Good evening and welcome to Tekna's presentation of the highlights of Q4. Luc Dionne, CEO of Tekna, and Espen Schie, our CFO, are with me here today. It will be a short presentation of about 15 minutes, and you can post your questions in investorweb.no or by email to investors@tekna.com. Over to you.
Hello, hello. Thank you, Arina. Hello, everyone. I'm pleased to share our company's fourth quarter results with you today and reflect on the progress we have made despite the challenging market environment in 2024. Over the past two years, we have focused on strengthening our financial position. We are not quite where we want to be, but our fundamentals have significantly improved, as you will see. We will also comment about the tariffs threat on the Canadian-U.S. trades. Before we go into these details, I will share a few words about Tekna for those who are joining us for the first time. Next slide, please, Arina. Tekna is a world-leading provider of advanced materials and plasma systems solutions. The company was founded in 1990. We have our headquarters in Canada, and we are listed on the Oslo Stock Exchange since July 2022.
We currently have 185 employees in the company with two production facilities located in Canada. We also have offices and distributors that are located, of course, in Canada, the USA, France, China, Korea, India, and Japan. Approximately, 46% of our revenues at the end of 2024 were generated in North America, 27% in Europe, and the same in Asia and other countries. In terms of the customer segments we are serving now, 50% of the revenues, again, for 2024. 50% came from the sales to the aerospace industry, 13% to the medical industry, and this has increased. It was 7% last year. 3D machines, 9%. This was down from 12% to 9%. 9% to consumer electronics, which was 5% last year. The balance of 20% are sales that we do to various other segments, such as academic institutions and industrial research.
You can see here on the right side of our slide that we are serving and targeting quite a large base of high-quality customers. As I mentioned earlier, a good number of them are leaders in the aerospace industry. Next slide, please. The company Tekna is engaged in two business lines: plasma systems on the left and advanced materials. The systems business line represents more or less 30% of our total revenues. This is in two specific market segments. One is R&D plasma systems and plasma wind tunnels. Here on this picture, you can see what an R&D-sized plasma system looks like. You will see on the later slide in my presentation, we will see what a plasma sonic wind tunnel that is a high potential for Tekna. One of the key applications for our plasma systems is to produce advanced materials.
Those materials are produced in the form of very fine metal powders. We have developed a customized configuration of these systems, and we use them for our exclusive production of advanced materials in three rapidly growing segments that we see here under the advanced materials business line. That is additive manufacturing, microelectronics, and energy storage. Additive manufacturing is our current business. Microelectronics is a business we are currently developing. Energy storage development is currently on hold. The production for materials serving the additive manufacturing segment is fully industrialized, and it has generated more than two-thirds of Tekna's total revenues in 2024. Next slide, please. Espen, I'll leave the word to you.
Sorry, I was muted. Thank you, Luc. Let's take a look at the results. Our Q4 revenue decreased 15% compared to the same quarter last year to CAD 9.6 million. The decrease is due to lower systems revenue. Advanced materials had a good quarter, and were up 14% year over year to CAD 7.5 million. For the year, revenues ended at CAD 37.2 million, which is a 9% decrease. Again, this is driven by the lower systems revenue we see. The advanced materials increased 3% in 2024, with very strong growth in all segments except for material sales to 3D printing manufacturers that declined by almost 40% in 2024. We do find very strong confidence in our system pipeline and also the fact that virtually all the underlying advanced material segments are with strong growth. Next slide, please.
You see here, this slide, as we mentioned in our Q4 report that we published today, we have closed the activities of a joint venture. Historically, Tekna had revenues from making services to this joint venture. When we look at this graph, we then exclude this from the advanced materials bar. Those are the numbers in green. We can conclude that year-on-year growth on materials was actually 17% instead of the 14% that we saw on the last slide, and 7% here on the right side instead of the 3%. That is just to compare properly apples with apples. Next slide, please. Let's look at the profitability. The adjusted EBITDA ended at CAD 1.5 million negative in Q4, and in 2024 was down by 2.8% versus 2023.
