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

Good morning, and welcome to the ReFuels Q1 2027 Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to the management team of ReFuels, Philip, Baden. Good morning to you both.

Good morning. Thank you for the intro, and welcome, and thank you for all of you who have tuned in or are watching this on catch up afterwards. As mentioned, we'll go through the Q1 2 presentation for ReFuels. As per usual, I'll set the scene, talk about the highlights and then will go through the financials before we wrap up and please send questions through, so we can deal with those in the Q&A section afterwards. So just to set the scene, we have 16 large public access stations in the U.K. We have a fleet of mobile refueling stations as well. We have 3 more stations in build. As of today, we're refueling there or thereabouts about 2,250 trucks per day through our network. If we look over the last 6 years, we have saved our customers north of GBP 65 million, given that the fuel cost related to running on Bio-CNG is less than an equivalent diesel truck. For calendar year 2025, we save our customers, again, north of 0.25 million tonnes of greenhouse gas emissions. And finally, Bio-CNG as an energy vector as a fuel for long-haul transport in the U.K. is not -- is no longer a niche application. We are getting close to having 200 customers running CNG trucks. Just a reminder again, ReFuels owns 40% of CNG fuels. Foresight owns 60% of that of CNG Fuels. Today, we'll be talking about the financials of CNG Fuels, given that, that is the underlying entity of which value is created. Just a reminder here, Foresight is not a shareholder of ReFuels or has any shareholder rights over ReFuels. So ReFuels as such is a completely independent entity of Foresight. -- is just an example of one of our stations. This is Warrington, the M62 Motorway, Liverpool to the West to Manchester to the East. And this is just, I think, a good example of what one of our stations looks like, but also how what we've taken 12 years to build basically is now starting to mature. Warrington ReFuels north of 300 trucks a day, dispenses here north of 8,000 tonnes of biomethane per annum and is now in a roughly 50%, slightly more 50% utilization and can then go up to north of 600 trucks a day. And as Bio-CNG becomes even more popular out of the 6x2, which we'll talk about in a bit, as the 6x2 adoption increases further, that utilization will just continue to grow over the coming years. Okay. So let's have a look at the highlights for the quarter. Our EBITDA -- adjusted EBITDA more than tripled to $4.9 million for the quarter. We reiterate our guidance for this financial year as in the range of $16 million to $20 million. And of course, we'll continue to update on that as we go forward. That is up from last year. Why is that? Two main reasons there. We do have, of course, increase in volume in general, but increased station profitability and attractive certificate margins from sourcing of biomethane and selling RCCs. David will provide a bit more clarity on that in a bit. Over the next 12 to 18 months, we expect north of 900 new heavy goods vehicles, HGVs to be delivered. And we have good visibility that our customer base -- existing customer base will be operating more than 8,000 HGVs by the end of calendar 2030. You'll see a bit later in the presentation as well that there is growing political support, growing political pragmatism for a multi-fuel approach where bio CNG, biomethane is expected to be an important part of that quite complex jigsaw puzzle. And finally, we've got 3 stations in build. That will take us up to 19 stations when those are operational, and we're looking to do more next year. So it's hard to talk about transport and energy that is used for transport without talking a bit about what's going on with regards to geopolitical events. If we look at the world today, we are in a very, very complex situation with regards to energy security, very, I would say, bad energy price volatility. That is not only affecting natural gas, which, of course, is an input to what we offer to our customers, but more importantly, also diesel. So at the end of the day, it's natural gas versus diesel spread that is important to our customers. We are now starting to see close to record high diesel prices. The supply of diesel is becoming constrained globally. This is not only related to the straight war news and what's going on there with refining capacity basically locked in the Gulf. It's also related to the Ukraine-Russia war. Russia used to be one of the largest diesel exporters in the world. Ukraine has become increasingly efficient and increasingly good, if you want, at striking Russian refining capacity, which has meant that the overall global supply of diesel has been constrained. That has led to a very high diesel price as of today. Natural gas price has also come up. That is correct. But the spread, which our customers focus on has remained pretty much where it was before the war in the Gulf started at the end of February. In the U.K., we are -- and this isn't just the U.K. for the problem, by the way, this is also across Europe. We are seeing growing Bio-CNG volumes. However, I think it's fair to say that the overall haulage market, logistics market in the U.K. is in a difficult position. For '23, '24 and 2025, we had 3 years where new truck orders in general were on a downward trajectory. This year was