I-Tech AB

Welcome to this presentation where iTech walks us through the interim report from the first quarter 2025. With us today is Marcus Jönsson, CEO of iTech.

Welcome to this webcast that is being broadcasted from Vendal today, where we are going to present the Q1 report for iTech. I will dive straight into our development and showing you the rolling 12 month results, which continue to look very good. So the positive momentum that we saw on the business throughout 2024 has continued into Q1 this year. So we come to that in here where you can see more regarding the strong start so net sales then were up nearly 50% and closely trailing the record quarter Q4 2024 so and it amounted to approximately 57 million SEC and then the quarter last year was 38 so a really solid growth there we also see that that we have a healthy increase in that we were giving also, I think, during Q4 or the later part of 2024, which has to do with our sort of optimization of our supply chain. EBITDA landed close to 20 million SEC, which is almost a doubling, up 76% at least over last year. So very good results there. And the same with the EBIT, which was 7.7 million SEC. cash flow plus 26 and then puts us at the cash balance of 126 million SEK. So continuously very strong finances then. So, EBITDA margin landed on 35%, which was also, I'd say, a new record in that sense. However, we are seeing then that we have increasing headwind in terms of currency, and that's linked to our operational currency, the US dollar, and sort of the appreciating value of the dollar versus Swedish crowns, right? And then we see we have negative short, medium, but also then longer-term effects on the business, if discontinues, right? So that is something we will see increasingly throughout the year. But overall, then we would say a very, very good and strong solid If we look at the geographical spread of sales during Q1, you can see that Asia even increased a little bit over the full year 2024. So now it's 99% of the sales to Asia and only around 1%, I think 1.3, 1.4 to Europe. And you can see that also the split between the countries in Asia changed in Q1 compared to the full year 2024. So during the full year 2024 approximately half of the sales was to the Korean market and then we have seen now a shift here in Q1 that actually Korea represents a third, Japan approximately a third, a little bit more and then China then growing strongly in Q1 so almost one third from China. So that is a recent development right but you can see that Asia is dominating as a region for us and for SAILS. And now we come to what is changing then and definitely I think it has been a turbulent start to the year, I would say, with the new administration in the US and all the executive orders, etc. coming out of there. And we definitely see this impacting the outlook and really impacting trade and the shipbuilding industry. We do not see it yet impacting our business. And that's, of course, what you see in the numbers. But really, we do see rougher seas ahead here. If we start with the shipping market overall, I mean, we are still in positive territory and we are sort of 17 percent over a 10 year average. But we see now this is turning and that, for instance, is seen in charter regulations. and that its demand is softening a little bit for trade. There was a very strong growth during 2024. So the seaborne trade measured in ton miles was growing by nearly 6%. And that's the fastest expansion in 14 years. And the growth in volume was 2.1%. And of course, you could say the trade miles or the ton miles growth take a longer route, et cetera, during last year's, et cetera. So there has been a really positive momentum that is shifting. We see that with the sort of the current policy landscape, then if you look at North America will be heavily WTO that we have been sort of reading here in front before the report. So what we see then, or the predictions from these two institutions is that North America is expected to drop 12.6% in terms of exports and 9.6% in terms of imports during 2025. And the US represents about 12% of world trade. So in all in all, it's subtracting 1.7 percentage from the trade growth and turning then the overall figure to zero or slightly negative depending on what source that you're reading here. So essentially from the prediction of an expansion we are now moving into a sort of moving sideways or even going down and I think also the signals for a recession here can of course that means that this accelerates further. If we look at the deliveries of new vessels, which is important to us, and we will come back to that later on in the presentation as well, that has been a healthy growth. And the projection is still that this will continue to grow in 2025, because essentially the ships that were ordered a number of years ago, those are the ships that will be delivered this year. We saw that the contracting of new ships also grew very much during 2025. But that has really slowed or even halted in the first months of 2025 as a consequence of all the uncertainty that we see in the market. And of course, it has been uncertain times in terms of making investment decisions and placing orders for new ships. There's also been an array of executive orders from the Oval Office and also then one concerning or relating to maritime shipping and US trade and more specifically related to US shipbuilding and sort of on penalizing, you could say on one hand, Chinese-owned, Chinese-operated and port fees that are quite substantial going forward. And of course, the longer term idea with this is to stimulate shipbuilding in the US. So the US today has very, very little part of the global shipbuilding. So it's mainly, you could say, naval vessels and sort of domestic vessels that are being built in the US today. But really, this is a play to stimulate it and we see it more as a long term play. A potential consequence of these USTR measures could actually be or benefit the other North Asian shipbuilding countries like Korea and Japan, essentially because there is a specific penalty on Chinese-built ships. So one way to avoid that then is, of course, to place orders with the Korean or the in sort of waiting for the opportunity to actually build ships