Nexam Chemical Holding AB (publ)

Hi and welcome to this live presentation of Nexon Chemicals quarter three results. This is a live Q&A session, so use the chat function to ask your questions and I'll ask them at the end of this presentation. With us we have CEO Ronny Törnqvist along with CFO Markus Nyberg. After their presentation, ABG Sundal Collier Equity Analyst Lara Motadi will ask questions. After that, I will ask the viewer questions along with other questions we have received. So, Ron and Tom, Chris, welcome. Thank you, Eric.

How's the quarter been? What are the main highlights? It's been a good and interesting quarter. We have continued with strength in our strong growing segment recycling and we have had a really intensive, interesting developments on market and technology development during the quarter. On the same time, we're moving in a fairly slow market, of course, but in combination, we're not happy with the top line yet, but we are happy with the activities that are underlying and promising future.

the growth and recycling really stands out in the report. So I'm very interested to hear more about that. So let's jump straight into the presentation.

All right. Thank you, Eric. Well, third quarter of Nexam Chemical, me and Marcus will share this presentation. I will start out for the ones who do not know us yet to say that Nexam Chemical is a company that is focused on making additives that make plastics better and more sustainable. A lot of the chemical solutions that we have, we're an innovation company based on chemicals, are used in various applications, and many of them are also patented, and we have a strong, let's say, combination of solutions and know-how and patents to support what we are doing. What stands out, just as Erik said, in this quarter is that the reactive recycling is is continuing to develop well it was confirmed at the much higher levels that we have seen for a couple of quarters now and we're now up to 12% of the total sales so increasing from a low level but on an overview the products that we make are innovative additives that are based on our knowledge that are used to modify polymers to meet various application demands on the market. We divide our markets into the customer value that we bring with our products. So in short words, four areas. One is lightweighting where our additives enables the manufacturing of structural foams from fairly ordinary plastics. It's very price competitive and highly functional material that is used in many different business areas. The biggest one being wind power. It's used in the blades in windmills. Another area of application is high temperature, where our additives are used to increase temperature resistance of the most temperature resistant plastics in the world. They are used typically in aerospace applications, components close to the engine made from carbon fiber composites. And it's also used in the electronics industry to protect the circuits from overheating at also quite high peak temperatures. And we have an extensive area where we work with the looks and the durability of plastic materials where we provide colors and other complementary additives to colors to give the right looks of plastic components. And the fourth area then is recycling, where we provide solutions for our customers to increase use of recycled plastics in more advanced applications. We'll dive in a little bit into the recycling area because it is a growing area for us and it requires a little bit of special attention. So what we have is a portfolio of additives that function for various type of raw plastic materials and various end applications. Common for all is that our additives typically improve the business case for our customers, or that it is a way to enable our customers to secure their business. So either by using, let's say, recycled plastics where it could otherwise not be used, Or that they could use a lower grade, lower cost recycled material in the same application. Plastics industry as a whole is a growing material in the world. It is on one hand unfortunate, you could say, because we have the problems with microplastics in all living organisms, really. We have the contaminations of sea, land, soil, of plastic materials. But on the other hand, it is inevitable and plastic is also a good material. Advances in, let's say, medical care, safety features, all of these really important technologies for us are often based on plastics or polymer materials. Anyway, our goal is to take that in a positive way. We see that the plastic consumption in the world is increasing, but we also see that the expectations from the people around the world and politicians and legislators and others are driving towards a higher degree of recycled plastic materials and this is a trend that we obviously like as persons more recycling is good for the world and it's also good for our businesses we are dedicated to fix this recycled plastic to make it a better material In a value chain represented here by a few pictures of plastic material, a recycled plastic material or let's say a raw plastic material is produced in some kind of plant and this material is then refined and converted into a compound that is a blend of plastic material that is then used to produce various components. It can be everything from flexible film and packaging or technical components like on this picture or rigid packaging and so on and so on and that conversion is done at the component manufacturer and then that is used in various end products and by brand owners and so on our position in this value chain is to deliver to most of the time the component manufacturer and additive that is added in a small portion somewhere between a few tens of percent to some percent and is used as a total part of their total recipe to make various components. Sometimes the delivery goes to the compound manufacturer that is the step before the component manufacturer. So that is just to put into position where we are so to say participating in the market. And the reactive recycling, which is at the core, it is not the only thing that we do in recycling, but it is the core of what we do in recycling. It is then heat-activated master batches. So the delivery form is a plastic granule, which contains a selective chemistry that is reacting with the base plastic material in the process. It creates no byproduct because it chemically reacts during the process and it's added into ordinary processing equipment. Just to show an example, we have the picture here of a recycled material that comes from actually barrier layer in