Ilika plc

Good afternoon, ladies and gentlemen, and welcome to the ILICA Final Results Investor Presentation. Throughout this presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Just please simply type in your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so, These will be available via your Invest and Meet company dashboard and you'll be sent an email to notify you when they're ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll. And if you could give that to your very kind attention, I'm sure we'd be most grateful. And I'd now like to hand over to Steve Boydell, CFO and Graham Purdy, CEO from Illica. Good afternoon to you both.

Afternoon, Mark. Good afternoon. Many thanks for the introduction and many thanks to everyone for having joined this particular webcast. Delighted to have you with us. We're going to talk about our full year results to the end of April 2021. So business overview. Illica is one of the few independent global experts in solid state batteries. You see a picture of our Steriax miniature thin film batteries on the top right of this slide. And in the bottom left you see a picture of Goliath pouch cells that are suitable for EVs and consumer appliances. Steriac cells have been particularly designed for medtech applications and also industrial IoT or wireless sensors. The large format Goliath pouch cells are particularly useful for consumer appliances and also ultimately what will be the biggest market for lithium ion cells, the electric vehicle market. So why are people interested in solid state batteries? If you've been reading about the sector, you can hardly have missed a lot of the interesting news flow around this technology. Well, first of all, they're ultra compact. So they occupy about half the volume of a standard lithium ion cell. And this enables a smaller pack design. So if you had an EV battery, that had the same weight of solid-state batteries in as a normal EV pack, you would be able to have twice the range. They're also tolerant of higher temperatures. So a normal lithium-ion cell will go up to about 60 degrees C, whereas a solid-state cell will tolerate up to 150. And this is really useful not only for industrial markets, where the cell might be close to a particularly high temperature and could be damaged otherwise. But also it allows the designers of electric vehicle battery packs to reduce the amount of parasitic weight associated with the cooling system that would normally keep a lithium ion cell within its normal operating range. So most EV pack designs at the minute have got quite an extensive cooling system with cooling fluid, pumps, heat exchanger to keep it all within the operating range. But if you can go to 150, you've got the discretion to reduce the size of that cooling system. then thirdly they're very fast charging so they'll charge six times faster than a normal lithium ion cell so if your normal battery pack would charge in an hour then with solid state you can charge in 10 minutes the other aspect that's becoming increasingly important is the environmental considerations so currently we don't actually as a society recycle very many batteries about five percent of batteries are recycled and this is probably due to the fact it's quite expensive to do so so they contain a liquid electrolyte which is toxic and that has to be drained away uh before the battery can be stripped of its valuable components It can't be chucked into a landfill and it also can't be put in an incinerator because the cell would burn too intensely and damage the incinerator tubes. So with solid-state batteries, you know, you haven't got that toxic and flammable liquid electrolytes, so there's no risk of explosion. And you can also use process technologies that are actually common to, say, the mineral extraction industry or the mining industry. So effectively, once you've removed the outer packaging of the cells, they can be reduced to a powder and then you can put them through standard processes like co-precipitation in which you can extract the metals and put them back into the supply chain. So how do we make money out of batteries? Well, ILICA's Stereax business model is shown in this slide here. We've been manufacturing and selling batteries from our pilot line for a few years now. Our Stereax cells are made on wafers. They're made on glass wafers. We actually carry out the wafer fabrication at our facility here in Southampton in the UK. We actually outsource the thinning and dicing of the wafers They come back in and we stack them into batteries and then form them and test them before sending them out to customers. We're on the cusp of moving into a new manufacturing facility, and I'll come back to that in a moment. Last year, we had a very successful placing in which we raised 15 million pounds gross that allowed us to build our own fab facility. and in that we will be continuing to fabricate wafers, although on a larger scale, so we'll be able to access 70 times the capacity that we currently have with our pilot line. We will continue to use the supply chain, so we'll outsource the wafers for thinning and dicing, but we will form and test these cells before sending them out to customers. But we're not going to continue to build Actually, the plan for the