Impact Coatings AB (publ)

Hello and welcome to today's webcast with Impact Coatings, where CEO Jonas Nilsson and CFO Lena Åberg will present the year-end report for 2024. After the presentation, there will be a Q&A. So if you're calling in and would like to ask a question, please press star nine to raise your hand and then star six to unmute yourself when you're handed a word. You can also send in questions through the form to the right. And with that said, I hand over the word to you, Jonas. Thank you.

So welcome to this presentation of the Q4 and year-end report. I am Jonas Nilsson and I would like to take the opportunity to welcome our new CFO Lena Åberg who stands here beside me in our brand new facility in Linköping. So this is the agenda, queue for highlights, financial update, summary and outlook, and we will round off with a short Q&A. So queue for highlights. Let's start to talk about the market situation. Several major players face significant setbacks in 2024. For example, some of the big electrolyzer companies announced layoffs and delayed forecasts. But here at Impact Coatings, we have continued to strengthen our position, especially in China. In hindsight, we can see that several market players and some of our customers probably accelerated too aggressively during 2023. And maybe also we got a bit carried away. So we had to switch focus from the North American market to the Chinese market. This was of course a challenge but we made it. So 24 is actually better than 23. So a small crisis can be what you actually need to push yourself. Today, we have multiple systems in commercial operation in China and a local coating service center where we have seen increasing volumes during the year. We also see signs of recovery in North America and increased interest from new customers. Also, we see the sampling orders from some customers start to reach production quantities and we are in the process to get qualified for volume production at those customers. Looking at Europe, Europe is not as volatile as North America and China. And in Europe, we have ongoing coating services business for other things than hydrogen. In the past, Europe has been slower in hydrogen, but we see also increased interest in hydrogen in Europe. And we also see interest from potential machine customers in Europe. So let's talk about our business approach to this market situation. We have a strategic sales focus. System sales remain steady throughout the year and we see a strong growth in China. We measure number of new paying customers ordering the first sample. A total of 29 new customers were welcomed during the year, including eight in Q4. The new customers are well distributed across the regions. So I would say that we do have an increased sales momentum. And ordering this first sample is, of course, the start of the customer journey. And it's the start for the customer journey, both for machine customers and coating services customers. This is typically followed by more samples until we are qualified, that is selected as approved supplier. And then it continues with either coating services orders or a machine order. We have increased our delivery capacity. In Q4, we made a successful delivery of yet another IC2000 system. And all the way during 24, we have delivered with short delivery times. At previous webcasts, I have said that our goal is to be able to sign an order and deliver that order within the same quarter. And we have once again proven that. The shift towards standardized production of systems, which were based on forecasts, has improved delivery times. It will reduce costs and will enhance operational efficiency. Proactive management. We are on a path to profitability and the focus has been on increasing sales and deliveries while maintaining cost control. We're looking at internal efficiency and in the end of 24 and now beginning 25, we made a slight reduction of headcount to improve cost control and internal efficiency. The reduction affects both contractors and permanent staff and is combined with other actions to increase efficiency. So it will not impact our ability to deliver. Already last quarter, we passed 100 million enrolling 12 net sales. And now we also show it for the year. Net sales for the quarter amounts to 42.4 million, which is higher than Q4 23. And to make a fair comparison, in 23, we pushed very hard to deliver everything we could at the end of the year. We also did that this year. We deliver a machine to China and we also see growth in coating services in Q4. Also mainly driven by China. Aftermarket is comparable to previous year, but we see a small increase both compared to last year Q4, Q4 23, and compared to the previous quarters in 24. So all in all, this sums up to almost 110 million for the year. So let's switch to rolling 12. As you can see, after a temporary dip in Q1, we are witnessing an increase in rolling 12-month sales during Q3 and Q4. And sales growth is the cornerstone in our journey towards profitability. When looking at sales of the past quarters, it is clear that we have now established ourselves on a new level. While Q1 24 was a bit slow, the quarters both before and after have been the best we've seen in the past six years. And we had an all-time high this quarter Q4 24. As I said, we are on a path towards profitability. But we're not really there yet. For the quarter, we have a loss of 3.6 million. The main focus is to sell and deliver more, but we're also looking at costs and improve efficiency. So at the end of Q4 and beginning Q1, we made a small reduction of staff. When it comes to cash flow, it has been a deliberate strategy to standardize and build a forecast to enable shorter delivery times, which enables increased sales. And this strategy has been successful. Today, we have the level of inventory needed for fast deliveries, so there's no need to further increase the inventory. It can also be noted that there are substantial payments that will come this year, i.e. 2025, that originates from the sales and deliveries in 2024. If you look at the picture on the slide, the picture shows our assembly hall here in our new factory in Linköping. And as you can see there is one IC2000 in the front of the picture and one IC500 in the back of the picture. Both are in the assembly stage but can be delivered to customers with fairly short delivery time. Previously, I've been talking about the IC2000 as our workforce. Before December 23, we only had one IC2000, the first prototype in commercial production. Now we have multiple machines running 24-7 at customer sites. So if we look at the bullets on the slide, proven delivery efficiency, The successful delivery of one more IC2000 system within the same quarter as the order was received demonstrates the effectiveness of our forecast-driven production strategy. Market acceptance. The IC2000 is about to establish itself as a key solution to the industry and to be recognized for its reliability and also ability to meet customer demands. Optimized for large scale production, the IC2000 is designed for high volume throughput, but it's also a design you can grow with. Multiple systems in full speed production. which drives system and product refinement. So real world operational experience enable us to continuously fine tune the IC2000 for high performance series production applications. To have multiple systems running in real production at customers is a technical asset. Those customers, they test our machines in a way we could never test them here in-house. And when something goes wrong, they send us error reports. We fix it and we improve the machines. In this way, we get our machines battle proven. We believe that this will be a very strong competitive advantage when the hydrogen market expands. Although this is a queue for year-end report webcast, I want to mention some technical things. Compared to our competitors, we have very few moving parts in our machines. And we only have one turbo pump in the center of the machine. Having customers that run the machines 24-7 can be a challenge. But with fewer moving parts, it's also less of a challenge. And with fewer moving parts, you can get battle proven faster because you have an intrinsic robust design. So here are the press releases since the last report. We have one machine order of yet another IC2000, and we have one collaboration with Fine Tools CTEK. The collaboration is non-exclusive, where we promote, where we together promote stamping, welding, coating, and sealing. And that is the complete value chain to a plate that is ready to be mounted into a fuel cell stack. So with that, I hand over to Lina, who will guide us through the numbers.