drinks containers. And it has been severely degraded, of course, during the life of the product, the recycling process and the reprocessing. so that it's impossible to make a new film of it. By adding just, in this case, 2.5% of our additive, you can actually make a proper film of it. The reason for that is that the molecules in the plastic during the use and recycling of the material are degraded, so they are cut apart, and our additive is then linking these molecules back together, and that's the, so to say, chemical trick in the whole process. It enables then that a higher degree of recycle can be used in, for example, tray-to-tray recycling PET. If you think about containers for cherry tomatoes or grapes or chicken wings or something like that, that's trays made out of PET. They cannot be recycled into new trays unless something is done. And with our additives, they can be. Another area of application is blown film. You can think of it as construction protective film, for example, or garbage bags and so on. They are also worn down in the recycling process and needs to be upgraded in order to produce a new good film material. Bottle recycling from oil canisters, for example, can also help with our additives. Pipe and sheet extrusion. Recycling of textiles. Many textiles are made from polyester materials, such as functional clothing. If these textiles are then attempted to be recycled, you cannot produce new fibers. You can use it for other things, but you cannot make new fibers. And our additives enable them to be used in new fibers. And there are many, many other application areas like that. It's always the same basic chemistry, but the application fields are very wide. The value proposition that is the main driver is the economically motivated use of our additive in recycling. Here is a case that is typical for tray-to-tray PET recycling. Trays are produced by, typically if they're based on recycled material, an expensive recycled bottle grade. And 10% can be recycled trays. And 10% needs to be new plastic. And that is a fairly expensive recipe. But if we add our additive, we can change the recipe and use much more of the recycled trays, which is a lower cost grade, maintain some of the more expensive bottle grade and still need a little bit of virgin material. But in this generic typical case, you can reduce the recipe cost to produce a tray by 30%. But you need to add some cost for our additive. But in the end product, the final saving is approximately 25% in this example. The percentages are, of course, different from case to case, product to product, production line to production line, etc. But it's a typical calculation example of how customers can make, let's say, earnings improvements by using our additives. So now I take a step back and look at the global plastic market. It is approximately last year 430 million tons of plastics produced in the world. Approximately 10% is mechanically recycled plastics, the area where we are active. There is also a small fraction of bio-based plastic, chemically recycled plastics and so on, but they are very, very small in comparison to mechanical recycling and very, very small in comparison to the full plastic market. I think I want to show this too, that of all the different plastic materials that are out there, there are thousands of various polymers that are used of course in the world, but the big portion is the so-called polyolefins, that's polypropylene, low density and high density polyethylene and PET. Those are the materials where we do have functional additives that can improve the value of recycled plastics. And that is also the majority of the plastics that are being mechanically recycled. So we are relevant in a very, very big part of the market. So our development in recycling now, this third quarter was a repetition, more or less, of the high sales numbers that were presented in quarter two. Very much higher than last year and much higher than the year before that. We have spoken about this for quite some time. But it's really starting to move substantially. We cannot have huge increases like we had in quarter two compared to quarter one sequentially all the time. But the long term trend is definitely there. And we have several new major customers coming in that are planning for ramp up into full scale production. So we can expect this. not every quarter by quarter but on a longer term like every year by year it will grow quite significantly also in the coming quarters and years. What is the potential? How big can it become? We looked at the total market size of plastics and recycled plastics and then if you look at the whole world's total addressable market If all the plastics that we cover by our patents or know-how were recycled and we could use our additives, it would be absolutely a huge market, of course. But if you narrow it down to the parts that are actually recycled, and this is the 2030 number, so slightly higher recycling rate than the one we have today, but still not huge, maybe 15%. then it is a market potential for additives of around 2 billion euros. But it's still not a realistic market for us to approach because we will not reach every customer everywhere. But if we assume that we can reach 5% market penetration in Europe and 2% in the rest of the world, It is possible to have a market size of about 70 million euros. That's a very round number. It is quite conservative estimation, but 50 to 200 million euros is a serviceable, obtainable market for us. And that is very huge compared to what we currently save. The current run rate in recycling is about 2 million euros for us. So there is no end of the possibilities how we can gain growth in these segments and to double or quadruple the market in that segment is not unthinkable. It is definitely a possibility that we also next year can double that market and we can continue so with more, let's say, with more efforts into market and customer collaboration. So I want to also mention what is the driving force for the customer. What is the customer's voice? What do they experience? And we have the Kula Plus case that I have spoken about in previous quarterly presentations too. I think it is good because it's significant for how people are working with recycled plastics in the industry today. The challenges that they have and the solution that we bring significant for a grand portion of our current and potential customers. So what they find is that the quality and performance of their end products can be maintained but they can improve the environmental performance and they can reduce the cost