Enviro Q2 2023 financials; negotiations with further suppliers & customers

Scandinavian Enviro Systems (Enviro) has reported an after-tax loss for Q2 2023 that is some seven times larger than its net revenue, but the company remains confident of its future following a directed share issue in May and as a definitive investment decision regarding its planned joint venture facility in Uddevalla, Sweden draws nearer.

Enviro’s Q2 2023 net revenues of SEK 3.6 million (£258,110) in Q2 2023 represent a year-on-year increase of 89.5 per cent. Operating results totalled SEK -23.8 million (Q2 2022: SEK -21.4 million) and earnings after tax amounted to SEK -25.3 million (£-1.8 million) (Q2 2022: SEK -21.3 million).

Enviro attributes this greater loss to running, maintenance and freight costs related to its plant in Åsensbruk, Sweden as well as consultancy costs and costs in connection with the bridge financing agreed upon in Q1 2023. Personnel costs also increased by SEK 1.4 million year-on-year due to a strengthening of staff.

Underestimated preparatory work

Enviro’s H1 2023 Half-Year Report also includes a statement from chief executive officer Thomas Sörensson regarding delays to the start of construction work at the joint venture facility in Uddevalla. “Following a first quarter focused on preparing for the agreement with Antin (Antin Infrastructure Partners), the second quarter was dominated by extensive preparatory work ahead of the definitive investment decision regarding the plant in Uddevalla.” The plant’s significance for future expansion plans necessitated “considerable work” being invested into preparatory tasks, but Sörensson concedes it is “clear” that the team “underestimated the amount of work involved and how long it would take.”

A further factor slowing the start of construction has been the arrival of several “completely new board members” on the scene in the wake of the joint venture company assuming responsibility for ongoing plant work. These individuals have needed to familiarise themselves with the project. “Careful preparation before our first investment decision is of course of the utmost importance,” comments Sörensson.

“It is also important to remember that the planned plant in Uddevalla is not only one of several upcoming plants, but the first plant that the joint-venture company will construct, meaning that a lot is riding on it,” the CEO continues. “The process for investment decisions that is now being established will be used in the future for every new plant, and the foundation we are establishing will make future decisions more efficient. Rigorous preparations are therefore both important and desirable.”

These preparations include detailed reports on the costs of investments and the selection of suppliers as well as securing agreements for deliveries of both end-of-life tyres and recovered materials. The joint venture company also engaged its own legal advisors during Q2 2023 to ensure the agreements it signs will guarantee effective operations. “Once again, preparations and diligence take time but are important and desirable in the long term when it comes to ensuing a long-term successful and effective roll-out and operations,” comments Sörensson.

Despite these delays to the start of construction work in Uddevalla, Enviro remains confident that this plant will be “fully operational in 2025.”

Negotiations with further suppliers & customers

Michelin has already signed multi-year delivery agreements for recovered carbon black and tyre pyrolysis oil, but Sörensson shares that planned total recycling capacity will enable the joint venture to deliver to companies other than Michelin. “We are therefore initiating discussions with several potential strategic customers. The same applies to deliveries of tyre raw materials, for which we have also started discussions with several different players.” He sees the joint venture as being “in an excellent negotiating position” due to strong demand for recovered materials.