Impact Coatings AB (publ)

Good morning and welcome to today's webcast presentation where we have Impact Coatings presenting the Q1 report for 2024. With us presenting we have Jonas Nilsson, the CEO, and Bengt Wernersson, the CFO. We'll do a Q&A after the presentation. You can either type in your question using the form that is located to the right, or if you're calling in and would like to ask a question, please press star nine to raise your hand and star six to unmute. We will then announce if it's your turn by saying the last four digits of your phone number. And with that said, please go ahead with your presentation.

Thank you. So welcome to this presentation of the interim report for quarter one 2024. And looking at the agenda for today, we will start with business highlights, then financial update, focus on 2024. And we will end with a q&a session. So at previous presentations, I have talked about our change from building to order and to instead build to forecast. And by that, shorten lead time, increase margins, and sell more. Today, instead, we start with technology. And the key question is, why do customers in our focused markets, hydrogen and metalization, choose impact coatings. And to put that question into context, in Q4 last year, we got six new paying customers. And in this quarter, Q1 2024, we got seven new paying customers. And now in the beginning of Q2, we just sent out a press release that we received approval for volume production with coating services using our new premium FC coating. And that is for heavy duty fuel cell vehicles to one of our new customers in China. So we have technology combined with a business model that put the customer in the center that makes it easy to go from buying the first sample coatings to invest in own machines. And that is because we use the same type of machines for making samples in our coating service centers as we later deliver to customers. So therefore the qualification process is quick and smooth with a seamless transition from initial sampling to volume production. And maybe everyone talks about putting the customer in the center. So I will explain a bit more what we mean. We have advanced technology that sometimes is hard to explain, but regardless, It should be easy to buy from us and the threshold should be low for the customer. Even a customer that has zero experience of coatings should be able to go to mass production with our help. And the first step in the customer journey is to test. It's important that it's easy to test. So here our coating service offer is crucial to sell samples to the customer for trial and error. For example, a customer that has not got an exact specification, for example, of the desired thickness of the coating, can buy samples with different thicknesses, get advice from us and test in their application. Next step is to order coating services for initial volumes and when the volumes increase, the customer can buy their own machine. But if they are lacking experience with operating PVD machines, the customer can use managed services during a transition period and then buy the machine. For fuel cells, we have started building our smorgasbord of coatings, Premium FC and Ceramic Max Face that have both been qualified at major tier ones in the automotive industry as examples of that. And having qualified coatings makes Impact Coatings a safe choice for plate manufacturers who wish to offer coated plates to their customers. Yesterday night, I came home from Germany, where I have visited a hydrogen and fuel cell fair in Hanover. And I talked to a lot of customers and potential customers. And I would say that the market trend is that the plate manufacturers have to offer coated and welded plates, which means that they either have to go for coating services or invest in coating machines, which is, of course, good for us. So going back to qualified, that is a term used in automotive industry, which means that a carmaker or a tier one supplier to a carmaker has approved a certain technology. That's why it's important for us. As you see on the slide, our machine is fairly small and flat. This makes the machine suitable for noble metal coatings used for electrolysers. Because when you coat with golden platinum, you don't only get the noble metals on the plate, you get it also in the chamber of the machine. So the smaller the machine is, the easier to recover and recycle the metals. We have good efficiency in noble metal use and we offer a production ready solution for electrolysis coatings as a service. This is why many of the new customers that I mentioned come to us. When it comes to metalization of plastic, it is a benefit to place the coater close to the plastic molding machine. And a plastic molding machine runs at a certain tact or certain pace. In contrast to batch coaters, which coats a large batch during a long time, our machine with a load lock and three coating chambers arranged in a circle can be... adjusted to run at the same tact as the plastic molding machine so you get everything in one production line. That is why we call our machine inline coulter. Now I have only talked about why customers choose impact coatings. So maybe you wonder, isn't there any technical smartness to disclose? Well, the major technical smartness is the arrangement of four small chambers in a circle around one single vacuum pump. That is the enabler for the things that make customers use our machines and coatings. For example, our new premium fuel cell coating. It is a multi-layer coating using the full potential of the multiple chambers in the machine. So let's leave the technology where we put the vacuum pump in the center and talk about the business model where we put the customer in the center. Many of our new customers tell us they appreciate that they can start with coating services and then switch to their own machines. It's not a completely unique business model, but many of our competitors do not offer this, at least not close to the customers as we do. And talking about putting the customer in the center, delivery time is important for many customers. So customers want shorter delivery times, but there are also other reasons to reduce delivery time. You cannot deliver a second machine before you have delivered the first one. So right before Christmas, we made a team effort to deliver all machines we had in the backlog. It is, of course, a challenge to start a year with an empty backlog, but that actually put us in a better position to sell more machines to the same customers. Because instead of talking about the delivery of the machine that is being built, we can start talk about ordering the next machine. This is a strategy that has been proven to work. We get faster into discussion about second machines with existing customers. So we are working on shortening lead times, and I'm pretty sure that will not only lead to happier customers, it will also lead to more business. So with that, let's switch to Q4 highlights. And if you have any questions regarding the technology and business model, please stay until the Q&A and there will be plenty of time for questions. So Q1 business highlights. Let's start with net sales. So in terms of total net sales, which amounted to 4 million SEK, I'm not pleased with a quarter. We made a strategic decision to deliver all systems in our order backlog in Q4. So as expected, there was no sales from systems in Q1. And the fact that all systems in the backlog were delivered made the transition to build to forecast easier. So in that respect, it has been good. For coating services, net sales amounted to 1.6 million during the quarter and we still see delays in volume orders within electrolysis which affected the net sales negatively. We believe there is light at the horizon and I will come back to that later. Aftermarket sales was 2.4 million which is basically in line with previous year. When it comes to customer activity, we continue to build a strong sales pipeline and we welcome seven new paying customers during the quarter, quarter one. All seven are in the hydrogen market vertical and like previous quarter, our new paying customers are spread over the regions where we are active. Now in April, we... Got approved for volume coating services for fuel cells up to volume corresponding to 9 million Chinese yuan. That is a bit more than 13 million sec. So we now prepare production capacity in our coating service center in Shanghai to allow those orders. Our route to profitability has a strong focus on sales. Our sales pipe is substantially stronger now compared to half a year ago. And in the pipe, we see both existing machine customers who need more capacity as well as new customers who have just placed the first order for samples. The reorganization in Q4, we bring in the regional presidents for our main markets into the management team, has strengthened organization and has put increased focus on sales activities within our main markets. Not looking just at the quarter, China is our biggest market, followed by US. In China, we have our coating service center up and running. Looking at the numbers, also coating services, China has been weak in quarter one. This is partially due to the Chinese New Year, partially due to normal fluctuations and partially due to focus on qualifying in premium FC or coating for heavy vehicles. The production line to Waveland, which was reported in the end of 2023, is now installed and commissioning is ongoing. And we also see that Premium FC has been qualified for volume delivers, which contribute to the coating services sales or will contribute to the coating services sales during the coming year. So all in all, we are looking forward to a prosperous future. If we look at U.S., which in 2023 was our second largest market, we are ready to start our coating service center, but we await the right timing with increased volumes. In U.S., as we reported, there has been delays from existing customers, but the planned volumes, they are still expected. In parallel to existing customers, we have during the last half year, three new paying customers in the field of electrolysis in the US. And this paves the way for future orders for coating services and or future orders of systems. And as I said, to maintain cost control, we are ready to start our US coating service center, but we will not push the button too early. So with that, we switch to Bengt and I will see if I can manage to switch slide also.