and that is really the core of it. This Kula Plus customer case, we have made a YouTube video of it that we show to other customers, has resulted in an enormous interest from that type of business, because there are thousands of similar flexible packaging producers out there in the world, and many of them, or a few of them, have started to see that this is a potential for them. Fredrik Sack of the production manager on the picture here at Kula Plus has said, that using R305 from Nexam, which is our product that we use here, it's like night and day when we use recycled plastics. And it really makes a big difference at the very small added cost. Just the flexible packaging market is, of course, a big portion, but absolutely not all of that attainable market for us. But if we were to come in everywhere in the world where this would be relevant, only this market would be 30 million euros. But there are many other areas where our recycling additives are relevant. But every time... We need to go through this process when we start a new business. We need to get the customer interest, get to know them, explain what they can do. They need to think about it from their side. And then we need to start to collaborate with them. They need to evaluate the material together with their process and their materials, their applications. It often goes into a development stage where we are involved or the customer is doing a loan. sometimes both need to do something to be successful and then when that has got been hashed out and we have a concept then it needs to be proven in let's say small production or one product or something like that and then scaled up and industrialized and then it goes into launch and commercial and this process it takes some time We have gone through this process in the past years in the segments of lightweight and high temperature. We know more or less how it works. We have processes internally because we are not a startup or even a scale-up. We are a functioning industrial company with experience, so we know how to handle these steps. But every day we work with new customers. We learn things here of how to increase the conversion rate, how to accelerate the process, how to reduce risks, and so on and so on. But in the area of recycling, we have maybe 25 currently buying customers and we have a bit more than 100, 100 to 200 somewhere that are somewhere between customer interest, evaluation and early development stage. And we have approximately 13 customers that now are in the conversion from launch to commercial. Some of them larger, some of them smaller. We did a press release early this year, I believe it was, about two customers that have become quite significant in recycling. We have a couple of cases like that that are also quite close to commercial conversion right now. But it is depending then on validation testing in their labs and market tests and so on on their side. So it is a little bit difficult for us to put an exact number on this process when how much will drop out. And that's why we're not giving guidance on future sales in the recycling segment. But some of the activities we do then to increase conversion rate and accelerate and increasing the number of leads to put inside the funnel is first of all to build awareness with direct customer contacts, trade fair conferences. In this quarter, we had two very good trade fairs. One was in Mumbai in India, recycling show where we got a lot of customer interest and our collaboration partner distributing in India is very good. We see a lot of potential here. We have been collaborating for some time, but now it starts to become more and more boiling there. We were also at the K-fair in Düsseldorf in Germany, which is the world's biggest plastic fair every third year. Just came home from there, was there last week. Huge customer interest. In particular, the Kula Plus case and the movie that we made about that triggered a lot of interest from many, many different customers in that field. Not only from Germany, but also other countries around the globe which were on that affair. We do conference presentations next week. Our R&D director is in Barcelona to present there on a recycling word event, etc. So we try to be out there. But we need to understand the markets better, become more targeted on the high potentials and try to avoid putting too much energy into leads that do not have the actual need for the additive. And we need to provide good technical customer support. And we are also working on next generation additives in order to meet customer expectations in various fields and be able to be an even better solution provider in the future. And that's typical for Nexum as a very innovative company. We're not just out there selling our standard portfolio. We're also with the air to the ground and try to hear which movements are happening and where other opportunities are. So we work a lot on that. So to say, in the pipeline, flexible packaging that are close to somewhere industrialization. We have seven to eight highly active customers that are close to conversion, mainly in Europe. And in rigid packaging, we have a higher number. It's maybe 20 to 30 highly active customers, and they have a tendency to be more spread around the world. But I heard yesterday about some Asian customers, Japan and Taiwan, that were quite interested in the flexible packaging solutions as well. So we're working on it. Polyester fiber applications, very, very interesting. Many in the textile industry want to become more sustainable, and there is a lot of interest in textile recycling, and we have a really unique additive that no one else has that really helps to balance the properties that are needed for textile fibers. But they will work together with some early adopters. They're a little bit everywhere in the world, Asia, North America, and Europe. But we don't have any volumes in that field yet, but we believe in the future. And then we have our concept of ReColor Plus, where we combine our knowledge in colors with, let's say, other complementing additives and our specialities. And there we have new cases all the time. They are each one quite small. It is article-specific color batches that we produce there. mainly in the Nordic countries, Germany and Eastern Europe, but it's also growing all the time and there is a lot of potential there, especially on the local markets where we have our factories in our presence. Okay, with this I would like to leave the world over to Marcus to talk some about the current state of business and I will come back to close up. Thank you.

