Nanologica AB (publ)

Hello and welcome. Today we have with us Andreas Bagwani, who is the CEO of NanoLogica, who has just released his Q3 report. And that's why we thought we'd discuss the content of the report with him. So welcome, Andreas. Thank you very much. We can start with Q3 report. Can you summarize?

Yes, the Q3 report is perhaps as most have expected. I think most of us, in our case, we will talk about it later, maybe look at the cash position. The sales were low as expected. If you look at the movement results and the cash flow, we are at minus 13, respectively minus 11. And that's about as expected. In terms of figures, I think that those who monitor the company know what they have and we are about there.

I think we can reconnect to some of the things that I noted in the report. And you mention that you are waiting to reach steady state production this year in the report. Can you develop? What volumes are we talking about? And you also mention improved production economy. Can you go into a little bit of this?

Yes, it is so that the first delivery we did in spring. The second delivery we did a few weeks ago. And we will do number three and number four and thereafter. Then we come into a situation where we that we will be able to produce running. And as I said earlier, this first period has been bordered on quite a lot of production problems. And that also means that our production economy has not at all been optimal. So I think that when we reach steady state, which I hope we do at the end of this year, possibly at the beginning of the next, Then we will have a completely different focus on cost and production economy, which we haven't had at all. It has only been about getting the right products out as quickly as possible with good quality. That's just been our focus. But it also means that when we solve it and have repeated it a number of times, we enter another phase and then the production economy becomes important to us.

When you mention steady state, should you interpret it as that you will be able to execute on new orders that will actually come right when they arrive and you don't have to do this prioritization that you had to do before?

No, exactly. That's what we mean by steady state. And also the fact that we ourselves know that this process is stable now. We have shown that not just once, but two or three or four times. And that's also when you can start making changes that we may have already identified, but that we don't want to do yet because we just want to make sure that it works and then you can start elaborating to improve the production economy.

Alright, and I also saw in the report that you wrote that earlier the sales team has been able to hold back, but that it can soon start to go full speed. Can you develop that?

For example, in the US we have a number of pretty large contract manufacturers that buy our type of product almost like a spot market for their projects. They have new projects all the time, they need silica for the projects you buy for those projects. But they also have a lot of production. And we have sold a lot of these, but then they have asked us for larger volumes. And it hasn't been huge volumes, but they buy often, and we have had to hold back. And when it comes to the large manufacturers, the pharmaceutical manufacturers, we have actually had discussions, but stopped there. Simply because we can't afford them to test our material and then they want a volume that we can't deliver. In China it is not really the same way, but we have historically lost customers there because they have been able to evaluate our product, they have thought it was good, they want to change to it and then we have not been able to deliver. So when we now enter a steady state, we will be able to let go of the very good sellers we have, who are hard-pressed, like myself. Above all, I am on all three of our main markets. We have four main markets, USA, Europe, India and China. I am on all three, but with emphasis on India and China. As a seller, it is a ploy not to be able to pull when you see that the product is good and they want more. So we look forward to being able to let go of the sellers on respective markets.

And that is expected to happen during Q4? Yes, possibly Q1. And you also write that you expect to be able to produce significant sales in 2024 in relation to sales of Preparativ Silica. My question is, is the goal of 100 million in revenue in 2024 still there? It is still there. And if we go into that a little, you mentioned that you will not only be able to handle analytical columns, but also Preparativ Silica under Q4. And also that a large part of the production costs for these first orders are taken.

Can you develop a little bit about this? If you look at the cash flow during the year, for example, I think it is at minus 47. Some of them are payments that have been made during the year 2023, but also that have been made earlier to what is now produced and comes out. And that means that when we start the sale, the cash flow that is generated affects us very, very positively. Because even if we have a cost on the result calculation, we do not have an outpayment that corresponds to the inpayment we get, since it is pre-paid. And that means that it will affect us very positively from a cash flow perspective when we start the sale. And that's where we stand when it comes to payments and that we hope that it will be able to get started during Q4.

When we were talking about finance, we thought we could touch on this, because when we talked about the Q2 report, we discussed cost savings and the restructuring done in drug delivery, where you mentioned that it would lead to savings of about SEK 7.5 million by 2023. This is starting to appear in the Q2 report, so how is this progressing with cost savings?

I would say that it is hardly seen at all in the Q3 report and that has to do with the fact that we have a number of employees who are no longer left in the company and they ended in August paying the last salaries and then we have a fairly large semester salary debt that was also paid out during the quarter. But that means that when we go into Q4, we will essentially have a better cash flow, or essentially a smaller outflow of, I think we were at 13 in the initial cash flow, and we will be much lower than that under Q4. That in combination with us The sale, which I mentioned earlier, is largely pre-paid. This means that we expect that if we get started properly under Q4, or if we just get started a little bit, then both of them will have more or less a very big effect on the cash flow during the fourth quarter.

That's right, and my next question is related to the cash register, which was 22.6 million SEK, based on Q3. And as you mentioned, you are waiting for better cash flows from September. But as an investor, how should you look at the financial needs or potential financial needs that exist in the company?

Yes, it's tough times, so I think that question has held back the view of the company in general. We are not planning any capital acquisition right now, and that is because we do not need it. We will deliver. This will have a positive effect on the cash flow. We have already lowered the costs, that is, the payment is not as big in Q4 as it will be in Q3. And that means that right now we do not see any need to take in capital. But I know that there are many who are worried about that, especially in these times, and I understand that. But as one of the big owners of Nanologica, I don't think it would be appropriate to bring in money right now with the uncertainty that exists. But what we in the company need to do, and what we are going to do in the fourth quarter, is to prove that our production continues to deliver and that we can convert it into sales. That's what we're going to do.

A final question in relation to what we have talked about here. You have talked about some pre-paid costs and so on. How should you look at when, at what volume or at what level would you say that Nanologica will be positive for the cash flow?

That's a good question. There is no simple answer to that because we have pre-paid costs and then when we have used up that silica it will be a new situation. And that will happen in the second half of next year. I would say that for me it is quite difficult to say that when we become cash flow positive, simply because I do not know at what pace we will get the sales started. But since we have now lowered the costs, it does not have to be very much before we at least have a big impact on the cash flow. And then the capital need will also be less, even if we do not go to the point where we become cash flow positive. That was a long answer to a very simple question. And I think the simple question is that I don't know when we will be cash flow positive. We need to get started with sales to be able to answer that question. But it takes quite a bit, as I said, in sales to affect cash flow very positively. So that's how good I can answer now.

Alright, then I thank you very much for your contribution here and for the updates. We look forward to hearing more from you a little later on.

Thank you very much.