Ilika plc

Good afternoon and welcome to the IMICA PLC Results Investor Presentation. Throughout the recorded presentation, investors will be in listening mode. Questions are encouraged and they can be submitted at any time by the Q&A tab situated at the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself. However, the company can field the questions for today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand it over to CEO Graham Purdy. Good afternoon to you, sir.

Thank you very much for the introduction and many thanks to everybody that has elected to share the next 45 minutes or so with Jason and myself to have a run through ILICA's annual results covering the financial year that ended at the end of April this year. So many thanks and let's kick off. So apologies for those of you who have followed the company for quite some time now. The background to the company and our mission will be absolutely crystal clear to you, at least I hope it is. But however, there may be some new viewers and some new attendees who are not familiar with the story so far. So please bear with us. I will go through that at speed. and then we'll focus on some of the breaking news, some of the updates that are happening sort of in real time, really, as we give this presentation, and we'll deal with any questions at the end to mop up. So, first of all, Illica at a glance. We are entirely focused on the development of solid-state batteries, so that's what we'll be speaking about. We've got two product lines. First of all, our Stereax miniature batteries used primarily for active implantable medical devices and ultimately for wireless sensors or industrial IoT. And then on the other hand, we've got our Goliath large format cells, which are targeted at the automotive industry and cordless consumer appliances. So these two product lines have got, as you'll have seen, very diverse end markets, but are in very rapidly growing sectors. We have an asset light business model, which we'll go into in a bit more detail. And actually, our products are already proven on processes that, in particular for Goliath, have worked at the gigascale equipment scale. We've had a long track record in developing new products, and we have a patent portfolio of 78 patents now, and the company is ready for commercialization. And we are operating from an asset base which has been developed by Sustained Capital Investment with a combination of commercial funding, grant funding, and equity funding totaling $55 million. So the whole premise for Stereax batteries is that actually they save costs for surgical intervention for the medical devices for which they have been developed. We have a reduced surgery time. You're able to put the batteries close to the point of therapy. They've got a long life in the body and they're powerful enough to be able to power a Bluetooth radio chip, which is absolutely essential for transporting the information from the patient through to a device to be able to upload it so that the consultant surgeon can access it. For Goliath, it is a large format battery, which is of great interest to OEMs and tier ones in the automotive sector. And principally, the attraction is a lower production cost and a safety profile, excuse me, that allows all sorts of benefits that we'll go into in more detail as we go through the presentation. Big news for Cereax is that we've had equipment that's been commissioned at Certec and brought online. And in the second half, we've got lots to look forward to in terms of completion of the ongoing engineering lots of the Certec facility, and then commencement of product production. The M300 minimum viable product and validation of that product that will allow us to commence customer delivery towards the end of 2025. With Goliath, we've had scale-up validation at UKBIC, which is the partner manufacturing facility here in the UK, which is a national facility that we can access. And that has allowed us to demonstrate an industrially scaled process and validate that. And we've also had validation from third parties of our P1 prototypes that we've issued to customers for their testing. In the second half, we can look forward to a completion of a test program for our 10 ohm power P1.5s, which are five times larger than the P1 prototypes that we issued for customer validation this time last year in the summer. And we'll be releasing those prototypes for customer evaluation later on in half two. And then that will be a great segue into building and testing our 50 amp hour P2 prototypes and the release of them to customers at the end of the year. So how do we make money out of this? We have an asset light business model, which is a light licensing model demonstrated on industrially relevant Equipment, ILICA, you can see is at the center of that business model. And we generate IP that can be licensed either to manufacturing partners, so often tier one companies, or OEMs who will put their own brand on the integrated product and sell it to customers. And we often work together in particular with OEMs through grant support and engineering fees in order to develop the product. But ultimately, in return for transferring the IP, we receive license fees and royalties. And this, we believe, gives us a capital-efficient business model with a good return on investment and rapid industry adoption. So let's talk a bit about Cerex and some of the applications that we've got there. We have a range of very exciting new applications going from orthopedics all the way through to orthodontics. Orthopedics are applications like knee and hip replacements where you can put a sensor into the device that measures the movement of the replacement after the surgical intervention and helps the physiotherapist train and coach the patient for optimal recovery. Neuromodulation is all about putting stimuli into the peripheral nervous system in order to deal with pain, in particular chronic pain in the lower back, and offset pain signals. It can deal with involuntary muscle spasms that you might get from conditions like Parkinson's by offsetting those signals through the peripheral nervous system. And then SENSES is a more straightforward application. whereby you're often measuring things like blood pressure and oxygen concentration. You can put these tiny little sensors into critical parts of the cardiovascular system and give a trend of data which is enhanced relative to intermittent measurements that you might otherwise get in the hospital. Then we've got ophthalmic applications often related contact lenses. Of course, there's very few batteries that you would be able to use for this. You'd need to be able to implant the batteries into a contact lens. And you can then monitor all sorts of conditions by measuring signals in the tears on the surface of the eye, for instance. And then finally, orthodontic applications where you can put these batteries into liners and also mouth guards and, you know, monitor compliance as well as picking up biomarkers. So what do these batteries look like? There's a little photograph of the Stereax M300. This is a tiny little millimeter scale battery. with a standard lithium ion voltage and a capacity of 300 microamperes, very strong pulse current with a 10C charge rate, which basically means that you could charge the entire battery in six minutes, and a cycle life of over 1,000 cycles. The big, you know, attractive thing is a small footprint combined with it being ultra-thin and able to withstand these high-power applications, which is particularly important for Bluetooth chip data communications. But ultimately, it's about saving money, saving money because of reduced surgery time and the ability of the surgeon to go in there quickly and not have an extended use of an operating theater. So in terms of our partnership, you know, we've put in place this partnership with Certec Medical, which has been extremely successful. We have spent quite some time trying to identify the right type of partner for this, and Certec has a strategic focus on active implantable medical devices, which is just what we want. They are a contract manufacturing organization that has connections, very strong business development connections into all of the OEMs that we're interested in doing business with. And there's quite a substantial organization, as you can see here, with over 500 employees, so the resources required in order to implement our processes. We've made fantastic progress with them over the past year, with all of our user acceptance tests successfully concluded, engineering lots now being processed, and the batch production of our M300s expected to commence later on this calendar year. So that's going to start generating revenue for us in terms of wafer processing revenue, as well as the revenue that comes through from the licensing agreement based on profit share, and then in due course, royalties from revenues once commercial volumes are achieved. So we think that this relationship really gives us very strong industry validation, medical manufacturing at scale, and also, in fact, also the benefit of business development scale and access to customers. Certec are active in the sector, often appear at trade shows, and we're doing a lot of co-marketing with them in order to increase awareness of the availability of this solution. So Jason, over to you to talk a bit about how the revenues are going to stack up from this roll-up.