Thank you, Ronny. I'll give some details about the numbers and what we're doing at the moment and how it looks in the figures. We had a sales of 45.5, slightly better than last year. What we also need to mention here is that we are in a really slow market for the moment. So even if recycling is growing, we actually added 4 million SEC to this quarter compared to the same quarter last year. We don't really have this double-digit growth yet. But that's what we're working on. Meaning that we don't get anything for free at the moment in the general plastic market. Our gross margin, we continue to be on a stable level. We are now at 46%. It will be in this range. Somehow... between 45 to 50 percent is to be expected. In EBITDA we had a plus of 0.7. We actually took a hit this This quarter, we had a UK customer that went into administration. That we made a bad debt reserve of close to one million SEK. This is actually the first time in many years that we have any significant losses related to to customers. And this is something that we really pay attention to every single week. We send reminders, we send statements, and we also follow up for the credit terms and so on. And of course, we also go to prepayment. So we don't really see this as a... As a general risk, this was more like a one-time. But it's, of course, really boring to lose 1 million SEC in this area. We had a stable cash flow during the quarter. I think it was 8 million SEC in operational cash flow, but also our net cash flow was positive. And that will go a bit up and down during the quarter. It's a bit like a... a snapshot actually but we we continue to be on a stable level uh and i will also give you some details of what we have been doing during the quarter i think ronnie mentioned a few things but uh we now have two major uh middle customers in recycling they're up and running and that gives us a A run rate of more than 50 million sec of only those two customers. And as Ronny mentioned, we have this movie about Kulaplast. And that is really a... That really opens doors to many customers so you can see what we actually can do. Because we have actually one issue that our additives are a bit unique in the market. Meaning that we need to... to train and educate potential customers. And we are still a fairly small company. So actually, we are a little suffering from lack of competition in those areas, to be honest. And as Ronny mentioned before, we also have been out in presenting. We went to Germany. We went to India. And that also gives us a big interest from existing customers, potential customers, and we are sending out more samples than ever before. And that is mainly in recycling. To give you some more details, one thing that we can note here is that we continue to have our focus on the costs and on our cash flow, and we will continue to do so. That will always be really, really important for us. And at the moment, or at the end of September, we had close to 11 million SEK on our bank account. And we also have the ability to borrow another 16 million. And that, I will also mention something. We are an industrial company. And we are really scalable. Our break-even is... It's just short of 50 million SEC on EBITDA. Everything that we add above 50, at least one-third will go all the way through the P&L. We also see that we have our organization. It's actually a possibility to close a double our state without adding more overhead people. We are also very tight with our customers. Roughly 90% is recurring business. And as I said before, the margin is expected to be at these levels that we are at the moment. Overall, I can say that we have, for everything that we said that are patented or that are unique, we have at least 50%. in Madien, and for Calder we have roughly 45%. So in recycling we have 50% in the annual terms. And now I will actually be handing back to Ronny again to finish the presentation.