This decline, again, is mainly driven by the lower system revenues that we just saw on the previous slides. We continued very high focus on profitability and cash flow, and we remain very cautious on spending with continuous tight cost control. Some of the readers that have been following us, we have been working on cost reduction actions for a while. The cost reductions that we have made in 2024, most of them will also continue with recurring effect into 2025. You can go to the next slide, please. To illustrate here, some of the fruits from the capital efficiency, we have over the past year reduced working capital by CAD 5.1 million. This largely then contributed to a very good improvement in operating cash flow by CAD 10.4 million in 2024 versus 2023.
The CapEx in 2024 in Q4 was very limited, and for the year, it ended at CAD 2.2 million. This then excludes the lease contracts that are subject to IFRS 16. Finally, I'm very happy to say that the cash balance increased in the quarter to CAD 12.4 million, up CAD 4.8 million since last quarter, and CAD 2.9 million of this we received from a litigation case that we won last year. Next slide, please. A small touch on the U.S. tariffs. Here, the recent threats that we have seen on tariffs between the U.S. and Canada does create some uncertainty in the marketplace. We do experience that the business is cautious and pending on the outcome of this situation. We see that some customers are delaying their decisions. Others are pulling forward orders. Both are effective with different ways of managing their respective risks.
We see that everyone is managing on this basis. We, on our end, are monitoring the potential risk for us, the advantages for us that we can take out of the situation, any changes on the competitive landscape. We work on minimizing the current exposure with the existing business we have, as well as positioning ourselves for new business to limit the impact as much as possible pending the outcome. As we see the situation today, we do expect little impact on the system business. For advanced materials, no impact on the purchasing of raw materials, but a portion of the backlog that we have on hand could be in some way impacted depending on the outcome of what comes.
We do have mitigation plans in place, and we expect that this number will also be reduced by the time if the tariffs come into play. As the story evolves, we monitor and adjust our planning and try to limit the impact as much as possible. With that, I will hand back to you, Luc. Next slide, please.
All right. Thank you, Espen. Looking at the year-on-year for the advanced materials. Over the past year, we saw a strong year-on-year growth in advanced materials sales across the key industries: aerospace, medical, and consumer electronics. However, the sales of our materials to the 3D printer manufacturers were affected by end users that were delaying their purchase of new printers. These delays were mostly due to the high capital costs. As we can see on the graph here, this is basically the sales to AM machine manufacturers is essentially the factor that has affected our material sales throughout the year. Hopefully, the downward revision of interest rates should be a positive development for this market segment in 2025 and coming years. Despite this situation with AM machines, our sales to the aerospace and medical customers remain strong in Q4.
We closed 2024 with growth rates over 23%, respectively of 24% and 29%. This is quite a strong growth for these segments. Just to give a hint about the use of our materials, for aerospace, the powders are used for the manufacturing of various parts used on aircraft, satellites, or rocket components. For medical, it is either for the manufacturing of medical implants, hip or knee joints, or small medical tools. On the consumer electronics side, although the sales was quite soft in Q4, we have recorded 24% growth over last year. This is quite impressive if we consider that there were basically no sales or little sales variation in Q4.
In consumer electronics, the use of our powder is to manufacture cases and small components such as dials and press buttons that are used on cell phones, digital watches, or any other wearable electronics. Next slide, please. If we look at the long term for advanced materials, our ambitions for the growth and improving our margins remain very strong. Although some years have performed better than others, in 2024, we have recorded the 10th consecutive year of nonstop revenue growth for this business line. Basically, if you look at the graph there due to some maths, you'll see that we're doubling revenue more or less every three years. Several economic factors are working in our favor and that are fueling the demand for our materials, namely, like trade tensions and Western reshoring of manufacturing capabilities.
Oh, I would say maybe reshoring from Asia to the West manufacturing capabilities, the aging population that is driving demand for medical implants, and of course, growth in the connectivity and electronic wearables. All of this translates in a growing number of customers who are operating at industrial scale for 3D printing. Of course, beyond 3D printing, it is important to mention that our addressable market is expanding and creating additional sales opportunities for the full range of the size fractions that we are producing. Those are the powder size fractions we are producing to serve various markets. Looking ahead, Tekna aims to gradually scale sales and production capacity to achieve about CAD 40 million-CAD 70 million in revenue by 2027.
