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12 September 2023

Ocean Harvest Technology Group Plc ("Ocean Harvest" or "the Company")

Interim Results for six months ended 30 June 2023

Ocean Harvest Technology Group Plc (AIM: OHT), specialists in researching, developing and selling seaweed and ancillary products, announces its unaudited results for the six month period ended 30 June 2023 ("the Period").

The Interim Report for the period ended 30 June 2023 will be published on the Company's website today at www.oceanharvesttechnology.com.

Financial Highlights

·      OHT successfully completed its initial public offering raising gross proceeds of £6,000,000

o  Funds raised allows the Company to focus on its strategic growth objectives

·      66% growth in product revenue to €1.6 million (H1 2022: €0.95 million)

·      150% increase in gross margin to €0.56 million (H1 2022: €0.23 million)

o  Substantial increase in gross margin to 36% (H1 2022: 24%)

o  Margin improvements driven by an increase in average selling prices, eliminating selling concessions post Covid-19 pandemic and an improvement in processing yield

·      Well funded with no external debt and a period end cash balance of €4.8 million (31 December 2022: €1.2 million)

Operational Highlights

·      Strong momentum with new customer wins, having onboarded over 10 new customers in the first six months. This includes a top five swine producer in the US and one of the UK's largest feed pre-mixers

·      Expanded seaweed supply chain in new regions such as east Africa and the Philippines, giving access to materially larger volumes of biomass. OHT has also secured a strategic relationship with a producer of brown seaweed which provides price and volume certainty of supply and is progressing similar arrangements with other seaweed suppliers

·      Further improvement in operating efficiencies due to investment in an additional grinding line in Vietnam, increasing yield significantly

·      Completed Life Cycle Analysis of OceanFeed^TM which demonstrates that it has a materially lower CO₂ equivalent footprint in its manufacture than other common ingredients in animal feed.

o  OceanFeed^TM can be net-negative as one tonne used as an additive can reduce CO₂ equivalent emissions from the feed chain by over 10 tonnes

·      Completed further R&D trials which demonstrated the strong efficacy of OceanFeed^TM in a number of applications

·      The Company was awarded a patent which protects the claim made by the Company that use of a seaweed blend as a feed supplement improves the quantity and/or quality of eggs produced by egg laying birds

Conclusion and Outlook

·      The Group has strong momentum and continues to onboard new customers from its growing pipeline of customer trials.

·      The improvements achieved in gross margin year to date are expected to continue due to the revised selling price levels and the Company's developments in seaweed sourcing and processing.

·      The outlook for OHT's supply of seaweed remains strong and supportive of continued growth in the Company's product sales.

·      Whilst the Group continues to see revenue growth in line with expectations in Asia and the Americas, it is experiencing some delays in onboarding new customers in Europe. This is resulting from the direct impact of feed ingredient prices affecting customer profitability as well as customers in this region having more entrenched usage of other additives. This shortfall in Europe had been expected to be compensated for in the second half by volume from a recently onboarded new customer in another region which is now opting for lower initial volumes before moving to full use in future. 

·      In addition, the strengthening of the Euro in 2023 will impact the value of our reported revenue which is primarily sourced in US dollars

o  As a result, we now expect to report total revenue for the year in excess of €3.4 million

·      The Board continues to see supportive conditions for the growth of OHT's products, with the market looking for more sustainable feed ingredients which improve animal production metrics and can replace existing additives such as antibiotics, other synthetic additives and feed ingredients from land based plants.   The number of potential customers trialing OceanFeed^TM has increased significantly since the start of the year and the potential sales value from those customers has more than doubled to over €10 million. The Board has strong visibility over FY24 revenues that support its forecast revenue growth rates.

Mark Williams, CEO of Ocean Harvest Technology Group, commented:

"At our maiden set of interim results I am pleased to say that OHT has begun to deliver on its objectives set out at its IPO in April. We are continuing to strengthen our global sales team and build out our supply chain. We will also continue to invest in R&D to innovate and enhance our existing customer offering in the markets the Group operates in. We will continue to manage some of the short term onboarding delays and we look forward to delivering on our long term growth strategy for our new and existing shareholders."