Thank you, Marcus. Maybe just to add on the scalability slide that we do not only have an overhead organization that can handle more, we also have machine capacity that can handle much more. approximately double sales would be possible to produce in our machines. So the horizon of development in the coming, let's say, ambitions to grow our sales from current 200 million Swedish per year towards 300 and beyond that towards 400 can be done without having to add a lot of machinery or overhead costs. So we see an absolutely good case to become profitable as we grow. Another view on what we do is that we have four areas of market that we have defined according to the customer value that we bring. A little bit more than half of it is aesthetic, which is a great base business. We are doing really well in that business, but we also have a few really strong competitors that are also doing well. But I think our market orientation from everybody on the shop floor, through development and the sales people and the administration turns out into a really good customer offering. I sense when I meet our customers here that they appreciate what we do. And I think that the team is doing a really, really strong effort in this area. And then we have the more specialty chemical areas of lightweighting and high temperature. Lightweighting is 18% of the sales. It's a global niche market with a few global customers with many production locations around the world where we have a very, very strong customer close collaboration. Unfortunately, that market has been quite weak over the last year. and are now down to very low numbers compared to how they were maybe one or even more so compared to two years ago. But it's a segment that is innovative. They are trying to find new applications and we believe that in the long term this will come back. But it will not be a rapid return. And mainly because of the weakness of the wind power market in Europe, North America and some other markets. High temperature segment is also a speciality market. Also characterized by few targeted customers. where the sales level is about 15% and it's quite constant. If you followed us, the number has been very constant for a long time. There is development ongoing in this. It's a high-tech area, right? So things are happening, but it's also long validation times and so on. And we prefer to work in this area by either... Yeah, continue, of course, with good deliveries and good collaboration on the practical side with our customers, but also to work on long term by working in R&D projects that we cannot finance ourselves. So with support from either governmental bodies or our customers. And then we have the area of recycling that we talk about so much in this presentation. It has gone from an internal startup to an internal scale-up, 12% today of the sales. It's characterized by this endless market opportunity, which is different from the other three areas. Another thing that can be interesting to mention is maybe that all the money that we have, because aesthetics, lightweight and high temperature are by themselves profitable segments, all that profit is reinvested internally into development of the recycling area because we don't want to lose speed in that process right now. You can also start to analyze it in a different way, maybe from more of a stock market perspective. And you can say that Aesthetic is like peers in the local master batch producers around the world. where we have a similar situation in terms of competition, product uniqueness and profitability. And then you have the high temperature and lightweight, which are more tailor-made, very high level of expertise, very high degree of IP coverage and so on. within historically fairly high growth but where we have very advanced you could say companies to be compared to and then we have the recycling which is more you could say speculative where we have a solid case on ip and technical knowledge it has been proven in terms of a product market fit and it is contributing to sustainability and there you you you need to compare us our initiatives totally other type of companies so what we do have is this innovative and forward-looking and hopeful part which is recycling we have the specialities that are also of very high value and then we have a base business where we have a normal industrial production but combine let's say a hopeful future initiative with the base business is what we think is very attractive because we have given by the base business a totally well functioning organization we have quality systems in place we have a supply chain under control everything is in a very ordered manner because they are characterized by normal industry and then on top of that we have this, let's say, very interesting initiative with enormous future potential. So, how does it look for the future? We see continuous strong growth in recycling. and we do have the stable base business and we have a broadening customer base it has been if you go two three years back we were a little bit unstable because we had very few really big customers and now we have a much broader customer range we have a really focused market strategy and innovation that is driving market differentiation and putting us in a very unique position And we have behind us already then major breakthroughs in recycle. or in the area of recycling, and now we have multiple customers that are moving down the funnel that I showed before, transitioning from interest to investigation towards industrial scale production. We have a really good performance in Eastern and Central Europe, and a highly increasing interest in that zone. For me, it was strange when I started at Nexam as CEO for two and a half years ago, to see that we had so little presence in, for example, Germany, and we are fixing that now. And that is starting to pay off. We see expanding position in structural forms. The market, as I said, is kind of depressing the sales number, but we are actually increasing our let's say, portion of the market in that area. And as soon as new applications are found in that field, we will ride with their increase, which I believe will come, but I cannot say when. And then we have several long-term opportunities. Some of them are on one- or two-year scale, and some of them are more into the five- to ten-year scale. But in the long run, this segment will continue to also provide growth for us. So we're looking positive for the future. So just to summarize, why have I and Marcus and everybody else in the management team and so many of you out there invested in Nexum? First of all, I think common for us all, we see a strong growth potential in the company. And we see that with the current investment in, let's say, overhead and machinery, we can perform a profitable growth with that potential. We have a very focused commercial strategy and it goes in line with the key global trends, in particular sustainability of plastic material, which is a huge problem in the world that needs to be solved. There is a huge untapped potential in recycling, but I also would like to say that there is a huge untapped potential geographically around us in Europe. We have a really strong innovation capacity and we have a really diverse portfolio of patents and we are proactive and we have the competencies and the knowledge to fix things that we see on the market when we are out there and so we are not standing still. So with growth we can improve our profitability and we have a solid financial position so that we also in a little bit weaker quarters, which I must say this one is, we still have a solid and stable financial position. We have an organization that is scalable. We can do much more with the people that we have. And there is obviously opportunities for acquisitions in the future when we come into a stable situation and a stronger financial position. So those are the main reasons, I believe, why people invest in Nexon. And that's why I do it. So that was all for today. Hope you enjoyed this. And looking forward to hear what Lara would like to know. And also from you, Erik, from the audience. Thank you.

