Europlasma posted a €-11m loss over H1 17. This was €2m worse than in H1 16.
The top line and EBITDA were both sharply down.

Europlasma’s rather disappointing financial showing over H1 is at odds with the fact that the firm has delivered on its most risky venture, green power generation. This amounts to a degree of bad luck.

Essentially Europlasma can be regarded as:

  1. a strenuous effort to become a green power generator through leading edge waste to power technology.
  2. the management of a cash-cow which is the processing of asbestos-based waste products.

 

The good news of earlier this year was that the green generation power was up and working after three years of ironing out technical glitches. The so-called final acceptance last June came, however, with a caveat that further performance optimisation work was required as requested by the plant’s owner and supported by Europlasma which sees a direct benefit as a 35% stake holder.

This means the provisioning of €3.45m extra costs which are funded by payments of the plant’s owner for a total of €4.78m. This matters as Europlasma has been battling with significant cash consumption and costly equity financing (see next section).

The additional regrettable news of the H1 earnings is that the cash-cow side, asbestos treatment (operated under the name of Inertam), has misfired. The unique oven of Inertam was due for an overhaul in Q1 but the restart has proved difficult in Q2 and made even more painful by stricter regulations about dust emission controls that led to production stops while new air cleaning systems were being added.

The turnover for Inertam has collapsed from €4.9m to €3m with a corresponding cash squeeze as this business is all about saturating capacity to be profitable.

Cash flow drain continues

The operating cash flow is a drain of €-6.6m, of which €-4m comes from power generation and €-0.4m from Inertam, the balance is due to central costs and the engineering business called “Plasma Solutions”

The price to pay has been the phenomenal dilution as Europlasma has been relying on financing in the form of convertibles whose conversion and subsequent selling of resulting equity into the market has depressed the share price massively.

Such financing to the tune of €7m has been covering the operating cash needs but not the capital expenditure (€1.9m). Another €2m raised over July 2017 in the shape of a convertible helped balance the cash needs but the H1 balance sheet shows negative equity of €-7m and a net debt of c.€10.5m.

Outlook

We keep on repeating that the worse is behind from the point of view of technical risks. This is the case. Even though further optimisation work is required on the green power unit, the deployment of this solution on two new sites is going as planned with a good chunk of the financing secured for the first one (dubbed Tiper). The second one should not be a problem. On the Inertam front, it appears to be running smoothly again in H2.

We need to trim seriously our optimistic expectations to allow for:

  • the Inertam hiccup,
  • the lasting cash drain, and
  • the fact that the EPC side of the business which is the only driver of the turnover is delayed to 2018.

2017 pans out as another year “without” from an earnings standpoint.

The issue of which is the right business model has not been sorted as well. This is about the extent of the ownership by Europlasma of the generation plants.

Controlling such cash flows is attractive but it starts with a proper financing of such an ownership. Our modelling does not allow for that and remains fragile.