For more information please contact:

Notes to Editors

Ocean Harvest Technology Group plc is a global leader in the development and commercialisation of value adding products from multiple species of seaweed. The Company provides a range of natural ingredients focused on improving animal performance whilst protecting the environment, through its unique and proven intellectual property portfolio. The Company's products are produced in its facility in Vietnam from seaweeds soured from multiple markets across the world.

For more information, please visit www.oceanharvesttechnology.com.

Chairman's Statement

Introduction

Ocean Harvest Technology is pleased to report its first set of results following admission of the Company to the AIM market in April.

Ocean Harvest Technology is one of the leading commercial scale producers of seaweed blend ingredients for the animal feed market.

The Group was founded in 2005 on the belief that an investment in research and development would result in the ability to create seaweed ingredients that would deliver a number of specific benefits across multiple animal species based on the polysaccharides and other bioactive ingredients present in particular species of seaweeds.

Since its establishment, the Group, through its research and development programme, continues to build a portfolio of intellectual property and has had commercial success in selling its products as ingredients to improve the efficiency, profitability and sustainability of the animal feed chain by delivering improvements in animal gut health.

Ocean Harvest Technology's ambition is to become the largest supplier of proprietary blended seaweed ingredients to the global animal feed industry.

Period Under Review

The Initial Public Offering was completed in April, successfully raising funds to allow the Company to focus on its strategic growth objectives of investing in sales and marketing, research and development and our supply chain.

At the time of the IPO, additional expertise joined the board in the form of non-executive directors David Tilston, Christine Maggs and Stephen Walker.

The Board believes that Ocean Harvest Technology has enormous potential to capitalise on the growing demand for sustainable and natural ingredients which improve the profitability and sustainability of feeding production animals. OceanFeed^TM has demonstrated benefits when used in multiple species of production animals through improved growth rates and feed conversion efficiency and lower mortality rates.  OceanFeed^TM also has a lower carbon footprint than ingredients and additives produced from land-based plants and generates economic benefits in the communities where our seaweed raw material is harvested. 

The Company anticipates upcoming R&D and trial data demonstrating a range of benefits provided by its feed additives, which the Directors believe will enable Ocean Harvest Technology to attract new customers and access new markets within the animal feed industry.

Conclusion

The Board remains focused on ensuring the Company delivers on its long term growth opportunity and ensuring that its business is run in a sustainable and socially responsible manner with a strong level of governance oversight from the Board of Directors.

Ashley Head

Chairman

Chief Executive's Statement

Introduction

Ocean Harvest Technology is one of the leading producers of seaweed based ingredients for use in the animal feed industry.  The business has achieved strong growth in the first six months driven by the acquisition of new customers, the expansion of our supply chain and continued investment in research and development.

Customer Trials

We continue to assist potential customers to run trials to demonstrate the efficacy and application of the Company's OceanFeed^TM products.  OHT currently has trials scheduled or in progress with over 20 potential customers, which is a continued increase in the size of our customer trial pipeline since the start of the year.

The pipeline of customer trials represents potential annual product revenue of over €10 million, which is an increase from the €5 million pipeline at the start of the year.

Seaweed Sourcing and Processing

The Company has continued to expand its supply chain, on-boarding new suppliers in new and existing markets for its key seaweed species. We have commenced sourcing seaweed from east Africa for the first time during H1 2023 and returned to sourcing from the Philippines where we had not sourced from since before the pandemic. We have onboarded new suppliers in Indonesia and increased volumes from existing suppliers in that important market.  Our visibility and confidence of future seaweed supplies has grown with these developments which will enable our continued growth.

In addition, the Company has recently entered into a strategic arrangement with a supplier of brown seaweed which has guaranteed its supply to the Company at favourable pricing for at least the next two years.  We are progressing the development of similar arrangements with other seaweed suppliers.

Our Vietnam facility had the full use of the second grinding line which was installed and commissioned in late 2022. In addition to providing increased volume capacity to the facility, we have observed that the efficiency of this new line has also contributed to lower yield losses when processing the seaweed raw material.  This has been helpful in our margin improvement across the business.