expected to be a turning point for truck orders again to start growing, given geopolitics, given how elevated diesel prices affect profitability of haulers, it is now difficult to say whether or not this will be a turning point. The truck manufacturers are saying that orders are taking a hit at the moment. So here, it's important to understand that Bio-CNG will continue to grow. We are a small part of the energy mix as of today. We have a lot of growth yet in us. But it's also fair to say that we would have even stronger growth had the overall margins and the overall profitability within the haulage sector being better than it is today. If we then look at the benefit of biomethane and bio CNG, we not only offer a fuel that is significantly less carbon intensive, offering 80% to 90% lower GHG emissions. We're also offering a fuel and supplying a fuel that offers significant fuel savings versus diesel and versus HVO. Yes, a CNG truck is slightly more expensive to buy. The fuel is cheaper. So when you run it for typically 5 years, you will have a strong cash-on-cash payback, which you typically see depending on which customer it is and mileage they do of a payback period around about 1.5 years. We often get the question, well, it's good that you guys are growing. Of course, it's not only us that are doing this as well. We have -- there is LNG going on in the U.K. as well, and there are other similar companies to us on the continent. Is there going to be enough biomethane supply. As of today, there is more biomethane chasing transport demand than there is transport demand across Europe. If you look at the announced investments going in upstream to increase biomethane production, that is now getting close to EUR 40 billion over the next 5 years, up significantly, almost EUR 10 billion up compared to what was announced last year. So as of today, we do not see anytime soon a shortage of biomethane that can go into transport. Clearly, we don't have visibility further out than maybe 2 or 3, maybe 4 years. as of today, there is a lot of investments going in upstream and a lot of that buying will want to find a home in sectors such as transport. For those of you who followed us for a while, you will have heard me and probably as well talk about the 6x2 and why that's important for us. We are finally starting to see a fairly broad adoption of 6x2 across fleets. Whilst the number of vehicles or 62 vehicles in operation as of today does not make up a huge part of the overall fleet that is using our stations, -- what's more important to us is the number of fleets. Why? Because a lot of these fleets aren't going to go out and order 20, 30, 40 trucks on day 1, they will order 1 or 3 or 5 trucks. So the number of fleet is important. Why? Because if they -- what we've seen with 4x 2s in the past is that once they dip their toe in the water, the next year or the 12 months later on, when they come to order more trucks, they typically increase their orders compared to what they've done before. So we're seeing very encouraging signs in the 6x2 market. For the Q1, we had 15 6x2 trials completed. We've now received even more demo vehicles into the fleet. We've got 2 of our own now that we control. So we expect the number of demos and trials to continue to grow over the coming quarters. I mentioned previously that we have visibility out to the end of 2030, where our major customers are looking to operate more than 8,000 CNG trucks in total. Of course, this does not include potential new customers coming on board, particularly in the 6x2 market. But as I say, 8,000 trucks, basically 4x compared to where we are today. Now there is, of course, risk with these estimates. But based on discussions that we have with customers for their adoption plans, this will then take us to almost 4x of the vehicles we've got on the road today by the end of 2030. And as I mentioned, that is not including potential for 6x 2 demand from new customers going forward. Policy is a continuously moving piece of the puzzle here. Previously, there has been a lot of focus from policymakers and politicians in the U.K. that everything is going to go electric. And as such, there are going to be potential for tail pipe bans for large trucks in 2035 and 2040. The conservatives have now come out and said they no longer believe in that. They believe in a multi-fuel approach, very important change of direction, change of narrative. It's not a surprise to us that this has happened. Why? Because the zero tail pipe or the tail pipe ban and only electric trucks by 2035, 2040 cannot be delivered on for a number of reasons, which takes a long time to explain, so I won't get into all of that here. As such, that we're seeing more pragmatism for us is not a surprise, but it is welcome, and I would expect to see more of this over the coming quarters from other political parties as well. I mentioned construction activity. We've now got 3 stations in build, Mayor that will open in the coming months. Swindon went into build before the summer and where there is very, very good progress being made. And finally, Carlisle that went into construction towards the end of August. These are 3 very important key strategic locations for us where our customers have been telling us for years, we need stations in those areas. So we're very pleased that we've finally got these into build, and then we'll be looking to bring more into build next year. And with that, I will hand over to Baden.