This will be, we expect that we will be able to achieve this with limited capital expenditure because we will be tapping on our current powder equipment base and productivity improvements. Next slide, please. Beyond advanced materials sales for additive manufacturing, we see a significant potential upside in two key areas. One, the acceleration of satellite, space, and hypersonic flight programs that is driving demand for our plasma sonic product line, and also the growing market for multi-layer ceramic capacitors that are supported by our nickel nano materials. The economic drivers remain favorable for Tekna's plasma sonic product line. In Q4, we have added four new opportunities to our pipeline, each having an average selling price exceeding CAD 10 million per unit. We continue to see consistent progress in the sales cycle for productive plasma projects.
These opportunities are maturing, strengthening our confidence in near-term to mid-term orders. On the MLCC front, recent applications and validation tests on delivered samples have yielded promising results. In Q4, we provided an adjusted version of our product, and we expect feedback on these samples delivered in Q1 2025. Additionally, we still have trials of our Tekna nano materials for next-generation MLCC applications that are ongoing, and this is reinforcing our position in this high-potential market. Next slide, please. In conclusion of our presentation, for systems revenue, we see a decline in 2024 that has significantly impacted our profitability, but we expect to rebound in 2025 with potential large plasma sonic system order. In advanced materials, sales grew 25%-30% across all sectors except 3D printer manufacturers that were affected by high interest rates. Financial strength improved.
We have improved our cash position and cash flow from operations compared to the previous year. EBITDA and market conditions is the EBITDA is below market, and that was mainly impacted by our low systems revenue. The technology and commercial fundamentals of Tekna have proven resilient in a market challenge globally. We've seen this with our growing sales for additive powders. Last but not least, our focus on cash reduction and cash preservation remains our key priority. Thank you, everyone, for listening today. Arina, I pass it back to you for the Q&A session.
Yes, thank you. Welcome to the Q&A. We have already received some questions, and we'll start with our CFO, Espen, some questions for you on our profitability program.
Yep.
What specific cost reduction measures were implemented to help reduce overheads?
Yep. We have, in the reduced, first of all, we have reduced our staff cost base. Year over year, it's about 17% lower staff. We ended the year at 185, and we had over 222 in the same period a year ago, so end of 2023. If you compare it to the end of June, so Q2, that was 203. There is still a significant reduction since the summer. The savings coming from this fact of the lower cost base also continues into 2025. In addition, we have significantly reduced our operational expenses, so typically OPEX. These are mostly recurring and also structural savings, but some of this is discretionary spending, meaning these things we have temporarily reduced. By structural savings, what I mean with that is that we have changed our methods, processes in a way that we are leaner and operate more efficiently.
This basically summarize it, and we expect that this will be a main or a key driver for profitability in the future.
Thank you. At the same time, the working capital reduction is impressive. How do you see that going forward? Is there more room to improve?
Yeah, we have done a lot of work, a lot of work on the working capital in 2024, including inventory management, payments, price negotiations with suppliers, and reduced, yeah, virtually everything that is overdue on our receivables. In this equation, it is also an important thing for the viewers to keep in mind that the system business we have, that is the business that has very low working capital because these systems come with high prepayments. The working capital is mainly driven by the activity on the material side. For 2025, we expect that the working capital level will be more or less stable with slight improvements that we can take, probably something reduced on the inventory level. I would say about 35%, which we ended now at 39% at December 2024. Over time, I do see that we have potential for improvement much beyond 35% also.
That's good news. Luc, for the reduction in headcount, it was quite drastic that we've done over the past year. How do you plan to maintain operational efficiency, but at the same time grow the company?
Yeah. Good question. I think we need to understand that an important part of this reduction in the headcount was made when we terminated the joint venture operations. That part does not affect our remaining current business. That was one thing. Another change we have done recently was a change in top management positions. We have made sure that we are keeping all the critical skills inside the company to continue and maintain the operations as well as the business development. For example, we have not touched our sales force. Sales force remained untouched, and we even further made some recent acquisition hiring, sorry about that, of a new staff. We have strategically positioned a sales director in Asia to cover that important part of our revenue.
