Ilika plc

Good afternoon, ladies and gentlemen. Welcome to the ILICA PLC Final Results Investor presentation. Throughout this recorded presentation, attendees will be in listen-only mode. Questions are encouraged. You can be submitted at any time using the Q&A tab on the right-hand corner of your screen. Simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so. As usual, we'd like to submit the following poll. If you've got your kind attention, I'm sure the company would be most grateful. I'd now like to hand over to CEO Graham Petty. Good afternoon.

Hi, good afternoon and a very warm welcome to everybody who's online and has chosen to spend the next hour or so with us listening to our annual results presentation. I'm joined here by Jason Stewart, our CFO, and my name is Graham Purdy. I'm the CEO of Hillica. Good afternoon, everyone. So for those of you in any doubt, Illica is a pioneer in solid-state batteries. We have two product lines. On the one hand, we have our STERIACs, miniature cells that are primarily used to power miniature medical devices and industrial sensors, sometimes referred to as industrial IoT. And then on the other hand, we have our Goliath large format cells, which are large enough when put together in a pack to power an EV. And the same chemistry can also be applied to cordless consumer appliances. So Jason and myself will be presenting these slides. Here's the profile of not only us but the rest of our board and some of our senior management. I'm not gonna go through our CVs today because actually you can refer to them on our website where there's lots of detail on our background and profiles. So first of all, let's start with a quick overview of the Illica business model. We have an asset light business model demonstrating our capabilities on production intent equipment. So the way that that works is that we develop our batteries together with OEM partners. So they're branded manufacturers who sell the products to their customers. and in the early days of our product development we have grant support usually from government bodies as well as engineering fees from those partners we share data and prototypes with them and actually only last week we announced some further shipments of goliath prototypes that we'd shared with partners And then ultimately the goal is that they take a license to our technology and in return we transfer the IP around the products and the process. And of course an example of that is a deal that we've done with Certec that we'll come back to that later in the presentation. And then they either manufacture the product themselves or work together with manufacturing partners, so tier one suppliers from their supply chain, to be able to provide batteries as part of their offering to their customer base. So what this does, it actually avoids the need for us to build large factories to manufacture our batteries. We feel that we're experts in the development of not only products but also process, but that actually the expertise required for large-scale manufacturing is typically better embedded in our large OEM partners and their supply chain. So we believe that we've got a compelling investment case built around these five pillars. First of all, we have a strong patented portfolio of technology in global jurisdictions and only here in Europe, but also in Asia and the US. We believe also that this asset light business model has a strong return on investment without the need for substantial capital investment. But having said that, we do have an in-house purpose-built fabrication capability that can demonstrate our process and give licensees comfort that when they take a license to our IP, that they are getting a robust product design and process for manufacturing it. Our licensing and royalty agreement with Certec is set to deliver an economy of scale and the ability to ramp production of Steriax batteries, so we're well on the road to commercialization there. And with respect to our Goliath batteries, we've now shipped our first batch of prototypes to an automotive customer. And of course, we're engaged with a wider portfolio of OEMs and tier ones in commercially sponsored evaluation trials. So let's go into the two different product lines and talk about not only technology progress, but also where we are with commercialization and our plans for the future. Let's start with Steriax and some trends in global healthcare. So unfortunately, we are seeing an international crisis in obesity, which is leading to increasing concerns about the health and welfare of the world's population. Here in the UK, one in four adults are living with chronic pain and therefore need pain relief on a long-term basis. And in many parts of the developed world, we have a steadily aging demographic, an aging population, which is putting pressure on the healthcare providers. So part of the solutions that are being developed to be able to cope with these trends is the use of smart electronic AIMDs or active implantable medical devices. And they can help address a lot of the issues that these trends in healthcare are creating. So when you have an AIMD, you need something to power it. And today the battery is actually the largest component Often current medical devices use a primary cell. And I don't know if you've ever seen someone with one of these batteries fitted, but they're generally put into the chest or buttocks and they can be pretty uncomfortable actually for the person wearing them. So our suggestion is that we have a small rechargeable cell with a steady power supply to these applications and a long cycle count, i.e. a long lifetime so that the cell can remain implanted in the patient for the duration of the therapy. So STERI-X technology is seen as a bit of a game changer in this medical implant industry. First of all, because of its small footprint, it offers a reduced surgery time. It can also be located close to the point of therapy, so it means you don't have long cables from the power source to the device. Because it's got a long cycle life, it can spend a long time in the body and the user can recharge it at home. We often get asked actually, you know, how long does this last between recharges? But not really because of the limits to the technology, but more because it often makes sense to people to do a daily recharge, right? We're all used to having a daily recharge of our mobile phones. we have a daily routine where a collar or cuff is put around