden, sorry, we can actually hear Alan and see Alan.

Okay.

You might need to, I don't know, do something with your connection. But Alan, just read me out one of the questions. So I'll take them for now, okay?

Yes. So when will the 6x2 trucks come into operations and drive the growth further?

Excellent question. So the order book for those -- for Ivecos are open and we are seeing them in operation today. We have customers taking in fairly substantial orders -- numbers of those. Marks & Spencer have been public in the fact they've taken 30 of them already and we have other customers doing the same. So it wouldn't be right to portray a picture here that these aren't on the road in customer hands today, but they aren't -- I would say, they aren't on the road at scale yet because the production of them is still fairly slow and there is additional things that need to be done post factory line production. That said, both Scania and Iveco are going on the factory line production this year. The order books are opening pretty much as we speak or so we've been told. And the lead time for these, are, once again we're being told, is fairly short. So we would expect these to start hitting the road second half of this year and then really have a meaningful effect on uptake and order book from late 2025, early '26 onwards.

Then we have another question here saying, assuming closure of the Foresight restructuring in the first half of 2025, when could we expect the construction of the 4 high-throughput stations to commence?

We would -- so we have station locations today that are ready to go, just awaiting financing. So assuming closing, which we've said during the first half of this year, we expect to go into construction very soon thereafter on the first stations out of those 4. So the answer there is pretty soon after closing the deal or yes, having closed the deal and then we will just continue to build stations thereafter.

And then we have a question on biomethane sourcing. So for how long do you expect the European biomethane market to be attractive from a buyer's perspective? And if low prices persist, how will it impact the longer-term ramp up in biomethane production?

So maybe -- excellent question, by the way, and probably prompt some certain clarifications we, maybe, should have made during the presentation. It's not necessarily that biomethane prices are so extremely low that they are unsustainable for the producers. I would rather formulate to say that the margins, both for producers and for the end users such as ourselves are now healthy for both parties. Yes, there is a lot of biomethane in the market, but there is a limit to how low those prices can and will go. But just stressing it that it's not that we're in a massively oversupplied market where people are giving biomethane away. That's not what we're seeing. But we are seeing healthy margins both for producers and offtakers such as ourselves. We don't expect necessarily the fact there's a lot of biomethane coming into the market is going to affect rollout of other projects. Why? Because at the current pricing, there are still healthy margins here for both existing and new biomethane plants. And as Baden mentioned in the presentation, we are only into early March. Our biomethane team has done an excellent job when it comes to sourcing biomethane. We're not that far away from being fully sourced for 2025 and we're now actively sourcing for '26, which is a very nice position to be in, a very comfortable position to be in. And of course, it also means that we have good visibility with regards to margins we're sourcing at and RTFCs that we are forward selling, which is why the next quarters that we've got visibility on should be quite good quarters, relatively speaking.

One final question on RTFC prices. So have you seen any effect of the sustainable aviation fuel mandates and EU tariffs on Chinese biodiesel so far in 2025? And how do you see the biodiesel market also being now in balance affecting the prices?

Good question. So for SAF, I would say -- or sustainable aviation fuel, I'd say the answer is no. It's still early in the obligation year. A lot of the sustainable aviation fuel needed for -- this early in the obligation year had either been bought or was about to be bought. So that's a more longer-term effect later in 2025. EU tariffs, absolutely. We are now starting to see, as I say, a much more healthy balance of biodiesel coming in from Asia. It's also important here to understand that it's not only the end product biodiesel, which is important, it's also the feedstock. So a lot of the HVO and a lot of the UCOME that has come into Europe in the past and currently is being produced from used cooking oil. There are certain developments in the market, such as China, Indonesia, Malaysia, all of these are very large exporters of used cooking oil, are now looking to use various measures to reduce the exports of used cooking oil so that they can use it domestically, whether that be domestic SAF production, such as in China or whether it is Indonesia, as an example, where they're looking to ramp up their domestic biodiesel production and demand. Now these are very important when it comes to the balance in the European market because Europe has been and is very exposed and has been a large importer of used cooking oil from Asia. So these factors are now coming into play. We're starting to see that affect RTFC prices and is the main reason why it's been lifted up to where we are today, GBP 0.26. If that market continues to tighten, then of course, RTFCs would have to react accordingly and continue to rise.

There's no more questions from the webcast. So I hand it back to Philip to close the call.

Thank you very much all for taking the time and your interest in what we're doing. Very excited about 2025 going forward. 2023 and '24, let's be honest, haven't been amazing years for what we do. They've been challenging. We've had continued to execute on the business plan, but the market conditions and externalities have had a pretty downward effect on what we do in our profitability. 2025 is looking a lot better from that perspective. And we're also looking forward to getting this deal done with Foresight, one, so that our shareholders can actually understand what we're doing; and 2, also accelerate the growth in stations going forward, both fixed refueling and the mobile refueling stations. And as mentioned, we'll come back and update you guys in a bit. And with that, thank you so much. And yes, look forward to seeing you on the next one.