Carbonxt Group Limited – HY24 Results

Carbonxt Group Ltd (ASX:CG1) (“Carbonxt” or “the Company”) has released its Half-year report for the half-year ending 31 December 2023 and provides the following update on the key areas of activity for the period -- all numbers are in A$.

OPERATIONS OVERVIEW

• Half year revenue of $8.4 million, down 5% on HY23, primarily due to a once-off impact on sales to the group’s largest pellet customer following outages at that customer’s facility.
• Operations during the half-year highlighted by great progress on the construction of the Company’s flagship Activated Carbon production facility in Kentucky, jointly owned with Kentucky Carbon Processing, LLC (“KCP”). Commissioning of the facility is now underway with a significant production ramp-up to occur next quarter.
• Pellet sales accounted for 54% of revenue and 37% of sales volume. Carbonxt continues to see strong demand for industrial pellets which is very encouraging given the near-term entry into production at the Kentucky facility.
• Powdered activated carbon (PAC) accounted for 46% of revenue and 63% of sales volume – PAC revenue increased by 31% from HY23.
• HY24 gross margin of 44%, up from 28% in HY23 principally due to positive flow-on effects from the successful rollout of operating cost reduction initiatives, as well as a reduction in manufacturing shifts at Arden Hills. The production performance of the Company’s other major ACP customer continues to decrease and is at a record low manufacturing cost.
• Underlying EBITDA for HY23 was a loss of $286K, compared to HY23 EBITDA loss of $930K, an improvement of 69%.

FINANCIAL OVERVIEW [All results in AUD]

REVENUE

• Total revenue was down 5% from HY23, driven primarily by downtime at our largest customer who had significant equipment issues at their facility in the December quarter.
• Pellet revenue was down 24% from HY23 reflecting the aforementioned reduction in demand from our largest pellet customer.
• PAC revenue was up 31% from HY23 reflecting the impact of material price increases across the customer portfolio and the increase in volume from one existing customer of approximately $1.5 million per annum.

MARGIN

• 1H23 gross margin was 44%, an increase from the 28% recorded in 1H23, reflecting the improvements made to operating costs over the past year.
• As noted earlier, continuous improvement is evident at Arden Hills based on lower fixed plant costs on a per unit basis.
• Several initiatives are also underway at Black Birch to further lower operating costs, including changes to the underlying lease structure. Negotiations on this matter will continue over the next quarter but are expected to lead to noticeable ongoing improvements in profitability.

OPERATING COSTS

• Shipping costs to customers increased in 1H24 to 13% of sales, compared to 1H23 at 11% of sales. The higher shipping costs reflect a customer mix change (lower sales to a major pellet customer who is located close to our Arden Hills plant).
• Operating costs of $2.9m were up 15% on 1H23 primarily reflecting additional one-off expenditure associated with entering into the Kentucky investment.

KENTUCKY PLANT

• During this period, construction has been underway for the new activated carbon plant in eastern Kentucky, USA. The plant will have an initial capacity of 10,000 tons per annum, with the ability to expand to 20,000 tons per annum for a small additional investment.
• Carbonxt has contributed USD $5.5 million to NewCarbon Processing, LLC (“NewCarbon”), alongside its US partner KCP. Carbonxt holds a 35.5% ownership interest in NewCarbon as of 31 December 2023, with options to invest a further USD $4.5m to move to 50% ownership interest.
• Construction progress has been pleasing with the plant now moving into the testing of front- end equipment and processes. The final electrical activities are expected to be undertaken in March with the delivery of the control systems, prior to the commencement of production.
• Near-term sales efforts are well underway with a very positive reception being received by our former industrial pellet customers. The next step for nearly all prospective customers is to provide pellet samples from the facility. This is expected to continue over the next few months.
• The JV project provides Carbonxt with a unique opportunity to benefit from major investments in pollution reduction technologies across the US market.

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