in the US. But this is really a long-term play. And I think, I mean, the estimates is it's three to six times more expensive today to build a ship in the US than it is to build it in Asia, right? So it is really a long-term play and not something that we will see affecting shipbuilding shorter. Talking about sort of the, the fundaments then of the global fleet, I mean, significant fleet renewal over time, right? And we see today that if you look in deadweight ton again, that about 42% of the order book now is alternative fuel capable, meaning then that you can use more sustainable fuels, although the majority of those ships are LNG powered, so liquefied natural gas, which is of course not a green fuel in itself, but it has a lower CO2 emission profile than classic bunker fuels. Also, we saw a landmark meeting happening here in April in the IMO, in this what is called the MEPC group, where they actually then made an agreement on emission regulations more globally and also then assigned the price to the emissions It's something that is needed to sort of level the playing field. Up until now, it has really been Europe taking the lead and going ahead and implementing that, for instance, the EU ETS, but also the fuel EU maritime legislation that is coming into force this year, which is essentially mandating use of more renewable fuels going forward. And this is a step in that direction also for the global fleet. So what we see then is significantly more volatile conditions, hesitations for people to place orders and also then essentially some volatility and turmoil in terms of the established shipping routes and trade routes and also cargo being shipped. So essentially, it will definitely impact shipping going forward this year. However, if we look at high tech, then we come back to the small world, we see that the foundation of our value proposition remains strong if we bet them long term, especially with the last comment there on the progress in the IMO regarding sustainable fuels. So the maritime challenges, the key challenges they are facing, including really emission reductions. But also then more and more. And we saw that also from from the more and more regulations regarding the transfer of invasive species and thereby regulation for biofouling management. And of course also the emissions to water, right? So what type of coating solutions that you're using and how that affects the marine life is increasingly in focus going forward. So this remains really strong and sort of with an aging ship fleet and a desire to transition to more green fuels, which are more expensive, definitely having a clean hull is increasingly important. And that has also been pointed out, I think, in this roadmap that we talked about previously as well from the IMO. So where better biofouling management has the potential actually to help improve the efficiency and lower CO2 emissions by up to 25%. from the global shipping field today. And we see a number of initiatives in that sort of direction as well, with the energy efficiency indexes etc. and the carbon high-tensity indexes being put into play and also being developed and going forward. So a very clear path for the IMO and for global shipping so far and some good progress as well during Q1 this year. The case hold of water you could say. And then coming into ITEX world and the challenge of barnacles. Why are they such a bad challenge? And we talked about this a long time or many times before. So this is essentially a recap for our new listeners then. But barnacles, they really have a big impact on drag resistance and the friction in the water for the ship, which increases fuel consumption or results in speed loss. And barnacles, they do thrive in most marine environments. Of course, the warmer the water is, the more activity you have. And they essentially superglue themselves to the surface and are extremely difficult to remove. And essentially, when you try to remove them, you typically damage the ship's coating and essentially so much that you have to go and send the ship for repainting essentially afterwards. Which means that then really the most efficient And we talked about it in Q4 or the year-end presentation as well, right? But what if a third of the global fleet actually was using 36% more fuel than needed just for a day? What would that mean in cost and emissions? And what we presented then, I think already in February, was this slide, right? A new in-docking data study that we conducted in the end of last year, beginning of this year, where essentially we asked Safina, coating partner to ship owners to look at their data and they essentially they give advice and suggest solutions for ship owners what type of coating to put on the ship they were looking into the data sort of on the conditions of over 760 ships and what they could see there when they came in for dry docking then a third of those ships really had completely unacceptable levels of and a third of the underwater area being covered in barnacles, which means then 40% or more additional fuel if you want to sail at the same speed. And what we also found in the study then was that the ships that were coated with Select Hope had a significantly improved condition in terms of that. So almost no or very little barnacles in those cases. And today, actually, then we thought of showing you some data. What does this mean for a ship owner or ship operator? that your ship is fouling and that you have for instance barnacles growing on the ship's hull. So I want to show you some new data then and first we need to talk a little bit about vessel performance. And when we mean that's the performance is essentially, you know, you have a certain RPM on your engine and you can measure then what is the speed I get through water. And you can look at that over time and that essentially you get a plot like this. You can see a lot of dots sort of seemingly all over the place. And of course, there are a lot of things impacting the speed of a ship, right? The wind force, the wind direction, the waves, the wave direction, the currents and so on, right? Hence, you will get this really scatter of data points if you try to measure then what sort of engine power results in what type of speed. And