During the period we commissioned an independent party to conduct a Life Cycle Analysis (LCA) of our OceanFeed^TM product and calculate its carbon footprint.  This calculated that 1 tonne of OceanFeed^TM generated total CO₂ equivalent emissions of 596kg, comprised of direct emissions from the product LCA of 433kg and 163kg of emissions from corporate overhead.  These direct carbon emissions of 433kg per tonne are over 30% lower (and in some cases 90% lower) than the CO₂ equivalent emissions of other common ingredients in animal feed such as wheat, corn and soy.  This is mainly because the seaweed we source uses no arable land, fresh water or fertilisers. 

The analysis goes on to demonstrate that OceanFeed^TM can be a net-negative carbon product in its own right across its whole cycle as i) seaweed absorbs carbon prior to harvest and ii) using OceanFeed^TM as an additive can result in producers using less animal feed.  Therefore, using one tonne of OceanFeed^TM can reduce total CO₂ equivalent emissions by over 10 tonnes.

Research and Development

We were very pleased during the period to announce the results of a number of research and development trials which have demonstrated additional applications of OceanFeed^TM or provided additional evidence of previously demonstrated applications of OceanFeed^TM.  These results included:

·      A laying hen trial confirmed improvements in both egg production and feed efficiency when birds were fed an OceanFeed^TM Poultry supplemented diet.  These performance improvements materially increased income per hen.

·      A catfish trial demonstrated that fish fed with OceanFeed^TM Aqua in their diets had higher feed intake and weight gain, leading to a substantial increase in final live weight.

·      A trial with juvenile shrimp where OceanFeed^TM Aqua improved both weight gain and feed efficiency, thus reducing production costs. OceanFeed^TM Aqua also helped reduce mortality in a disease challenge trial run in parallel.

·      A commercial swine trial reported material improvements in feed efficiency in piglets with OceanFeed^TM Swine included in their diet.  OceanFeed^TM Swine successfully replaced a combination of seven conventional gut health additives. 

In the period, the Company was also granted its first patent.  Patent No: GB 2 594 432 is focused on the efficacy of OceanFeed^TM in layer hens and protects the claim made by the Company that use of a seaweed blend as a feed supplement for egg laying birds improves the quantity and/or quality of eggs produced.  Other patent applications submitted by OHT have been progressing with the relevant agencies.

Global Seaweed Market

The World Bank stated in its recently published Global Seaweed Report 2023 that it views seaweed as a high growth input to many developing industries.  In particular:

·      The top four opportunities cited for new growth in seaweed applications are Animal Feed, Pet Feed, Methane Reduction Additives and Biostimulants

·      In discussing the animal feed and pet feed opportunities the report cites the pre-biotic effect of seaweed, and states the improvements in feed efficiency, production economics and anti-biotic replacement ability of seaweed

·      The report cites OceanFeed^TM as a product that delivers specific benefits to animals, quoting the performance benefits of OceanFeed^TM Bovine and OceanFeed^TM Swine

·      It acknowledges the challenge in building supply chain but it does go on to say that OHT is a company that has already built a supply chain that gives it access to high volumes of seaweed

·      The report cites the three key challenges in growing an industry of seaweed ingredients for animal and pet feed as:

o  having the R&D to demonstrate the product's efficacy

o  having a new customer onboarding timeline

o  building the supply chain

We believe that this independent analysis supports our conviction around the major drivers for our business and our strategy to exploit them.

Conclusion and Outlook

In the period, we have delivered very substantial product revenue growth over the same period of last year, and gross margins have increased significantly. The Company has strong momentum and continues to onboard new customers and the improvements achieved in gross margin year to date are expected to continue due to the revised selling price levels and OHT's developments in seaweed sourcing. The outlook for OHT's supply of seaweed remains strong and supportive of continued growth in the Company's end product sales.