Thanks so much, Ronny and Marcus. Super interesting. And once again to everyone listening, make sure you use the live chat function. We already have a few questions coming in. We've received some before as well. But now we hand over to Lara. from ABG Sundahl Collier to give her questions.

Hi, thank you. Just a few questions from my end. Firstly, very promising to see the continued growth in recycling. Would you say that you see any operational bottlenecks today in the scaling production and maybe delivering to meet this rising demand?

No, not really. As I said, we have much more machine capacity and organizational capacity to take care of this. It's obviously the result of hard work of the people that are with us, you know. But we have very good, for the last couple of months, very good delivery performance in all areas. We have no delivery delays really, although we are fighting so hard to reduce capital in raw materials. But we manage that process and it works well and available production capacity is not really an issue. And we also have fantastic KPIs on quality. We have very, very few claims and it's quite stable.

Very clear. And you obviously described Nexen's position in the recycling space is quite unique. And as your technology gains commercial traction, what would you say you're seeing from the competitive landscape? And maybe sort of a second part to this question, given the big market opportunities, would you say that your current R&D levels are sufficient to maintain your lead and capitalize on this momentum?

The last one first, maybe. If we say that, if we break it down from the outside and look at the potential of our market, it's quite large. And if you compare that kind of number in 50 to 100 million euros, it is much, much more than we currently sell. It is an indication of two things. We have only just started to scrape on the surface in this field. And the second thing is that to be in such a huge market, we did not have the organization that we would need to do that in a short time. but we are limited of course by our ambition not to make any losses and have a stable cash flow so we are investing as much as we can but if we were to invest more we would be losing money and we don't want to do that so that is why we kind of adapt our resources to what we can afford and With that, we try to do as much as possible of it. It is fairly much that we do in comparison to where we are today. But it is also, on the same time, nothing compared to where we could come. You know? And I think I missed something.

The first part was more on the competitive landscape.

Yes, yes. There are competitors out there, and it's most of the time not other additive manufacturers. Sometimes you can use, let's say, machinery solution to improve the quality of recycled material, for example. And then that type of alternative process reduces the need of additives. But, and then there are some, for some of the plastics that we work with, there are other suppliers of also additives that could improve the materials, but we just, do as usual and try to be better than everybody else. And it's going well.

Promising to hear. And a little maybe on the numbers, despite sales being somewhat softer than the quarter, mainly due to seasonality, you've managed to keep your cost rather under control. What should we expect in terms of cost development and efficiency going forward? How do you see the cost base going into 2026?