company is that we license the technology into the larger markets. So once we've exhausted the capacity of our own manufacturing facility, the plan is that we will make the technology available for third party organizations to access it. So in terms of the Stereax implementation, I hope very soon that we'll be able to organize an investor visit to come down to our facility so that we can showcase it in the same way that we showcased our Goliath pre-pilot line back in December of 2019. But if you were to come down and visit it tomorrow morning with me, we'd have a look around and you'd see that the clean room itself substantially complete and by that I mean that the walls and ceilings and windows and doors are all in place and that the specialty gases have been routed to the expected site of the equipment items the air conditioning units are installed so we've got humidity control and also particle control and and the rest of the utility infrastructure is in place. We've got a great team that's being led by Paul Maron, our Tech Transfer and Manufacturing Director. He's drafted in what we sometimes refer to as the Scottish Mafia, which are often people who have actually had their industrial training as part of Silicon Glen, where there was a lot of semiconductor investment in the 1990s. Well, that expertise is still available and we've deployed some fantastic guys in the team there to make sure that we've got the right industrial experience to execute on our plants. The key tools, tool one and tool two, are actually going through their factor acceptance tests at the minute. Tool 1 across in California and Tool 2 in Switzerland. We've actually been monitoring those factory acceptance tests using VideoLink and have been reassured about the performance of those tools prior to them being created and then sent across to the UK, which will probably be in the next couple of weeks for hookup and commissioning. will stabilize the process throughout the remainder of the summer with a view to starting qualification in Q4. By that I mean process stabilization followed by making the first batches of batteries for testing. And then we expect that product sales of the initial batches will start in Q2 of 2022. So Steve reliably informs me that we've invested about two and a half of the four million total capex spend on the FAB implementation. The remainder will be spent on further tool and equipment sets as we ramp up throughout next year. Of course, the other side of the equation is that we need to balance that investment with adequate commercial progress, been continuing to sell evaluation samples to customers that we can supply from our pilot line while all of this construction has been going on. So we've given 16 customers samples from the line. And of course, we've extended our commercial reach. We've entered into nearly 50 NDAs with organizations, but equally split actually between industrial internet things and MedTech. We expect the front end sales to come from industrial IoT and then the back end from MedTech. And what I mean by that actually is that it takes a few years for the MedTech accounts and applications to go through their qualification and approval ready for commercial sales. So while we are supplying smaller quantities of batteries to the MedTech industry, the wireless industrial sensors will be the initial customers. And what's been great actually is we've qualified those opportunities and talked to the customers about the size of the markets. you know, the quantity of cells that they're likely to need in the forthcoming years. We've seen that some of them actually in their own right would overutilize the three and a half thousand wafer capacity that we've got at our facility. That's great. We expected that to happen and that will create demand for those licenses that we were talking about in our business model. So in terms of the application areas in industrial IoT, two broad opportunities. One is around wafer sensing and this is calibration of processes in the semiconductor industry and MEMS industry. You know, that industry is going through a massive boom at the moment. Actually, there are supply chain restrictions and you'll have read about the shortages of chips for all sorts of applications that have been brought about by extraordinary demand for people wanting to use the appliances that these chips are built into. So wafer sensing is all about calibrating the processes so that you increase the yield in those semiconductor fabs. Make sure you get as much productivity as is possible from them and that is fantastic when the demand is as strong as it is right now. And then you've got condition monitoring. So we've done a field trial with a wind turbine manufacturer and also actually with Network Rail on infrastructure looking at tracks And in addition to that, there are opportunities around process equipment in chemical plants, power stations, refineries, applications like this where the batteries are exposed to elevated temperature. And then on the miniature medical implants, you know, this is a really fantastic revolution, really, that's sweeping through the health care industry. where manufacturers of implants are looking to move from a passive, largely mechanical design for their products all the