Yep, just talking briefly about how we expect revenues to build over a longer term period and probably... to pre-answer a question that I'm sure we'll get in the Q&A or have had in previous time. There are no numbers on the chart to give definitive numbers. We're tightly regulated as a listed company and therefore not able to give specific forward guidance on such a long-range looking forecast. So this is more used to give an indicative view of of how the revenues will build in terms of the different revenue streams rather than specific numbers, just because I know that's a question that we often get when showing similar charts. So in terms of the CERIAX product line, we envisage there being a number of different revenue streams coming through as that builds over time. while we've signed the contract with Certec and have transferred the majority of the equipment sent over to the US for them to utilize that in their manufacturing facility, we have actually retained the cathode deposition process here in the UK at our site down just outside of Southampton. And that is one of the most proprietary parts of the whole Steriax production process. So we've really done that for two reasons. One, it gives us good control of that IP in the early days of the relationship to make sure that we retain an element of control there over and above the contract and what control the contract gives us but also it was the most difficult part of the process to get correct so we didn't want to disturb that and potentially set back the timelines to getting back into producing product and product into the hands of customers. So we will continue to operate that as a traditional subcontractor in a manufacturing relationship. So Certec will give us a purchase order, we will produce for them, and we will receive payment for that. And we expect to see that starting in the second half of this year, so tangible income coming through that you'll be able to easily identify as we get to our half-year deadline. results or beyond through the calendar year and we expect to see that continuing on for a period of time although we eventually expect that as volume ramps up we will see Certec installing their own equipment set for the same production process in the US as demand outstrips our capacity here in the UK. Over and above that the medtech sector is very much driven by what's called non-recurring engineering or NRE and that's where customers look at a product that we've manufactured, like the M300, and say, we like that product. It's very close to what we need for our particular application in terms of cycling time, energy usage, storage, et cetera. But actually, we'd like something slightly different in form or function. And therefore, they'll pay engineering fees to us to develop a variant of the M300 to suit their particular needs. And that's something that Certec does today and earns many millions of dollars from that. And they've guided us to say as we get into production, we would expect to see that coming through. So that's very much guided to say you should be expecting and planning on this NRE activity to come through. On top of that then we have, sorry, the red section then is royalty income. As Graham said, in the short term, at lower volume, that's actually a profit share where we take the majority of the profit at agreed price points with Certec, and that's to make sure that we are recouping quickly some of the investment that we've made to this point on the back of our great investment from our shareholders. But then at the point that we get to a volume break, that switches over to a traditional royalty on revenue agreement, which is high single digits from the sale of each and every battery. And really, we would expect to see that low to start with as the sale of units will be used for electronic desk trials before then going into the approval processes for the various different types of products that Graham just talked through. And each of those have different timelines and different requirements, but we would expect to see hundreds of units per customer in the first instance, then moving on to low thousands into tens of thousands as they go through that approval process before really taking off in a sort of hockey stick of demand going through. And then finally on the bottom, we've got additional license fees. We didn't receive a license fee when we entered into the Royal V contract with Certi, and that was because we were taking the opportunity to save a significant many million pound cost to the business by transferring that at an early stage. But we have preserved the right within the contract for additional licenses to be issued either outside the field of medical technology. So there is a secondary market for the Cereax battery in industrial Internet of Things. all with very high volume applications that may still be in the field of Medtech if Certec is unwilling to scale the capital because they are the ones required to deploy additional capital for machinery as demand grows. But if they're not willing to scale at the speed that we need them to for customer demand, then we have the right and ability to go and issue additional licenses to make sure that we don't lose that opportunity and we can maximize the volume of Certex products going out into the market. So hopefully that gives a guide as to how we expect those layers to build up. Thanks, Jason.