essentially, what you can see, though, is you see here the graph, the speed loss is sort of on the negative x-axis here. you have versus sort of your set speed. What is this ship supposed to sail at? What speed with certain engine performance, right? And then you can see over time and what you see then is essentially a linear reduction in the speed over time, right? When you go into dry docking and you apply a new anti-fouling coating, then that performance is gained back again. The ship can sail faster through water and you start a new round of degradation. and sort of have to go into docking approximately every five years. So this is sort of a typical data set then for a ship owner. And I was speaking to several of performance monitoring service providers, so essentially companies then that help ship owners to monitor the performance of their ships. So they install essentially sensors and they have softwares and data models to see how the performance of the ship and sort of the speed through water develops over time. And sort of what they told me, you know, looking at their data, one specific service provider said, yeah, typically, you know, I have we have a lot of tankers and bulkerships in our fleet. And what we see on average is all of, you know, all of this data, approximately they lose 7% of the speed over the five year period. And of course, there is variation in this data set. So you have some vessels that have premium antifouling coating that is really optimized for their specific route and the activity level that has close to no speed loss during the five year period. And there are plenty of examples of sort of catastrophic examples. I mean, he mentioned one specific year, he could see a data set of a tanker that was idling outside the coast of Mozambique for three weeks. And essentially after that, the speed was heavily impacted and they sent down divers to look and they could see that both the sides and the flat bottom of the ship 30% or more cover of barnacles and slime and algae etc. So essentially that chip would have to be sent to cleaning and most likely at the cleaning event they would damage the hull coating so much that they probably would have to clean it again very shortly afterwards or actually consider an early dry locking for that chip because it simply wouldn't perform. So I mean this data set is of course covered with examples of ships and how they perform. And then you can say, OK, so what does this mean for a ship owner in terms of trying to translate the speed loss then into money? So we prepared a little case just as a case of example. So the rule of thumb, they say, is, you know, whatever speed loss you have, you can multiply that three times to sort of get an estimate of the additional fuel that you need to recover that speed. So essentially a ship that has a speed loss of 7%. If I want to sail at the same speed, I have to increase the engine power and the fuel consumption three times seven. So 21% actually, the fuel consumption. And of course, that would have a massive impact over five years. And the nice thing here is, of course, if it's a linear effect that happens over time, you can see then, okay, what is the impact, right? So let's say that the ship captain, he was just compensating all the time the speed loss, right, with increasing the engine power and increasing the fuel use. In the end, over this five year period of time here, they would have overconsumed bunker fuel for a value of 1.8 million US dollars. So quite significant. right? The other option that he has is, of course, that, okay, I, you know, we'll just sail slower because it's no problem. You know, there is congestion in the port anyway. We will have to wait when we get to Rotterdam, etc. So we just steam along, you know, slower. But that, of course, also has an economic impact. And that economic impact depends if you are sort of a ship owner that yourself, you're operating the ships and you are doing sort of the the trade service yourself, or if you are a ship owner that just charters your boat to others. And typically, when you charter your boat, you have a fixed daily fee. And I assume the quite low rate here of $15,000, which is quite a low rate considering today's situational conditions in the market. But anyway, then over this five years period, you would have lost 45 days of productive time. That would have an equivalent value of 670,000 US dollars. So also substantial money to be saved by having a better antifouling solution. But then you come to, okay, what is the trade-off then? What is the cost of the premium antifouling versus sort of a basic paint scheme on the ships? And that could be an example we heard is up to $200,000, right? That's the... difference that that can be. So of course, depending on the conditions of the market, are there good rates or are there bad rates, etc. What is the likelihood that the ship owner would put on a high performing coating? It is always a balance and you could say, is there enough money around to spend on service or do I have to save on that as well? So things that actually impact premium coating a lot. And just to reiterate what we've said in the past as well, we do see an increased number of ship owners choosing premium antifouling coating. That has really grown its share in recent years, and we expect that to continue. And that leads me to the market outlook then. So we in iTech, our solution then is used both for new builds and for dry dockings, right? And we estimate then with sort of the 10% increase, there will be around 2000 new vessels being put on the market this year. And the dry dockings, they simply follow, you could say a regular scheme. They have to come in at least every 60 months. However, of course, there is some wiggle room here. And typically what you see with the ship owners now is that times are uncertain, the charter rates are dropping, etc. Then the ship owners are trying to postpone the dry docking as long as possible to maximize the value that they can get because they know that the charter rates will go down. So let's wait and see and not go in for a service event right now. Yeah, I mean, reflecting, you could say our sales, both for new ships or vessels and for dry dockings, then China is