way through to more smart, data-rich products where the patient gets a much better service from the device that they're fitted with so in orthopedics things like knee implants and hip replacements where you can put in tracker devices that allow the surgeon to give advice to the patient on how they're doing with the physiotherapy that comes after the surgical intervention and a big part of the success of of those types of replacements is actually driven by the post-operative physiotherapy. So being able to track that for the months that follow the surgery is really important. Then nerve stimulation as a replacement for chemical-based painkillers, so as a replacement for the sort of pain relief that people might be prescribed. Sometimes people refer to this as electrocyticals. as opposed to pharmaceuticals. And then sensors for blood pressure monitoring and ophthalmic applications where you put tiny batteries on smart lenses. And of course, it has to be a miniature thin film battery to get a smart lens to work. So that's Stereax. Let's change gear a little bit and talk about Goliath. I think the last six months have seen unprecedented enthusiasm really for the EV revolution and predictions for the quantity of EVs that are going to be on the road in the coming years are stronger than ever. We're seeing substantial growth expected in the sales of EVs. Not only that, actually, but solid state batteries are seen as a technology which is the natural successor to lithium ion cells. On the bottom left here, there's a forecast from James Frith's Bloomberg report on solid state technology that he published a few months ago. And he is predicting by the end of this forecast period, that solid state batteries as shown in green will be just as widely used as traditional lithium ion cells as shown in blue. So the sum total of that production is red from the scale on the right hand side. And then there's another data set actually on this plot too, which is the cost point for solid state. Actually, that's the red line, traditional lithium ion cells in the light blue. And you can see that actually, although in the early rollout of solid state, that there will be a price premium for solid state associated really with the smaller volume of manufacture of those batteries. Ultimately, by the end of the forecast period, you get price parity and solid state will become more the most attractively priced, lowest price alternative for users of cell packs. So there are a number of players, of course, active in this landscape. So the question is, you know, what's different about what Illica is doing with Goliath? Well, we're the only company that's actually addressing this problem from the perspective of having functioning, well-defined miniature cells. Most of the other players have come at it from the traditional lithium-ion starting point and trying to turn that into a solid version of a lithium-ion cell. But from Steriax, we've learned how to deploy a silicon anode successfully. We know how to manage energy. interface resistances, where perhaps one of the organizations has been working the longest in solid state batteries, having worked for 10 years on solid oxide electrolytes. And we know how to design these composite structures that make up solid state batteries. And also, actually, we've demonstrated that we can successfully scale manufacturing processes, having started with a pilot line for STERIACs and now moving into a facility for mass production of that. And of course, we've retained the flexibility to use best in class cathode materials because that market is moving quite quickly. There's lots of innovation ongoing with high nickel compositions for cathodes and high voltage cathodes. And it's important, actually, that we can make sure that our battery structures are compatible as with these different chemistries as we move forward. So we've shown some pretty strong technical progress over the last year with Goliath. Having finished the construction of our pre-pilot plant here in Romsey in record time back in 2019, we put that to good use and we started building composite A6 battery structures, showed that we could cycle them successfully. and also that we can get a decent conversion efficiency in those cells. We also this year have focused on making sure that our baseline manufacturing process is reproducible, and now we've been able to increase the number of cycles without failure to over 500, and this is expected to increase steadily as this year progresses. In fact, our cycles aren't limited by cell failure at 500. They're continuing to cycle. It's just it takes quite some time for us to be able to generate that data given the rate of cycling. So what does the future look like? Well, we've got about another 18 months of process and technology development ahead of us for the automotive sector. That will allow us to then make cells available for module pack and BMS integration, BMS being the battery management system. And then, of course, in the automotive sector, they use these so-called mules, which are prototype vehicles, which are then driven around the Nuremberg room at speeds to demonstrate that the packs deliver the performance in an automotive cycle that's required. low volume production and then higher batch