Yes, as we have concluded before, we had an expected decline in sales in the first quarter from the strategic decision to deliver the systems in the order backlog at the end of 2023. So together with continuous lower pace in the coating services and aftermarket in line with last year, net sales landed at 4 million compared to last year's 20 million. And last year, included delivery of one system for 10 million. So the gross margin at 71% was positively affected by a favorable product mix with more coating services and aftermarket. So looking at the cost side, we can see that now the fully operating coating center in China is increasing cost in 2024. 19.2 million compared to 17.5 million last year. So in 2023, the center in China was in a startup phase and with only four people compared to today's 14 people. We also see an increase in depreciation, 1.7 million compared to 1 million last year. This is mainly from the new Chinese facility, but also two new coating systems for R&D and coating services in Sweden. Exposures in US dollars and euro resulted in FX gain from a weaker SEC in Q1. So this refers to bank balances and net of receivables and payables. And in total, this means a loss of close to 60 million in the quarter. So we now move then to the balance sheet and conclude that during the quarter we have continued to invest in our coating service centers and started up our work to produce systems to forecast. So there are a lot of figures here on this slide. I will explain the most important changes compared to last year. So we start with assets under construction. So that is the third line from the top of the balance sheet with 20 million SEC at the end of the quarter. To support future growth in sales, we have been working with one IC2 system to the coating center in China. We have also continued to work with an IC2 system to the plan coating center in the US. So in total, this means an addition of 10 millions in assets under construction compared to the end of 2023. So the next major change is related to that we now have started to up the work to manufacturer system to forecast. So for these systems, we have bought in components which can be seen in the increase of the raw materials by 6 million as we are moving from 80 million at year end to 86 million at quarter end in raw materials. We also see an increase of work in progress by 1.3 million. And as been mentioned before, by manufacturing against forecast, we will be able to shorten lead time, generate an increase in sale during the current and produce cost. So before we leave the balance sheet, it's worth noting that as before, the inventory of metals for electrolyzers is largely financed by prepayments from the customers. So it's 55 million at the quarter end. Moving to the cash flow. We can conclude that the end of the quarter we have a good cash balance at 97 million. But we also note that continuous sales growth is vital to be able to scale up the business. So slower sales in the quarter means that we are generating lower cash flow compared to quarter one last year. In working capital, the decrease in accounts receivables from lower sales is offsetting the increase in inventory. So this is resulting in a positive 2 million cash flow from change in working capital. And as mentioned before, investment in the quarter 10 million is related to the IC2000 system to the coating center in China. In total, this has resulted in a negative cashflow of 22 million in the quarter and a closing balance of close to 100 million. Before we leave the cashflow page, we can note that in 2023, we invested 27 million in scaling up the coating business in China, Sweden, and we've prepared for the plant center in US. Last year, we also completed the right issue in March and injected 129 million in capital after transactions cost. So this was then all for finance and we moved to focus 2024.