Algae for lunch? This is why I’m banking on it

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Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

If you hear the word “algae”, you probably think of slimy green sludge – the last thing you’d dream of having on your dinner plate.

So, you can guess my apprehension when last week in Rotterdam I was offered to sprinkle different strands of algae over my food.

I should explain I was there to visit the Firglas Ltd EIS plant, which plans to produce algae on a commercial scale.

It was a revealing day. When I arrived in Rotterdam I was seriously interested in the opportunity. I left with a resolve to invest.

Why? After spending the whole day with Fredrik and Peter, the key people behind Firglas Ltd, I understood the huge – and, so far, largely untapped – potential for microalgae.

Alex Davies at Firglas's plant

With Peter van den Dorpel at the Firglas Ltd plant near Rotterdam.

A huge and, so far, untapped potential

Algae are a nutrition powerhouse. The main appeal is they can contain up to 65% protein – three times as much as beef – as well as other essential nutrients. In addition, unlike other sources of protein, they do not require freshwater or arable land to grow so can be produced sustainably.

This could be immensely valuable and important, both as a profitable source of food and for public health.

By 2050 the world population is estimated to consume two-thirds more protein than we do today. Alternative protein sources will need to pick up some the slack of slowing meat and seafood growth, and claim as much as 33% of total protein consumption.

Indeed, food giants from Nestlé to Danone, as well as investors such as Bill Gates and Richard Branson, are backing alternative protein projects.

Now algae make great fish feed. Typically, fish farms feed fish with fishmeal. Algae-based fish feed provides a more sustainable alternative. It is also estimated to be 60% to 70% cheaper to produce.

It is difficult to get reliable figures on the size of the markets that can be addressed by microalgae. The former CEO of Heliae Technology Holdings, a company commercialising algae production and part-funded by the Mars family, puts it in the trillions of pounds. What we do know is that $42 billion a year is spent on fish feed alone.

Where’s the catch?

Traditionally algae have been grown at smaller scale for much higher-value markets such as pharmaceuticals and cosmetics. Firglas is looking to scale up production volumes and reduce the unit cost in order to address a larger share of the existing fish feed and food supplement markets.

Technology has moved on over the past 15 years. There are now at least 20 microalgae systems of one hectare or more around the world in Hawaii, New Mexico, Israel, China, Germany, Japan, Morocco.

Over the last five years, Firglas has been trialling a system in the Netherlands and has evaluated many other platforms. Now it has reached the point where its trial system can be rolled out and production scaled up.

The design is proven, as is the yield from reactor volume and surface area which Firglas is projecting. There is some execution risk to scale and operate the larger plant but the company is deliberately not testing any fundamental design changes at this stage.

The plan is to build one facility in the Netherlands next to the test site and another in Almeria, Spain to harness ideal growing conditions.

Initially, Firglas will focus primarily on the fish feed market as well as servicing the existing higher-margin food supplement ingredient market.

The potential reward for experienced EIS investors

The business has been set up by cleantech entrepreneur Fredrik Adams.

Fredrik perceives a very scalable platform opportunity – the first two sites are just the beginning, not a one-off project.

Firglas is projecting a 1.7x return (2.3x including tax relief) after three years based on cash flow although this is not guaranteed.

For investors who plan to remain invested longer term, returns could be far higher. The aim is to participate in building a billion US$ industry over time.

And Fredrik has so far invested £1 million of his own money into the company, so has significant motivation to make Firglas successful.

Regular share allotments

Firglas Ltd EIS is planning regular share allotments – you can see when the next deadline is on the Firglas Ltd EIS page. You can apply online in minutes.

Why is the share allotment date important?

The date your shares are allotted determines the investment date for tax purposes. It is only after the allotment that EIS3 certificates are issued – and you’ll need those to claim the tax relief.

So, if your shares are allotted next week, you should be able to receive the EIS3 certificates in good time to claim the tax relief on your next tax return.

It can also be important if you are looking to defer capital gains from previous years. When you invest in EIS you can potentially defer capital gains from other investments: you can do this for disposals up to 36 months before the EIS allotment date, even if you have already paid the tax. When you elect to defer the gain, you can then claim back the tax. Remember tax rules can change and tax benefits depend on circumstances.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

Firglas Ltd EIS

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