It's important, but let Marcus answer the question.

Yeah, what you can say is you can expect more or less stay on the same level as of today. That's what we mean when we said we are a scalable organization. And don't forget that we actually took a hit of one million SEC in this year, this quarter as a cost. And we don't expect that going forward.

Great. We continue to be meticulous about cash flow and cost in our day-to-day business, obviously.

Thank you. And you mentioned in the report that there is some uncertainty linked to the US trade and the current macroeconomic environment. Maybe could you quantify your current exposure to the US market? And how are you preparing to mitigate these potential risks?

Okay.

How much do you say about the U.S.? It's close to 20 million sec per year. Yeah. Something like that.

Ten percent. What we do to mitigate. So the thing is, we if you look at those. 10% of the sales that go into the US. We do not feel them as threatened in any way. It feels stable and good, all those business. But we do see that the industry in the USA have, let's say, difficulties in terms of supply chain management, especially, you know, from imports. And if we supply to the same system as someone else who is then maybe supplying from a country which is in conflict due to trade and so on with the USA, then there can be disturbances of short term. So we don't see this as a long term issue. It is more of a waves that can go up and down. So we don't do any particular mitigation except for keeping the air to the ground and speaking to our customers and try to understand their situation and help them in any way we can.

And just the last one from me. You mentioned improving your position in Germany, which is an important market in Europe. Which segment do you see as the primary growth driver in this market?

It's for Germany and the countries around like Benelux, Austria, Switzerland. It's mainly on, let's say, within the range of 26, 27. We mainly see... recycling, and to some extent aesthetics. Our color plant in Poland is in Poznań, which is right on the border to Germany, so we see some opportunity to develop also sales in Germany from the Polish unit. But those are the main areas. And Germany and Holland, I would say, and Belgium are the forerunners in Europe in terms of recycling technology, investment height, competence height in recycling. So it's important for us to be on those markets, also to learn for our activities in the rest of the world, including here and other.

Very clear. That was all from my end. Thank you.

Thank you, Lara. Thank you very much, Lara. We're getting a lot of questions, both in the chat and previously. Most of them are around renewables and recycling. Let's start off with Staffan Reinhorn. Two questions from him. One of them, will new clients also participate as reference cases like Kulaplast has done? And secondly, the timeline for recycling from interest to testing to full scale implementation production. What does that look like?

Okay. Of the 25 customers we have delivered to this year, approximately, Kula Plus and maybe one more are open with our collaboration in that field. Many people see this as a competitive edge and they don't want to tell their competitors how they're solving things. So, yes, I'm sure there will be more that are open to such reference cases, but it will not be a high percentage. But there is also another, there is kind of, it's a small bubble, the plastic world, and people speak to each other. And they speak to their friends and people that they went to school with or worked together with before and so on. So the more cases that we do get out on the market, the word also spreads. And since we often need to pass by the R&D and production management at our customers, Those people are the ones that really know the other ones in the business. And we do get a lot of good leads from our customers to find new prospects. And then the lead time from, let's say, generated interest to actual purchases. We typically say three years when you do something different. The customer needs to change something in their process. They need to rethink. They maybe need to purchase other raw materials or change something on the machine, smaller things, because it works in a normal process. But then it typically takes that time period. Sometimes it can go much quicker. We've had cases that are, you know, On the fair in Dusseldorf, we had a one-day conversion time for one customer and others we have been working on. They have a clear case, but we've been working for five years and they're still not buying. So it can be different. But one to three years. And we are doing everything we can to shorten that timeline. But that also requires limited resources, so to say, to improve our processes. But we are doing what we can there. but it's still in that range, one to three years.

And there's questions about the lead generation that you're mentioning. Obviously, you were in the fair in Dusseldorf, and there's word of mouth within the industry, but how are you working actively to get more leads?

So we are trying to spread on social media and be visible in various industry organizations. Obviously, the fairs are an important part of the business here, both Mumbai and Dusseldorf have led to a lot of leads. But also this kind of expert committees and so on, people that are on the board of directors of various companies and so on. So we try a little bit of everything. But a good way to create leads is to be local in the plastic industry in the country. So in the Nordic countries where we are that, or in Hungary where we also are that, we see more interest in adaptation and opening up of leads. So... Yeah, it's a little bit of everything, really.