I think that the key skills are in the company, and they are strategically deployed to make sure that we maintain our ability to develop and grow the company.
Okay. That's good to hear. We recovered the legal fees, but there's also an appeal going on. Can you give us a bit more information on that whole side of our story?
Yeah. First, we were very happy to recover the legal fees, no doubt about it. As you saw in our report, it is about, well, not about, but it is CAD 2.9 million, basically close to 100% of what we had claimed in the fees. In terms of the appeal process, there is not much to say about it because this is an ongoing process. We are very confident in the fact that the original ruling will not be overturned. Nevertheless, this process is going, and it can take another year and a half before the court, the appeal court hears the case.
Okay. We still have this going on, but it seems like we're not, it's not going to occupy our thoughts for now.
We're not too concerned about it.
All right. A question about the market dynamics that we observed in this quarter.
I think Q4 was a pretty good reflection of what happened during the year, meaning that we did some good progress in every key sector, like I mentioned earlier, aerospace, medical, and consumer was a little low, however. The two key, medical and aerospace, went well. For the sales of powders to the manufacturers of the 3D printer, that was still low as it was all year long. I think it's pretty much the same pattern in Q4. There's nothing special there. Of course, our sales team, as usual, when we get close to the end of the fourth quarter, we try to promote sales as much as possible. We've been successful to some extent at doing this as it has reflected in our Q4 sales for systems for materials. I think all in all is good.
We are talking about powders, but also for plasma systems, we did receive two orders in Q4. That really helped to boost a little bit of the backlog for that business segment. We also saw some acceleration going on for our plasma sonic product line. We are actively, as you know, developing and growing in this highly interesting sector. For example, we have recorded four new opportunities in our pipeline. Each opportunity sells for about, on average, above CAD 10 million. It was quite, I would say, interesting to see how in a single quarter four opportunities came up. I think it is useful to say that it is a 50/50 share between industrial users and academic users.
Okay. Since you brought it up, since you brought up the systems, we have a maturing pipeline. Do you want to add something about that?
I think I just maybe conclude that we trust that the progress in one of the orders we had in our pipeline was quite encouraging in Q4 and has continued in January. If all things remain as they are going today, we believe that we could close this order early this year.
Fingers crossed. One very specific question. You said that one order for plasma sonic could be CAD 10 million on average. What do our other plasma systems cost?
The average selling price we've seen so far for other systems is CAD 1 million. It goes from somewhere between CAD 700,000 and, depending on the size, CAD 2 million. What we usually sell, in average, it's about CAD 1 million.
Okay. Thank you. Espen, you spoke about the tariffs. Do you want to say something more about how Trump, Musk, and these tariffs may be affecting our business this year?
I think, for the systems that I mentioned, that is a very limited impact, most probably, from at least from what we understand of the situation that has been presented so far on the material side. I think one may keep in mind here that it's, of course, quite expensive for our customers to change metal powders because these are long qualification chains. For that reason, I wouldn't expect that we're suddenly going to see a change of customer base jumping around because of this. Adding to that, tariffs are probably a temporary measure. If we put that aside, if we look at our product portfolio as such, the product portfolio we have remains highly competitive also should tariffs come to play.
Why I believe such a statement would be relevant is that most of the metals that are relevant for Tekna, competitors of Tekna, most of these metals actually are coming from suppliers from Canada into the U.S. It means that it's going to be a higher price for U.S. buying in Canada for everybody. This is not a phenomenon that's going to be isolated to us if it happens.
Yeah. For now, we're not thinking about putting our production in the U.S. or any dramatic changes like that.
No. I think that would be an overreaction to what we see.
Yeah. Luc, any update on the consumer electronics, smartwatches, the question we get every quarter?
Yeah. You mean for the MLCC or for the?
No, for the small size powders.