Thank you very much, Philip. Let me run you through the financial performance of CNG Fuels in the first quarter. And as Philip mentioned, this is the best proxy for the ReFuels value for shareholders and ReFuels performance. So CNG Fuels delivered adjusted EBITDA of $4.9 million in Q1 compared to $1.4 million in the same quarter last year. So adjusted EBITDA has tripled from the prior year. Just a reminder to everyone that the adjustments are the removal of noncash fair value remeasurements and value movements in the share-based payment schemes that are outstanding. Essentially, the adjustments take us back up to operating profit for the period. The improvement was supported by a combination of 3 factors: higher Bio-CNG volumes, strong certificate margins and an increase in scale benefits we're continuing to see across the network. certificate business remained the largest contributor, but importantly, it was also the second consecutive quarter in which the station business produced a positive EBITDA on a stand-alone basis. It's a really important milestone for the business because it shows that improving station utilization is increasingly translating into an additional and complementary revenue stream for the business and really on an annuity basis that can continue to grow over time and can continue to be scaled. The certificate margin for the quarter was approximately 29%, although as I'll show you in a slide or 2's time, the average market price for RTFCs during the quarter was 19.2p. So our realized selling price in the period was 26.1p per certificate. So that reflects the benefits that we've always mentioned before about the way we sell on forward contracts. We are reiterating our FY 2027 adjusted EBITDA guidance of $16 million to $20 million. That's based on the Q1 results, our expected volume growth and the visibility we have over the of earnings. Although we're facing a challenging market, we continue to expect around the 15% to 20% growth in dispensed biomethane volumes for the full year and that which underpins our guidance along with the strong margins we're seeing. Next slide. So this slide shows EBITDA -- how EBITDA growth is translating through to the P&L. Revenue for the quarter was up -- was increased by 62% to $47.9 million from $29.6 million in Q1 last year. The revenue increase was largely driven by higher dispense volumes, higher natural gas prices and a greater number of certificates we sold. It's really worth noting though, the high gas prices increase -- to increase reported revenue, but our customer arrangements seek to -- we seek to pass through this gas cost to them. And therefore, a more meaningful measure of underlying progress is the gross profit and EBITDA. Gross profit increased by 74% to GBP 9.4 million compared to GBP 5.4 million in the same quarter last year. And this reflects volume growth, improved certificate margins and scale benefits again. RTFS contributed 58% of the total gross profit and the station business contributed 42% in the same period. Adjusted EBITDA increased to GBP 4.9 million, as previously said, that's up 250% on the year, and RTFS contributed GBP 4.3 million of this with the station business contributing GBP 0.6 million to the result. The GBP 0.6 million contribution by the stations is obviously strategically now significant. Last year, we -- the annual report showed the station portfolio EBITDA of GBP 5.5 million being generated before the CNG fuel station overheads. The Q1 result now demonstrates that after relevant station business costs and CNG Fuels -- and with CNG Fuels overhead allocation as well, the network is still producing positive EBITDA without the certificate contribution. So at the bottom line, CNG Fuels also reported a profit after tax of GBP 0.3 million positive. The much larger comparative profit in last year in the same quarter was essentially affected by an exceptional accounting item. And so an adjusted -- and so when adjusting out for that, this is the first time we've had a positive profit after tax as well. Next slide. Here we are. So a key part of our earnings performance is how we manage the RTFC pricing and our margin visibility ahead. This chart illustrates both the underlying RTFC market and the benefit of our forward sales strategy. RTFC pricing is principally influenced by the spread between a liter of fossil diesel and a liter of waste-based bio-diesel or you can usually in the U.K. And that underlying spread can be very volatile, as you can see in the graph on the left. So the faint gray color is the actual movement of that spread. And then you can see overlaid on that in the lighter green color is the RTFC prices on a sort of ongoing market basis. on the right, you can see the performance of our -- of what we have been recognizing as RTFC prices over the same period with the graphs aligned there. And as you can see, obviously, that's much smoother. So despite the average market price for RTFCs being 19.2p in Q1, we realized an average price of 26.1p. And that's because all of the RTFCs we delivered in the quarter were delivered against forward contracts entered into our higher prices. In total, we generated 65.4 million RTFCs compared with GBP 40.2 million in the quarter of last year. And the realized pricing, together with attractive biomethane sourcing has continued to see us have very strong margins. So we produced a significant margin of around 29.3%, up 22% up from 22.6% sorry, last year. And that 29.3% is really at the upper end of our long-term average of biomethane margins. So as you can see, still adding a lot of contribution to the business. To be clear on that, though, again, our approach is not to speculate on certificate prices. We seek to match contracted biomethane sourcing with forward RTFC sales and margins that essentially are sustainably profitable across the relevant obligation years. So that is our ambition to manage risk and deliver sustainable margins and positive returns. We've already secured our estimated biomethane requirement for calendar 2026, and we are now actively sourcing and selling into the 2027 year. So on cash generation, CNG Fuels generated $6.5 million from cash from operations during Q1 compared to an adjusted EBITDA of $4.9 million. difference between EBITDA and operating cash flow principally reflects the working capital movements associated with the biomethane sourcing, RTFC generation and the timing of sales around those. So this will naturally fluctuate over time. Investment expenditure was approximately GBP 4 million, primarily relating to the construction of the new stations in Magor and Swindon. And of course, we'll very soon be adding Carlisle to the investments. And obviously these are investments in the growth of our network capacity. Financing activities provided a net inflow of approximately GBP 2.8 million, and that's the borrowing -- largely the borrowing for the construction activity of our facility at Foresight. So after operating investing and financing cash flows with foreign exchange movements, the cash balance has increased from GBP 10.8 million to GBP 15.6 million at June 30. And finally, on to our balance sheet. As of 30 June, CNG Fuels had assets of approximately GBP 235 million and total equity of GBP 86 million, representing an equity ratio of 36%. Property, plant and equipment was approximately GBP 108 million, principally reflecting our operational station network, obviously, minus depreciation over time. And that balance will continue to grow with the construction of the 3 new stations. Very healthy quarterly cash balance of GBP 15.6 million, which was up GBP 4.9 million from the prior quarter. And just on the GBP 25 million credit facility we have with Foresight, which is a senior debt facility, we've drawn GBP 9.2 million of that as of 30th of June. The balance sheet also includes about GBP 110 million of shareholder loans, which is just worth noting that these are shareholder loans post the transaction with Foresight last year and should be distinguished very much so from external bank debt. But obviously, overall, a very strong position we are now in at the CNG Fuels level and to generate very healthy earnings. Thank you.