Whilst OHT continues to see revenue growth in line with expectations in Asia and the Americas, it is experiencing some delays in onboarding new customers in Europe. This is resulting from the direct impact on feed ingredient prices and customer profitability as well as customers in this region having more entrenched usage of other feed additives. This shortfall in Europe had been expected to be compensated for in the second half by volume from a recently onboarded new customer in another region which is now opting for lower initial volumes before moving to full use in future.  In addition the strengthening of the Euro in 2023 will impact the value of our reported revenue which is primarily sourced in US dollars. 

As a result, we now expect to report full year total revenue of not less than €3.4 million.

Notwithstanding these revenue delays, the Board does not see any change in the longer term outlook for the business and its revenue growth.  The market backdrop remains supportive of OHT's products with customers looking for more sustainable feed ingredients which improve animal production metrics and can replace existing additives such as antibiotics, other synthetic additives and feed ingredients from land based plants. We have onboarded over 10 customers in the first six months of the year and the pipeline of potential customers trialling OHT's products continues to grow in terms of the number of customers and has more than doubled in potential sales value since the start of the year to over €10 million.  This demonstrates the increasing interest and acceptance of key players in the animal feed sector to include OceanFeed^TM blended seaweed ingredients to achieve production and sustainability benefits.

Financial Summary

The Company has prepared the following financial summary, in addition to the attached financial statements, in the same format as previous announcements to ensure consistency of approach and comparability. This summary shows our product revenue and separates the other revenue we record which is a reimbursement of shipping arranged by OHT on behalf of its customers and on which we do not charge a margin. It also separates non-operating and IPO related expenses to show an EBITDA and an adjusted earnings number.

Revenue

Product revenue grew 66% to €1.58 million (H1 2022 €0.95 million.) driven from new customer acquisition and an increase in average selling prices. The Company sold significant volumes of its proprietary blended seaweed products to over 40 customers, increasing from the circa 30 sold to during 2022. These new customers include one of the largest UK animal feed pre-mix companies and a top five swine producer in the US.

The Company has been able to increase average selling prices by demonstrating the significant financial benefits of using its products to new customers and through eliminating selling concessions which the Company had offered to customers in previous years in response to the high shipping costs resulting primarily from the Covid-19 pandemic.

Profitability

The Company recorded gross margin of €0.56 million in the first half vs €0.23 million achieved in the first half of last year. Gross margins have benefited from the increases in average selling prices but also from expanded seaweed sourcing with improved quality, and therefore better production yields.  The gross margin of 36% on product revenue in H1 is a substantial increase on the equivalent margin of 24% and 31% recorded in H1 and full year 2022 respectively. We believe that we will be able to further improve gross margin as we scale the business further.

Administration expenses have increased by €0.4 million over the first half of last year due to a number of factors in personnel expenses including additional headcount and the making of incentive accruals throughout the year.  This led to an adjusted earnings loss of €1.3 million, consistent with the same period last year.

The Company also recorded charges in the period of €0.8 million in IPO transaction expenses including legal, professional and advisory costs. The total reported loss for the period after these items has increased to a loss of €2.2 million from €1.3 million in H1 2022 primarily due to these items.

EPS

Basic loss per share of €0.023 has increased from a loss of €0.019 in June 2022.

Cash Flow

The IPO gross proceeds of €6.9 million have significantly improved cash flow, with a cash balance of €4.8 million at 30 June 2023, however operating cash flow for H1 2023 is impacted by working capital increases from inventory build, particularly of semi-finished goods to support sales volume growth, and trade debtors increased in line with sales growth.  We have worked on the efficiency of these balances with debtors days moving from 145 to 102 and inventory representing 189 days sales vs 213 days sales in H1 2022.

Non current asset expenditure has also increased with investment in the Vietnam manufacturing facility, R&D activity and systems development costs.

As part of the IPO, all of the convertible loan notes which were previously outstanding were converted into shares in the Company.  In addition the IPO proceeds were used to repay the working capital facility that it had with one of its shareholders, hence the Company is in a strong financial position and has no external debt.

Mark Williams

CEO

Unaudited Condensed Consolidated Statement of Total Comprehensive Income

for the interim period ended 30 June 2023

The above condensed consolidated statement of total comprehensive income relates to continuing operations for the Company.

Unaudited Condensed Consolidated Statement of Financial Position

as at 30 June 2023