I-Tech AB

Hello and welcome to today's presentation where we have iTech with CEO Marcus Jönsson and CFO Magnus Nell presenting. After the presentation, there will be a Q&A. So if you have any questions, please feel free to use the form located to the right. And with that said, please go ahead, Marcus and Magnus, with your presentation.

Thank you very much, Martin. And good morning and welcome to this Q3 call. And today we actually extended the presentation a little bit to talk more about the market as such, to also answer your questions towards the end. But let's get going with the introduction part. So we will be brief here. I mean, most of you who are joining the call know about us, right? But I take as such a scalable business model and still low penetration. We calculate that we are approximately 3,000 out of a global fleet of 100,000 ships, so plenty of growth. Production is outsourced. We are focusing on the sales and marketing and product development of our product sector. We are addressing key maritime challenges, which is to reduce the emissions of CO2 and fuel use. also to help protect sensitive ecosystems and marine environments from the transfer of invasive species, and also reduce the emission of chemicals to our oceans. And this is what we are working with in NITEC. The solution is a pharmaceutical ingredient with a non-lethal effect on barnacle larvae. They become temporarily hyperactive, and they cannot settle on a ship hull that has been treated with Celectopr. The substance is highly efficient, so 0.1% is needed approximately for having a good barnacle protection. So you can formulate very innovative coating products also using Selectome. Why are barnacles such a big challenge for global shipping? Well, they are present essentially almost all around the globe. They thrive in most marine environments. And when they settle on the ship's hull, they superglue themselves to the surface, which makes them very, very difficult to remove. And you actually end up damaging the coating when you try to remove them. So really, the most efficient strategy is to prevent them from settling on the hull. So today we included a few more slides from this study and survey that we did together with Safina Group earlier this year, where we looked then at the in-docking conditions of around 700 ships. So Safina is a coding advisor. They help the ship operators and ship owners to select the right coding for their particular ship and the trade route, et cetera, that it's on. So Safina has a great database, you could say, of the conditions of ships when they come in after dry docking. And one of the market perceptions here is that barnacle fouling is mainly an issue for very slow steaming vessels or vessels that have a very low activity level, meaning that they are idling in the water and then giving the barnacle larvae ample of opportunity to settle on the ship's hull. But actually what we showed here together with Safina is that all type of vessels actually have issues with barnacles. So what you're seeing here on the y-axis are various ship types like product tankers, LNG ships, cruise ships, container ships, etc. And the light green is actually showing how many of them actually have the presence of animal farming. So you see really it's a majority of all the ship types. So not only slow steaming, but traditionally fast steaming ships also like a car carrier or a container ship that is running on high activity and quite high speed. Another market perception that we want to highlight is that barnacle fouling can be completely avoided with some coating technologies. And actually, we were looking into that in our survey as well. And we are comparing two main technologies here, one being traditional self-polishing coating, that is the light green bar, and then more, you could say, modern or silicone type FRC coatings, so foul release coatings. and found release coatings they are available on the market both you know biocide free and with biocides but essentially what we see on a macro level here is that overall both of these coding technologies have issues with barnacles and it's not that one is better than the other There are, of course, many types of SPC products, so you see a larger variation and also a lot of different tiers of products, right? So that's also the secret, I would say, in this industry, to formulate the right product for the ship and the trade, etc. But overall, silicones also have issues with barnacles, right? With ITech's previous work, we have been able to prove in ship-to-ship case studies the value of Celectope. You can find that Calypso case on our website. Also in the Safina study, we had the luck of finding 12 ships in this dataset that had been coated with Celectope. And here we are comparing the 12 ships to the general population. So that is what the graphs are showing here. But essentially one third of all the ships have really an unacceptable level of barnacle funding. Something that would equate to 36% more fuel use trying to maintain the same speed through water. With Select Hope, and of course here it's a limited data set with 12 ships, but most of them had none or very little barnacle fowl. So it's clear also here again, then the proving the value in the market of Select Hope, which we are very happy to have. Another key insight that was actually coming through now in September when we had our international anti-fouling conference, which iTech is hosting and arranging here in Gothenburg every second year. So now this year was the third edition and there was about 200 participants, you could say, from all around the globe and from all different places of the value chain working with anti-fouling for ships and other marine installations. And what Safina showed here is also, it's a little bit worrying, but it's also sort of answering the question. So why, if your technology is so efficient, why isn't the penetration going quicker? And of course, there are many cavities and layers to choosing the right coating product. And what Safina is showing here with the statistics they have, that for these ships that come in and have severe macrofouling, actually the owner end up choosing the same manufacturer and often the same product, despite sort of obvious proof that this was not the right coating. So it just signals, you could say, the challenge and the barriers we are up to in terms of inertia, and of creating market awareness that there are better solutions there. Another example that comes from the autumn here is a work we've done together with Coach Solutions. So Coach Solutions is a performance management company. They help ship owners then to monitor and track the performance of their hull. So essentially they can see through measuring various analytical points of the ship performance how severe you could say fouling has become on the ship. So that is what the graph is showing to the right here. The gray color is indicating where the ship is inactive. And in this case, we've taken the case of an oil tanker trading on time charter. So essentially an owner that owns the ship, but is putting it up for hire, you could say, to transport goods. And the case here is really to prove that it always pays off for premium anti-fouling coating. So you compare in the table to the left here the price of a low-tier anti-fouling and the price of a high-tier anti-fouling. And it's more than double as expensive to coat your ship with a premium anti-fouling solution, including, you could say, full blast and good preparation of the surface, etc. But you spend less on cleaning, but the important part is the production or the productive time. So you can actually build more hours if you have a ship that is coated with a high-tech product, right? So the earnings potential in this example for this oil tanker, and you could say it's a typical oil tanker that is trading Middle East, Africa, and Europe, etc., right? the earnings potential for them of using a high tier anti-fouling instead of a low tier is 1.2 million US dollars over five years. And of course, if you have a fleet of 100 tankers, this starts to be massive. So it really sort of reflects the challenge we're up to also to convince the market to go for more premium anti-fouling solutions. Then we come to the market outlook. And as I was writing in the comments, you could say in the report, actually, the macro conditions have improved after the summer. So there was quite a bit of worry and turbulence and so on in the beginning of the year, especially in Q2 as a consequence, you could say, of global trade politics, etc. This has sort of stabilized, I would say, and charter rates have actually strengthened. So charter rates is how much a ship owner is being paid to rent out the ship for a specific service or a trade. It has actually improved over the summer, which is good news. As we have said earlier in the year, also the number of new ships that are being produced this year is actually expected to rise by about 6-7%. And that is of course ongoing. These projects have been started about two years ago, so these ships will be delivered this year. So there's a really high activity in the shipyards. What we have seen then and what are worrying signals is that the contracting activity, so essentially the fact that ship owners are placing orders for new ships, but these are like three, four years out from now. So the contracting activity now is to start building before 2030, so 2028, 2029. And here we have seen then a drop of 50% this year compared to last year. But sort of the activity and the contract level is still close to the 10-year average. So it's not a disaster. What has also picked up this year, and what we want to highlight in this report, is ship repair activity has also jumped, you could say, around 7% this year. And this has to do with the average age of the total shipping fleet. So there were a lot of ships built between 2010 and 2015. that are now coming in for major repair, but also upgrade work. We see a lot of owners doing energy saving technology updates, so-called ESTs. And here we want to highlight also that Europe still plays a very important role for repairs of ships. So China has about 45% market share, but Europe also almost have 20% when it comes to ship repairs. So a little bit, you could say a different situation. And, you know, the graph we show in the bottom right here is sort of the standard service. So that is when the ship goes in for inspection and also where you always typically then do a recoating of the anti-fouling, right? And sort of this varies year to year, you know, because of the age of the total fleet. But it's an outgoing trend as well, right? You have a lot of bulkers and tankers needing service on a regular basis. So this is, of course, what is creating stability, some cyclicality between the different ship types over the years. But overall, there is a steady stream of ships that needs both repair and maintenance and recoating. So that is really, overall, the non-cyclical element of our business.