Thank you, Baden. So we will -- sorry, we'll move on. Yes, I'll just provide a bit of summary, touch upon outlook, and then we'll go into Q&A. I can see some questions have come through already. Once again, recommend that you send questions in if you have any, and then we'll do our best to answer those. So as I mentioned previously, we have visibility from our existing customer base, and these are typically our large customers that they have communicated plans to us. Now some of these are also communicated publicly. The majority of these are, of course, private conversations with us, where they have communicated that by the end of 2030, when we look at these in aggregate, that we will have north of 8,000 CNG trucks on the road. Now there is, of course, a lot of new customers currently or potential for new customers currently trialing, particularly the 6x2. So if that is -- and we see adoption there develop the way we hope, but also think that it will, then there should be significant upside to those numbers. If we then look at earnings, last financial year, we reported close to GBP 15 million. In adjusted EBITDA. We are guiding for 16 million to 20 million this year. And we are saying that by the end of 2030, we not only have the potential, but we have visibility as of today where taking that up to 100 million should indeed be feasible. All right. So just then to wrap up, we are seeing higher station profitability through increased utilization, but more importantly, also through scale benefits, as David mentioned, and also attractive margins, which has meant that we have basically north of 3x on our EBITDA for this quarter versus last year. We have the visibility of almost 4x on vehicles by the end of 2030. That, of course, doesn't necessarily include strong uptake that we think will come for 6x2. And finally, we are reiterating our EBITDA guidance of EUR 16 million to EUR 20 million for this financial year. And with that, we will drop the slides and go into Q&A.

And I can see there's quite a few that's come through already. So we'll just start at the top and work our way through. Okay. First one, you stated an EBITDA range of GBP 10 million to GBP 20 million with circa GBP 5 million delivered in Q1. What needs to happen operationally over the coming quarters to deliver at the top end? Okay. So I'll pack that slightly and then Baden, I'm sure can jump in here as well. First of all, we need to stress that our quarters will be a bit lumpy, right? You can't just assume that just because we have 5 million in this quarter and our volume grows a bit for the next quarter, it's going to be $5-plus million, right? It could be above 5 million, it could be less than 5 million. Why do I say that? Because the timing of when we recognize earnings from ISP sales will be lumpy. So it's important here to understand that the guidance we're giving here is on an annual basis, and the quarters could move around and be a bit lumpy in there. That said, what is it we need to achieve internally or operationally? Well, of course, we need growth, which we've communicated previously, we are guiding on 15-plus percent growth this year. So of course, we need to deliver on that. We need to deliver on continued efficiency gains and synergies that we are seeing. So I would say not -- we don't necessarily have to have stellar operational performance to achieve that, but we have good visibility on that guidance. And of course, we'll provide updates later on. But please bear in mind, quarters can be lumpy and just because there is a quarter with less earnings than the previous quarter doesn't necessarily mean that there's a trend, there is lumpiness in there. Anything you want to add there, Baden?

Not particularly. I mean I think probably, as you've seen, a gross profit basis or an EBITDA basis, obviously, RTFS and the margins there contribute an outsized portion certainly of the EBITDA we have extremely good visibility on the earnings and RTFC generation and costs for this year. And so we have very high confidence in that level. With regards to CNG stations, we are now -- yes, second quarter of profitability on an EBITDA basis, and we are seeing that, that is a highly scalable business with good operating leverage. So yes, it really will be about really is volumes coming through and how much that drives earnings on that side with us maintaining our cost control as we always do.