the site of the implant and it's recharged for duty. And the other attraction of Stereax batteries is that they're able to power a Bluetooth communication chip, a radio chip, to be able to upload data onto something like a mobile phone so that that data can then be relayed to the physician who is supporting the patient. So the big advantages of our Steriax solid state batteries relative to existing lithium ion batteries are around the ultra thin nature of our batteries, making them easier to integrate into devices. The fact that they've got this high discharge power And perhaps not so much in medical devices, more so in industrial IoT. You've got this high temperature tolerance of a solid state battery, which means that they can be deployed in locations that normal lithium ion batteries wouldn't tolerate. So the markets are really exciting, actually. They cover probably five principal areas, and there are different applications within these sectors. We often talk about neuromodulation, which is where these batteries power devices that stimulate, usually in the case of Stereax, the peripheral nervous system, and that can help with chronic pain relief. Also implanted sensors. which is a big market, but there is a trend towards wanting to ensure that sensors can pick up data on an almost continuous basis rather than relying, say, on quarterly hospital visits. Then orthopedics, and this is where our Sterex batteries are integrated into replacement joints, such as hip, knee, and shoulder joints, and they can give a lot of information that is useful then to patients who are going through physiotherapy. Ophthalmic applications where these batteries can actually power contact lenses, so smart contact lenses, And also there's an AR VR play here. There's some very well-funded organizations that are looking at reducing the size of the AR VR headsets and reducing that technology to contact lens size so that it becomes less bulky. And of course, a really thin stereax battery arranged in a mosaic around the perimeter of a contact lens is a good way to power them. Then orthodontic applications, whereby stereax cells are integrated into aligners and can be used to not only monitor the use of aligners, but also pick up information on the chemical composition of saliva. So this is what the Stereax batteries look like in terms of their size. You can see them, they're pictured in the middle alongside some standard tablets, some medicine, and you can see how small they are. That's our M300, which is our minimum viable product. It's a little rechargeable battery with a standard lithium ion voltage of three and a half volts and a capacity of 300 microamper hours. So we kicked off our last financial year, so the year that we're reporting on in this presentation, with an agreement with Certec in order to partner Steriax manufacturing. We believe that actually this validates the Steriax product and the process that we use for manufacturing it. We believe that our shareholders benefit from Certec's ability to manufacture the technology at scale. They've got a very sophisticated facility at Lowell in Massachusetts where they already make thin film devices and they have the medical accreditations to be able to deliver the product. They've also got a very skilled and much larger business development team, and therefore that partnership gives a look at access to trade shows, conferences, and a sales and marketing resource that is capable of turbocharging what we're doing. um we've got a very close alignment if you ever see ascetic medical presentation then they'll often talk about exactly the same applications that we've just been discussing uh in the application slide that we covered and um also they've got a you know a technology platform that they've developed already the neurostimulation that integrates our stereax batteries uh into a technology that is closer to a full solution that the OEMs might be looking for. So not just a component manufacturer, they've also got aligned and value-add technologies that are very complementary to our offering. And there on the right hand side, you see a picture actually that's taken in the CERTEC facility in Massachusetts. It looks a sort of sepia color because it is of course a yellow room. We use a microfabrication process in order to make these batteries and therefore the materials are sensitive to normal light and therefore you have to use a yellow room environment. And actually those two guys are standing in front of one of our sputtering machines, which is used for putting down some of the active materials in the batteries. There's not much to see, it looks a bit like a closed cupboard, but actually that system opens up and you can access the internal deposition through that interface there. That equipment, the equipment set required to manufacture Stereax batteries is now substantially installed. So at the end of last year, we crated up that equipment and we shipped it across to the US. It's now been largely plumbed in and we are shortly going to give an update on the remaining equipment. user acceptance tests so that we'll be ready to start running our engineering lots and what we mean by that are wafers of batteries that are put through the whole process really to test the quality of the system and make sure we're getting the right product at the individual process steps That will continue towards the end of the year and then we'll actually start our first product runs towards the end of 2024 with a view to recommencing the supply of batteries to customers through the Certec facility in 2025. In terms of the order pipeline that we've got, it is fairly US centric. So three quarters of our current hopper is based in the US and about a quarter of our inquiries are from Europe. We're interacting with about 21 companies, and we've got 24 orders for initial offtake from the production that will come from Certec. And you can see the distribution of those orders on the right-hand side here with neurostimulation being the first column and implanted sensors being equally large, both of those accounting for about 20% of the pipeline. and then other orders covering ophthalmics and orthodontics and orthopedics, as well as some others for industrial IoT. So, Jason, do you want to say a few words about what we can expect in terms of a revenue growth profile for Steriax. You know, we're all keen to know how we're going to make some money from this technology. So over to you, Jason.

