Impact Coatings AB (publ)

Hello and welcome to today's webcast with ImpaCodeTix, 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 the 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 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, Q4 highlights, financial update, summary and outlook, and we will round off with a short Q&A. So Q4 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 23. 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 starts 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've 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 product, the shift towards standardized production of systems, which we based on forecast, 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 in rolling 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. 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 cashflow, 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 delivers. 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. 25, that originates from the sales and deliveries in 24. 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 workhorse. 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 drive system and product refinement, saw real-world operational experience enable us to continuously fine-tune the IC2000 for high-performance series production applications. To have multiple systems in full speed production, 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 to 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 IC3000, and we have one collaboration with Fintool Ztech. The collaboration is non-exclusive, 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 Fintool 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 Fulure, we had a strong growth in sales, 12%, supported by increased activities in customer acquisitions, and investments in our coating service centers. So Fulure 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 23. And 24 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 23. 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 ICE2000 system to the coating service center in China, which was delivered in Q4. And we have also been working on one IC500 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 fixed assets compared to the end of 23. 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 23. 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 flows 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're 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, 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 cash flow 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.

Thank you. So summary, net sales exceeded 100 million SEC. This is a key milestone, demonstrating strong growth and strategic execution. Continued system sales momentum, we have successfully delivered multiple ICTs and systems, reinforcing our market position and customer trust. Growing traction in coating services, increasing demand, particularly in China, will support long-term recurring revenue. And if we look at operational improvements, standardization gives result in increased delivery capacity, proactive management and stricter cost control measures. This includes adjustments in staffing and operational expenses with an aim to strengthen long-term profitability. So looking at the future, maintaining leadership and explore new opportunities within the hydrogen business area, we are striving to become the market leader across the board in the hydrogen market. This means maintain leadership where we are leaders and explore new opportunities within the hydrogen business area. We want to expand further within the metallization vertical while being open to horizontal application opportunities. We use active sales activities in the metallization vertical and we continue to be open to horizontal application opportunities that sort of comes our way. We target profitable growth through increased sales with cost discipline. Continued momentum in adding new customers. Last year, we added more than two per month. We will continue to add more new customers in parallel with developing the ones we got last year into big ones this year. We have reduced coating system lead times by production to forecasts, and we will continue to decrease costs by producing to forecasts. So with that, thank you everyone.

Thank you so much for the presentation here and we will now carry on with the Q&A and the first caller in that has a question is Lara Motali from ABG. You have the word.

Hi, Lara here from ABG. My first one is on your graph smilings. You obviously managed to increase from this quarter, both year over year, also quarter over quarter. Could you maybe tell us how you've been working on improving your gross margin? Is it mainly from your new forecasting based systems and what levels can we expect moving forward?

Yeah, mainly we are working with reducing cogs. And when producing to forecasts and standardizing our machines, you can reduce the production cost of the machines and you do that in two ways. One is if you have standardized machines, you buy more of the same from your suppliers and if you buy more of the same, then you can lower the cost for the parts. Also when producing to forecasts, you can plan your production in a way that you can be more efficient in your production. And what we see in sort of the future that will also come, we have moved to a new facility here in Incherping. We have invested in some new equipment to make the assembly much faster and more efficient. So we do have a good potential to further reduce cogs.

Okay, great. Thank you. During the quarter you had some elevated costs which were partly due to the expenses associated to relocating your offices. Have all these costs been accounted for or should we anticipate additional costs related to this in the upcoming quarters?

I can answer that. We have already caught these costs, I would say. There could be some investment inside the facility, but that's not connected to the move. So that's no improvement. Yeah,

and I can also say that we are up and running in the new facility. So we have delivered our first machine from the new facility. So it's working. And we see shorter assembly times already now.

Very clear. Thank you. And could you, if we talk a little about pricing, could you talk about the latest pricing trends you've seen? How has the pricing trends of the inline cogs changed in recent years? And maybe if you could just elaborate a little on this.

Yeah, in general, we have raised our prices a lot if we look sort of over a bit longer term. This is mainly driven by the fact that our machines are getting bigger and bigger. The IC2000 was released to the public in 2022. We made our first delivery to a customer in late 2023. Now during 24, the focus has been on the 2000, and the 2000 is much bigger than the 500. So we can charge more for it. We also have improved our machines in terms of capacity. Also, the small machines have been improved in terms of capacity. So we can raise the price. So if you just look at sort of the price the customer pay for a machine, that is going up. If we look at the trend on the market, we see that we are sort of pushed downwards. And we see that competitors, they sometimes, what we think at least, underprice their machines to try to get orders. And especially when we win and they lose, they have sort of nothing to lose on sending in quotations that are quite low. So we see a sort of push to lower the prices, but we try to mitigate that by adding sort of more functionality and more capacity to our machines so we can keep the prices or even increase the prices. And in parallel with that, we are working with lowering the cogs to maintain and increase our gross margin.