production of the vehicles before they're fully tested and validated and then we flip into total or Gigafactory manufacturing and you can see at the bottom there how we have a series of generations of consumer cells and automotive cells as we go through our technology development curve with the associated steady improvement in energy capacity, so performance and power performance. And in terms of the scale up of manufacturing, what we plan to do is Until now, we've been working with our partners in the Innovate UK Faraday Battery Challenge funded programs. So Honda, McLaren and Jaguar Land Rover sharing samples and data with them. There is a need, though, to increase the capacity of that facility. And we plan to do that by increasing it a factor of 10 through automation and higher throughput equipment. We just recently announced a collaboration with Comau, which is the automation part of the Fiat group. They've got lots of expertise in factory automation and cell production facilities, so cell manufacturing. And they will help us do that increase in automation, but also get us ready for the deployment of the technology at a mega factory scale. So not a gigafactory, but a megafactory. And that will be at a facility that is similar to the UK Battery Industrialization Center. We have a framework agreement in place with them. And at that point, we'll have reached manufacturing readiness and be ready to transfer into that facility. Once we've started producing cells at a commercial scale and a commercial rate at that facility, We will then flip into a licensing model and transfer the technology to a manufacturing partner for production at gigascale. We think that the initial markets that we'll address will actually be in consumer appliances. I mean, it's very attractive to be able to think that we'll be showcasing technology in performance vehicles made by some of the performance car manufacturers. But ultimately, in order to generate significant revenues, we expect actually that we'll also be producing consumer cells, which frankly fetch a higher price on a dollar per kilowatt hour basis. and therefore also actually a higher margin. We've had some great interactions with companies from the health and beauty sector, so there you see some hair straighteners that are fitted with our solid-state cells, e-cigarettes, also power tools and cameras, which are some of the biggest markets for consumer appliances right now. Also, those medical sectors that need batteries that are bigger than STERI-X is able to fulfill. So these are our annual results and so I'm gonna hand over to Steve now and he is gonna talk you through the headline numbers.

Thank you Graham. Yeah, we released our annual results this morning by a regulatory news service at 7 a.m. So I've tried to distill the sort of 50 pages that were released there down to two pages of highlights. The first is turnover, 2.3 million this year relative to 2.8 million last year. Now that decreases partially down to an impact from COVID. Some of our grant programmes have been extended so that they've carried forward into this financial year. And we also had an effect of a pilot line shutdown from the University of Southampton where we have some facilities. That closed in March last year and into June, so the front end of our pilot line sales were impacted by that. There's also another factor is that as Stereax technology has now matured beyond the R&D funding that historically we've been able to achieve, that's meant that there's less grant revenue available for that. So the grant revenue that we had is largely associated with the Goliath format of sales. So we've got three large programs running, one called Power Drive Line, one called Moses, and one called Granite. And each of those, as I say, was extended into this financial year. We're still investing heavily in the technology, and that's resulted in an increased loss for the year. Some of that's down to an increase in a share-based payment charge, which is actually added back when going through reserves, and the other is another non- continue to invest in the facilities. So the overall EBITDA loss was a slight increase to 2.3 million from 2.1 million last year. We, as Graham mentioned, raised money for the manufacturing facility for Steriax last year. That resulted in an increased number of shares, so the average loss per share is actually down from 2.9 pence per share last year to 2.5 pence per share this year. And we still retain a lot of the cash that we raised at that point on the balance sheet. So we had about just under 10 million at the period end. In the next slide, I'll just give a quick overview of how that cash has been spent. So we started the year with 15 million, which was largely associated with that fundraise last year. We've invested in facilities and in development costs of about 2.8 million. There's the operating cash outflow, which has remained relatively constant over the years, about 2 to 2.5 million, so 2.3 this year. A small working capital movement, which is offset by R&D tax credits. We're still eligible for receiving those, and in fact, with the development expenditure that we've got, it's likely that will increase slightly in this financial year. And that's the analysis of the cash.