And the last two years must have been incredibly interesting. As you said, you've gone from a couple of big clients to being much more diversified to a lot of clients and growing. What is the feedback from the plastic industry on your product?

Yeah, well... Generally, we are quite customer-oriented, and we do take care of not only the salespeople or myself. Really, the whole organization is very customer-oriented, and we do get feedback that it's running well, like logistics, quality, all these hygiene factors that you need to have in place, we have them in place. But also, we are perceived as being quite unique in that we have this strong R&D backbone in the company so when they come with a this solution doesn't work in that application. Do you have any ideas? And then we immediately start to develop a new version of an additive in order to fix that problem instead of just accepting the defeat. And that's very appreciated, especially by more complex organizations who are themselves analytical, you can say. So it's quite well. And like Marcus said, we have almost no losses of customers or jobs when we have been specified in a product we still continue to roll and we deliver into that into serial production for many years sometimes many decades and that is both because I think we do a good job but it's also because the value of the additive in the final sales price of the component is very small and it's always a risk to make a technical change so that is kind of preventing people from changing supplier in the additive side of business.

And let's bring in some other risks. As you continue to scale and hopefully double-digit sales growth, what's going to be the main difficulty do you think in scaling up?

On a short term, going from where we are today, let's say from 200 to 300 or to 350, we don't really see any major hurdles. I'm pretty sure there will be day-to-day things to be solved, of course. But we also, and I think we said this before, maybe not today, but in some months, we actually have sales of 30 million SEC already today. So we are... We are actually testing the capability and the capacity of the organization already today. So we are not really worried for that, to be honest. But, of course, there will be different steps. Once we hit 300, 350... We will aim for maybe 500 and 500. So there will be different steps in this.

So some of those challenges will come, definitely. But not here and now. We feel that we have it quite under control. And then there is all this. Until a couple of years ago, we did outsource quite a degree of our production. Currently, we make virtually everything ourselves. But we still have those contacts that are good friends with those suppliers, so we could also outsource production if it becomes necessary.

And if we look at the other products, we have a question from Peter Tufors. How are you affected by the defense scale-up in Europe and across the world? Are there any particular areas that are affected? For example, you mentioned lightweight.

Yeah, I think the most clear defense-oriented portion of our business are the 10% that go to, you say, a big portion of that is in defense applications. And if that would scale up with current product mix, whatever, and they would do more of that, it would lead to increased sales, of course, in that segment. But that's a very slow process, a very complex supply chain and so on. But that could of course happen. And then we also see a huge interest from both military and civilian aviation in Europe. and UK, if you include that in Europe, it is in Europe, right? Not in the EU, but in Europe. There we see a huge interest to try to also apply high temperature composites to a higher degree. We have a big interest of that, but I believe in, let's say, 26, that would result in engineering services sales to not such a high number. And it will also result in, let's say, smaller volume production sales, but it will not change the world for us on short term. But we like to participate in the reinforcement of European defense industry, of course. And so from that perspective, it's important for us.

Yeah. Obviously, we've talked about recycling. High temperature. You were saying that there are a lot of long-term initiatives going on. It has a potential upside. It's been very stable. Can you say anything more about that? Yes.

They are always extremely secret, and we are providing an additive to someone who makes a resin, who sells it to someone who's making components and so on. So we're far back in the supply chain, and it's very secret. So we don't see everything, but we do get indications that the North American kind of defense-related applications that we are inside are typically growing. you know multiple year basis and we also see some shorter term potentials where they are trying to drive innovation very fast and that's it or both European and American customers that are trying to do developments that are quick and that's typically then in unmanned aeronautics like drones and so on. There you can do a more rapid validation process and so on. So there we see some opportunity on the shorter term, but still one or two years in the future until it becomes significant for us.

Ronny Marcus, I want to say thank you for being here. It's incredibly appreciated by the market that you take all this time to go through what's happened during the quarter in proper details and answer our questions. So thanks so much and good luck in Q4.

Thank you, Eric. Thank you for listening.

So thank you, everyone, that participated. And thank you so much for your questions. Have a great day.