Thank you, Jonas. Yes, as we have concluded, we had a strong quarter in all revenue streams. We delivered one coating system to Fine Tool in China, and we also delivered some upgrading. It was a very strong quarter in coating services with increase in Sweden, but especially in China. and this quarter reduced the gap compared to last year. The sales in the quarter was 10.4 million compared to 4.4 million last year. Also aftermarket increased compared to previous year, 5.1 million compared to 3.9, with a good level in Sweden, but the increase was in China. Gross margin at 61% for the quarter was lower than last year, but an improvement compared to Q3 24 and contains a product mix, including one coating system. And we continue to work with improving efficiency, of course, and lowering COGS. Personal costs and other external costs were 27.8 million compared to 22.7 last year. And the increase mainly pertains to increased costs of hired consultants and also higher rental costs since we had rents for both the old facility and the new one in Q4. And we also have some extra costs for moving to the new facility. Currency exposure resulted in a foreign exchange loss of 300,000. Interest income amounted to 200,000 compared to 1.8 million last year. In total, this adds up to a negative net income for the quarter of 3.1 million compared to plus 0.6 last year in Q4, but where last year's Q4 included a one-time gain of 4.0 million. As for full year, We had a strong growth in sales, 12%, supported by increased activities in customer acquisitions and investments in our coating service centers. So full year net sales were close to 110 million, as Jonas has mentioned, with the strong sales increase in coating systems. 74 million in total compared to 51.9 last year. And aftermarket increased as well to 14.3 million compared to 11.4 last year. Coating services didn't really increase, but made a good progress in the last quarter and ended at 21.6 million compared to 35.1 last year. Gross margin for the full year was 57% compared to 59% in 2023. And 2024 contains a product mix including more coating systems and less coating services. As mentioned before, personal costs and other external costs increased in Q4 especially and ended at 88.8 million compared to 83.6 in 2023. And the main explanations are the increases in Q4, that is increase in hired consultants and extra facility costs and increase in facility costs as mentioned earlier. The increase in depreciation, 6.4 million compared to 4.8 last year is mainly from the Chinese facility. There was an exchange gain of 1.0 million in 24. And the interest income for the full year was 1.2 million compared to 1.8 last year. And in total, this led to a negative net income of 29.6 million for the full year compared to 32.0 last year, negative. And we move to the balance sheet and conclude that we have continued to invest in coating systems to our coating service centers. And we have also continued our work to produce systems based on forecast. And of course, there are a lot of figures on this slide, and I will explain the most important changes compared to the end of last year. So starting at fixed assets, intangible assets have increased in capitalized development costs. If we go down a couple of lines, it's also assets under construction have increased. The closing balance is 18 million. And That is to support future growth in sales. We have been working with one ICE 2000 system to the coating service center in China, which was delivered in Q4. And we have also been working on one ICE 500 system for Sweden, as well as made investments of other equipment to the new facility in Linköping. We also have long-term accounts receivables in the balance sheet of 16.3 million. And in total, this means an addition of 26 million in fixed assets compared to the end of 2023. The next major change compared to last year is related to our continued work to manufacture systems based on forecast to shorten lead times and generate an increase in sales. For these systems, we have purchased components, which can be seen in the increase in raw materials, which have increased to 94 million from 80 million in 2023. We also see an increase in work in progress by 7.7 million. Other short-term receivables have increased by 26 million and consists mainly of customer receivables and also prepaid expenses and accrued income. As for cash, we will come back to that in the cash flow statement. For short-term liabilities, they have increased 9 million and is a mix of increased accounts payables and increased accrued expenses and prepaid revenue. So the cash flow statement, we can conclude that the end of the year, we ended with a cash balance at 32.5 million. Continued sales growth is vital to scale up the business and we are working according to our plan to get in new paying customers and we are well prepared for fast delivers to increase sales. The cash flow was negatively affected, of course, by the operating result for the year, which was minus 31.3%. The increase in working capital of more than 50 million is driven by a large increase in receivables, mainly due to high sales, especially in Q4, and also driven by the new strategy in 24 to produce systems based on forecasts. So we are well prepared for fast deliveries. And as we have mentioned before, investments during the year, almost 17 million investments is mainly related to one coating system to our coating service center in Shanghai and one system to the new facility in Linköping, but also capitalized development and investments of equipment to the new facility. In total, this resulted in a negative cashflow of 89.7 million in the year and a closing balance of 32.5 million Swedish crowns. This was a financial update, which means that we now move on to the summary and the outlook.