Small size, yeah. Okay. I think we have pretty good development on that front. For those who are less familiar, our process when we produce powder, we naturally generate different sizes of material. Let's see if we break this in three sizes, I would say the middle range sells like a premium product. Every year, we sell 100% of what we produce. We also have two byproducts. These byproducts have been challenging to sell in the past. If we take a byproduct A to give it a name, which is a smaller fraction of what we produce in size, right now for 2025, it's sold out. We managed to find an outlet to sell 100% of those smaller size fractions, how we call them. For the larger size fraction, it's been challenging to sell it in the past years.
Now we have managed to find some outlets, and the sales of this larger size will be growing throughout 2025. I think all in all, we think it's realistic to think that by the end of this year, we will have some outlet for about 85%, maybe a little bit more, 85% of the total powders we are producing.
Which will be really helping our margin in the end as well.
Absolutely. Yeah.
Since you mentioned microelectronics, let's go there. How do you see that going forward? And what specific developments are we looking for in order to turn that into a revenue stream?
Yeah. Last year, at our last meeting, we mentioned that we had received customer feedback on samples we had sent in 2023. That feedback was pretty much, we checked pretty much all the boxes except for one where our powder was, for one parameter, slightly on the low end of what the customer was ready to accept. The customer asked us to make some adjustment to the product and hit the middle of the target. This is what we have done. Our R&D team managed to achieve this target in Q4. With a lot of prowess and effort, the team managed to deliver the product to the customer before Christmas. We expect to have some feedback from this customer in Q1 this year. It is quite exciting for a lot of people to see how this will turn out. It is a huge potential.
We're talking about dealing with the largest producer of MLCC device, so one of the largest, yeah.
We're so close. Okay. This one is for you, Espen. How do you see the margin profile evolving over the next quarters, especially if plasma systems revenue remains lumpy?
Okay. We do not guide specifically on quarters. It is very difficult to do that. I would like just to say that, because of the seed, to restate that again on the tariff situation, there is a little bit of uncertainty in this moment for what happens in the U.S., particularly. I think that is going to be much clearer very soon. That should probably then again speed up more business again. For the margin question, I think what I can say for 2025, I think here we do expect margin improvement in 2025 versus 2024. That should be on both systems and materials. Of course, this depends on how also the revenue develops. We remain positive on this.
Okay. Also, final question for you. Any revenue and profitability guidance for 2025?
Yeah. Yeah, to follow up a bit on my following previous comment, I mean, both we do expect 2025 to have high revenue, a higher EBITDA, or improved EBITDA. In addition, we have mentioned in the report today that we plan for about CAD 2.5 million CapEx in 2025, which is similar to what we had in 2024 or CAD 2.2 million. These numbers are done excluding these contracts that are subject to IFRS 16 accounting. I mentioned the working capital of the 35% around that. I think that brings the total picture.
Sounds good. Let's deliver that. Okay. Luc, any closing remarks from your side?
Yeah. First of all, thanks everyone for listening today. There's likely a lot of Tekna employees also listening to this conversation with us, with you guys. I want to extend all my recognition to the team because 2024, it was tough. Generally, the market was very challenging, not just for Tekna, but also every industry around the world. It was quite a challenging year. Our team has delivered in these conditions quite exceptional results. Thanks to everyone. I think when I reflect about Tekna and this kind of, I would say, our performance in 2023, if we exclude the low systems revenue, which of course, that segment is usually fluctuating a lot year- on -year.
If we look at our advanced materials and the performance we have been able to deliver for these key sectors, aerospace, medical, and consumer electronics, and if we analyze that, we find that it's like a testament about our technology and the commercial fundamentals that we have established over the five, six, seven years in developing ourselves as a reliable supplier of advanced materials in that industry. I'm very happy about these results. I'm happy and proud, actually, about all we have accomplished. I really look forward to continue 2025 on the same trend. Thanks a lot, everyone. Looking forward to talk to you again in our Q1 results later this year.
All right. Thank you for joining us today. Please consult the published interim report for more information. We will be publishing our annual report on April 10th of this year. Thanks a lot.
Thank you.