OIO

Business Context and Reporting Period

Company: ESGL Holdings Limited (OIO Group)

Filing Type: Form 6-K (Report of Foreign Private Issuer)

Reporting Period: Six months ended June 30, 2024 (unaudited). The filing also includes comparative data for the full years ended December 31, 2023 and 2022.

Business Overview: ESGL is a Cayman Islands holding company operating through its Singapore subsidiary, ESA. The Group provides waste management, treatment, and recycling services for hazardous and non-hazardous industrial waste. Revenue is derived from (i) waste collection and disposal services and (ii) sales of circular products (recycled metals such as zinc, copper, and nickel).

Key Financial Metrics (Six Months Ended June 30, 2024)

Debt and Liquidity (as of Dec 31, 2023): Total borrowings were approximately US$5.78 million. Working capital was negative US$13.8 million, primarily due to deferred underwriting fees and bank loans classified as current liabilities due to demand clauses. Cash and cash equivalents were approximately US$367,000.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 2.76% to US$3.49 million. This was driven by a 29.2% increase in waste disposal services (up US$0.6 million), which offset a 39.1% decline in circular product sales (down US$0.5 million) due to lower base metal, copper, and nickel sales.
• Profitability Improvement: Net loss narrowed by 25.1% to US$471,000. Loss before tax improved by 45.3% to US$323,000.
• Cost Reductions:
  • Cost of Inventory: Decreased 80.8% to US$78,000, aligning with lower product sales volumes.
  • Logistics Costs: Decreased 66.6% to US$265,000, driven by reduced transportation and packaging costs for hazardous liquid waste (a temporary measure for safety compliance).
• Expense Increases:
  • Operating Expenses: Increased 38.7% to US$2.26 million, primarily due to a 64.3% rise in employee benefits (higher director fees and staff salaries) and a >100% increase in insurance expenses (D&O insurance post-business combination).
  • Other Income: Increased 49.1% to US$282,000, largely due to favorable foreign exchange gains of US$264,000.

Guidance, Outlook, Risks, and Unusual Items

Outlook and Capital Resources: Management believes existing cash and anticipated operating cash flows will meet working capital needs for at least the next 12 months. The Group raised US$2.5 million in April 2024 and US$5.0 million in August/September 2024 via share issuances. However, the Group may need to raise additional funds for future expansion or to settle professional fees related to the Business Combination.

Unusual Items:

• Listing Expenses: The full year 2023 included US$93.1 million in non-recurring listing expenses related to the SPAC business combination, which significantly distorted annual profitability but did not impact 2024 operating cash flows.
• Warrant Exercise: Warrants have an exercise price of $11.50, significantly higher than the market price ($1.35 as of Nov 2024), making exercise unlikely in the foreseeable future.

Risks and Contingencies:

• Liquidity Risk: Negative working capital and reliance on bank loans with demand clauses create liquidity pressure.
• Commodity Price Risk: Profitability from circular products is sensitive to market prices of zinc, precious metals, and base metals.
• Customer Concentration: As of June 30, 2024, 69.6% of trade receivables were from the three largest customers.
• Regulatory and Inflation: Operations are subject to Singapore government regulations on waste management and inflationary pressures on labor and operating costs.

Investor Verification Checklist

• Revenue Mix Sustainability: Verify if the decline in circular product sales (metals) is a temporary market fluctuation or a structural shift, given the 39% drop in this segment.
• Liquidity Position: Confirm the status of the US$5.7 million in bank borrowings classified as current liabilities and whether banks have exercised demand clauses.
• Customer Concentration: Assess the risk associated with nearly 70% of receivables being tied to just three customers.
• Capital Expenditure: Review the US$1.3 million in contracted capital expenditures and the US$654,000 spent on intangible assets in H1 2024 to ensure alignment with operational needs.
• Share Dilution: Monitor the impact of recent share issuances (10 million shares in H1 2024) on earnings per share and the potential for further dilution if additional capital is raised.