dominating. But for new ships, then Japan and Korea are quite sizable markets as well. And that's something we talked about in the past. And the opportunity then for select hope and for good anti-fouling technologies, we estimate to be around three to five hundred million US dollars overall. So that is sort of the market that we're tapping into. So, yes, for the newcomers, our solution is Celectopthen, which is a substance called medetomidine that comes out of pharma. It's used as a sedative in veterinary and human medicine today. And it has the opposite effect on barnacles. It actually makes them temporarily hyperactive so that they cannot settle on the ship's hull. But it doesn't kill or harm the barnacles. It's a temporary and non-lethal effect. It enables coating companies to make more innovative a better performing coating that has a lower also environmental footprint. And it is commercially proven now and used in six out of the nine largest paint companies. We hope to see number seven coming during this year and it is applied then to what we estimate a little bit more than 3,000 chips so far. So we believe we have a very scalable business with plenty of additional potential. I mean three global fleet of 110,000 chips, there is definitely room to grow. Our model is outside asset light. We have outsourced the production and we are looking into continuously optimizing, you could say, our supply chain and production setup. So that is also what we are reaping the benefits of now in the gross margins. We are essentially a knowledge company, so we're based on intellectual property, formulation, know-how, and sort of knowing the customers. And we have a really unique technology with Selecto. There is no direct competition today, but of course, other anti-fouling solutions are available. We also cannot avoid this topic. I mean, to most of you listening in, you are aware of our re-registration process and the challenges that we have faced here in the European Union. And we have continuously talked about that. What we know has happened now is that the standing committee on biocidal products have had this meeting in March with got during the public consultation. So essentially, all stakeholders were able to submit their comments, et cetera, to ECA's proposal and also describe sort of how they use select hope and why you know if they believe it should stay on the market etc right and we did as we have reported earlier receive quite a lot of input in this which we are very happy about so thank you if you also took part in that and that's really important now but we expect this discussion you could say regarding the input and the way forward to continue now also in the june meeting going forward and that the situation will become more clear towards the end of the year. And what is it actually that the European Commission is suggesting? Sort of to give SELICTOPE renewed approval or another decision? What we also can say is that since the current approval of SELICTOPE will end in June this year, we expect now that the standing committee on biocidal product will announce that there is a temporary extension of the current approval. And that is sort of a standard procedure that is done in all these cases, because they typically they drag out in time and they are not able to finalize their assessments in time. So they extend the current approval. So that's of course, we will not lose our license to operate in Europe in the middle of this year because they haven't decided. in the coming month. So that's that on the European situation. I think we are arriving then sort of at the outlook and I think what I want to say here today and we really see increased uncertainty and market turbulence that is affecting the sentiment in the industry. People are avoiding taking decisions whether that is to place orders for new ships or doing service events etc. And the market is sort of reorienting itself in terms of global trade. And of course, the last word is not said here, but definitely it has an impact on our market. And we haven't seen much of it in numbers in Q1, but we just want to flag that this volatility that we keep on talking about, that we have volatility in our sales over the And also we see then, of course, the currency headwinds really weighing in on us during this year, right? Because the US dollars, as I wrote in the report, it has depreciated with approximately 10% during the first quarter. numbers. So really flagging for a worsening macro environment and it's really interesting how quickly this changes. When we presented it in February the signals still overall looked all positive and now that picture is really completely different. So it just tells you a little bit of the volatility in the world that we're living in. Of course Besides that, we are We did announce in the beginning of the year another customer coming on board and we expect them to launch products as well during this year. And also, as we talked about here a number of times, we have business development activities that really have accelerated them. And we, of course, look forward and would like to present more details on this during the year. But there is very good progress and momentum on some very interesting new growth opportunities for the company. So more on that to come. And of course, we continue to work with the operational improvements and we hope to be able to present sort of more on that during the year. And then you can see the effect also in the gross margins. And also you could say now the advocacy regarding regulations and renewed approvals is becoming, you could say, more or less running business, right? So we have sort of signaled during last year that we have taken on higher costs for that. And I mean, we see that continuing for the good part of this year. Essentially, the costs that we have associated with advocacy and new renewal of approvals, etc. So that is what is ahead. All right. That was actually the presentation, Fredrik. And now I'm eagerly awaiting and happy to receive your questions.

Thank you for this presentation, Marcus. We have received some questions here for you. Could you provide any additional detail on what percentage of total net sales CMP and PPG accounted for during this quarter?