Now we come into the interim results and so I hand over to you Magnus. Thank you very much. So we're coming into the main topic of this call today. And we're actually starting up with the same picture as we started up last quarter where we actually showed a very large dip towards the Q4 and Q1. And still Q4 and Q1 was very high. But we have a good uptake in Q3 now. Compared to them, of course, it's a little bit lower, but we shouldn't forget that this is our third strongest quarter ever, with a 10% organic sales growth towards a quite strong Q3 last year. And what we had discussed before as well is that we see a lot of variations and it's hard to find the really seasonal pattern in these conditions. But of course, the trend is still upwards. The market conditions for the shipping is still positive. So we're working on to it. And then coming into the sort of fact results for this quarter, you can see in front of you that we have a very small increase on the net sales compared to last year, 0.5%. But we shouldn't forget here as well that we have, when we currently adjusted the revenues, we have a 10% growth and even further on the volumes. We still have a very good ROS module, which is a result of all the work that we have done on this side during the last periods. Hopefully, we can increase it a little bit more moving forward. I think Marcus will talk a little bit about it in the far end. But this is a good and stable level. Both EBITDA and EBIT are growing compared to last year. 14% respect to 18%. And I think it's really nice to show that we have a 32% EBITDA margin. And we're showing that the business model holds, even though we are forced to spend quite a lot of money on things that we don't want to spend money on, which Marcus will come back to us later as well. And then the cash conversion, I think it's almost the best cash conversion quarter we have had. Of course, this is really depending on ingoing and outgoing payments, but 23 million in operating cash flow for the quarter and 121% increase from previous year is quite good. Gives us a strong cash balance in order to further develop the company. And to conclude sort of the financial part, I think it's quite interesting to look on the geographical spread. And if we start on the little bit more negative side, for those who were with us in the Q4 call, you can see that Korea has lost almost 14%. It was roughly 50% of the sales in Asia during last year. One of the reasons is what we have reported, that one of the customers has slowed down a little bit. But I think on the positive side, on the other end, is that both Japan and China, which are really strong maintenance and new building for Japan, of course, but China is really strong on the maintenance side, have grown both in proportion of our sales and also in the total revenues. And I think the major take we should take take with us from this picture is actually that we are increasing in China, which is a very important market moving forward.