Thank you, Graham. So we have shown this revenue bill before for those that have followed the company for a while. And really, this is to help give some guidance as to how the income from Steriax will start to develop as we move forward through the commercialization that we've now enacted with that Certec contract. So really, there are a number of different layers to how we expect the revenue to build through. And partially that's driven by the fact that because these are targeted towards medical devices, there is definitely a certification process that they have to go through within the US or anywhere else. And that depends on the category of. device that is whether that's wearable or implantable takes a different amount of time to come to market but that doesn't mean that revenue will not start to flow until they're fully approved revenue will start from next year so we have as Graham has said transferred the majority of the machine set over to Certec to set up the production process But we have actually retained one of the key pieces of equipment sets over here in the UK. And really, that's for two reasons. Firstly, that was the most proprietary piece of equipment. So that really is, for want of a better description, the secret sauce covered by patents and IP. But actually, by holding that in the early days of the relationship, it makes sure that we keep control of that. And the secondary part is that that was the most difficult part of the process because it is a unique machine set and process that we have developed to get right. And therefore, we didn't want to disrupt that in any way and to cause any delays in the deployment and recommencement of the production process. So we've retained that and we will actually process wafers as part of the manufacturing process as a subcontractor to Certec during the early years of the ramp up. And that can be seen on the graph as that blue section across the bottom. So that will commence when we recommence production for the lots of batteries for onward sale. And that will be towards the end of the financial year that we are currently in. So ending April 2025 and then go on and build as we go through. Ultimately, that will tail off in a number of years, as we expect. As capacity grows, Certec will install their own equipment set across in the US to take on the higher demand that comes with that. Building on top of that, you can see an orange section of income, and that really is derived from non-recurring engineering. So within the med tech space, there is a very large theme of the end consumers, the branded companies wanting to work with the component manufacturers such as ourselves to either certify our batteries for their application or to develop a bespoke set out for their particular therapy needs. And working with Certec who operate in this space already and who drive a significant amount of income themselves from that NRE income stream, we've been able to be guided to say what that looks like for anywhere from the hundreds of thousands for just certification of our batteries in an existing process, all the way up into the low millions for a brand new development for a specific application. Building on top of that, we expect the delivery of batteries to commence in the midpoint of next year. And although we expect that to be low volumes to start with due to the nature of the lab-based trials, preclinical trials, clinical trials as they build through, we do expect that we'll start to arrive revenue from that. And under the terms of the contract, that's a profit share to Illica in the initial part. the vast majority of that income goes to Illica. Then as volume increases and we get to a volume break point, flipping into just the traditional royalty fee that we will receive as the volumes really take off. And you can see that growing through quite exponentially. And then the final part of our expected revenue build from the Steriax is in further licensing opportunities. So Graham did touch on earlier that there are secondary market applications in the industrial Internet of Things, the IIoT market, that will open up as we start to see the Steriax batteries produced at a lower price point. That only really comes with volume, so that opens up over time. But also we have the ability under the terms of the contract that we've entered into that if there are significant volume applications available and Certec do not wish to follow those, we have the ability to issue additional licenses and get a licensee for that to make sure that we are maximizing that market opportunity and not missing out on any sales that may come because of the speed of industrialization that Steriax would happen at the Certec facility. So that really hopefully gives you a guide as to how that builds with revenue starting in the next calendar year and then building as we go forward.