Very fair. Thank you. And can we just please talk a little about the market momentum in the US? You mentioned briefly this earlier, but what's the current status of your US Coating Center?

Yeah, so we still have the plan for a US Coating Service Center. So we have not stopped that. We're just holding our finger on the pause button, but we are ready to start. So as soon as we see volumes, increasing volumes, we will go for a US Coating Service Center. And one of the drivers to have a Coating Service Center in the US is to be present in different parts of the world. So we are not that dependent on sort of tariffs and trade wars and so on. Whatever happens, we will have a production where we have our customers. And we see this will probably be more and more important, especially for US to be able to produce on US soil. And then we're talking US, not only North America, but US. Now I sort of lost your... It was a long answer, but I maybe lost your question. Was it an answer to your question?

It was an answer, thank you. That was all from my end. Thank you very much.

Thank you so much for the questions. We will now carry on with some questions that have been sent in to us. And the first one is, Analysts and financial media predict need for a capital raise in the near future. Can you comment on that or can you avoid it?

Well, we have a business plan, and we have enough liquidity to execute on that plan. I will try to give you a bit more details. Our strategy has been and is to standardize and build the forecast. And this requires inventory. Now we have the inventory needed to execute on that plan. We don't need to build any more inventory. We also have a brand new factory here in Linköping, and we have the capacity to produce one machine per month. And we don't need to take any more investments to get to that capacity. We have that capacity. So we already have what is needed to execute on the plan. And we have shown during 24 that we can get orders and we can deliver. But of course, we have to get the orders. And to do that, we do have the right sales team in place with designated focused sales persons on the right places around the world. So we are well prepared for 2025. And we have everything in place to execute on our business plan.

Thank you. And you mentioned inventory here in the last answer. How many systems can you deliver based on the year and inventory?

Yeah, we sort of have the inventory level we need to deliver. So there's no need to further increase the inventory level. For example, you saw from the picture of the factory where you could see that we have different sizes of machines in different stages of assembly. So today we can deliver any of our standard sizes with any configuration at a decent delivery time. And this is important for the sales process. I mean, the ability to deliver is important to be able to sell. So this gives us a competitive advantage.

Thank you. You exclude only 0.3 million SEAC from metals from Electrolysis 2024. Don't you deliver Electrolysis coatings in volume any longer or are there metals included in the coating service revenue? If so, how much?

Yes, we do deliver such coating services for Electrolysis. We have customers who prepay the metals and we charge them in a custom neutral way. And we show that in our reports. Today, this is however not the preferred model because that model is good if you have like one or two customers. But with many customers, it's a much more efficient model to include the metals in the price and also charge a margin on the metals. You cannot charge that much margin, but you can charge a margin also on the metals. So we use the new model for our all new customers where we sort of have one price, which includes everything. And we are also working on transferring the old customers to this new model.

Thank you. How big is the accounts receivable balance?

This is a very good question. And maybe we didn't mention that in the question before, but I think I kind of talked about it when presenting the balance sheet. But we have a lot of receivables, both short term and also some long term. So I would say we have about 45 million in receivables coming from sales. And the receivables we're awaiting payment for, of course, so that will contribute well to the future cash.

Yeah. And maybe I should have mentioned that on the question about our liquidity, that this is sort of incoming cash where we have already done the sales job. So there's no sales job needed to be done to get those payments.

Thank you so much. Moving on to the last question here. How big is the potential in the FameTool Citech partnership announced in January?

I can first tell you a little bit about what it is. So it is a non-exclusive collaboration where we promote each other. And for us, this is an opportunity to create a whole product. And this is important for the PushPull strategy because we become much more relevant to the customer's customer. I will give you an example. A stack manufacturer, which is one of our customer's customer, a stack manufacturer typically buys ready to mount bipolar plates by membranes and other stuff and assemble that into a stack. If we look at the bipolar plate, it consists of two sheets of form, steel and steel, and it's welded together and then coated by a PVD coating. And the FameTool, they do the forming and sell machines for forming of those metal sheets. Citech focuses on the laser welding and we do the coating. So together we have a complete offering. So we can go to our customers' customers and be relevant for the customer's customer. Then they can sort of choose either the complete offering or they can share a pic and take the coating from us and the rest from someone else. So this is important for us to be able to be more relevant for our customers' customer. And it's also good to have this collaboration because we can do joint activities. For example, we went to a trade fair in Paris and we shared a booth, which means that we can be an exhibitor at a very low cost and we can sort of ride on each other's customer base.

Thank you so much. Those are all the questions we had. So thank you, Jonas and Lena, for presenting here today and answering all our questions. And thank you all for watching. I wish you a pleasant weekend.