[Non-English content] . I would say a warm welcome to Mr. Luis Gomes. Are you with us?
Hello. Good morning.
How are you today?
I'm fine, thank you.
You are the CEO of AAC Clyde Space.
Indeed.
Where are you situated at the moment?
I'm in Glasgow, where I've been for the last three months.
Okay.
In lockdown.
Are you stuck there?
Yes.
Okay. I'm looking forward to your presentations, so I'm leaving the screen for you and talk to you in a little while about some questions and answers regarding your company. Welcome again.
Thank you very much. Thank you. Good morning, everyone. Thank you for the opportunity to let me explain a little bit what we are doing at AAC Clyde Space. We are a company based in Sweden, in Uppsala. We started life as ÅAC Microtec. In 2018 we acquired Clyde Space, that was a satellite company based in Glasgow. Since then we have merged the two companies and we are now AAC Clyde Space Group. We offer turnkey solutions from mission design to in-orbit operations. We build from components, we design our own components, our own onboard computers, our own solar panels, batteries, and then we integrate those into making satellites. We operate in the one to 50 kg range, as well as supplying subsystems for third parties. We have a wide range of customers worldwide using our subsystems. We have got two production facilities.
We work in Uppsala where we specialize in mostly two types of subsystems, power systems and onboard computers. We are very successful with those onboard computers and power systems from Uppsala. In Glasgow we do a range of what we call CubeSat electronics and also satellites. We integrate them into our own satellites, usually CubeSats, five to 20 kilograms CubeSats that are then sold to a variety of customers. We have been operating for many years in space. Of the 1,500 or so small satellites launched since 1998, you'll find parts that AAC Clyde Space has built on many of those satellites. Be it a battery, be it a small solar panel or a computer. We have done quite a lot. We have been present in many of these satellites.
We have a long experience, both ÅAC Microtec and Clyde Space, of supplying the space industry with high quality, reliable subsystems. Our growing order backlog has grown up to the end of quarter one from the end of 2018 to 173%, to 183 million SEK, showing how this market is growing. A lot of that backlog comes from our growth in satellites. We are building more satellites. We are now moving from just supplying subsystems to supply missions, and we are actually moving more towards that side of the market. Our financials have been improving. Our revenue at the end of quarter one 2020 was substantially higher than last year, showing an improving situation. Our EBITDA has not grown as much as we wanted, but we are making progress on that. We have said that our objective is to be EBITDA positive next year in 2021.
Last year we achieved 66 million SEK, as I say, things have been improving the first quarter of this year. Despite what's happening with coronavirus, we still managed to actually grow our revenues when compared to one year ago. We have a share issue. Last year we raised 82.5 million SEK, we were substantially oversubscribed. In terms of order backlog, our order backlog has been growing, as I said, this is very much down to the growth in the satellite market. We continue to supply subsystems, components that go into a variety of satellites all over the world. The growth that we are seeing is now on the satellite side, on the fully integrated platform. This comes down very much to the fact that the market is actually growing.
The market for this kind of technology is estimated to be worth about $42 billion from 2019- 2028. Of course, this includes a variety of different sectors. This is the hardware manufacturers like ourselves. It includes the launcher business. It includes a lot of the downstream, the people that are using this data. The fact is we are operating in a growing market. We have a global presence, so we operate all over the world. We supply very different types of customers, from institutional to commercial customers, some of which are actually very experienced in using space technology. We do this by using highly standardized, miniaturized, high-performance platforms and subsystems. Many of our subsystems, you can just plug and play them together, and you can actually build a variety of different satellites for different applications.
We are aiming to actually reach a positive EBITDA and a positive operational cash flow in 2021. We are a team comprised of people that have been working in this sector for many years. At the same time, we have a very young and vibrant engineering team. We are actually bringing together the skills, the experience, but together with the innovation and the new ideas that the market requires. This is a market that is growing. We expect an exponential growth in the number of small satellites launched, CubeSats, and slightly bigger than CubeSats. This is due to the fact that these small satellites can accomplish now tasks that in the past required much bigger satellites.
Because they cost less, and because they are much quicker to build, and they cost less to launch, they are actually enabling a series of applications that if you were using one single very large, very expensive satellite, you could never afford. Now that you can actually do it with smaller satellites, and with more of those, you can actually start operating large constellations. This is groups of satellites that are then used to accomplish an application that requires a distribution of satellites all over the Earth, low Earth orbit. This has opened a whole new range of activities. There are certain things around communications, Internet of Things, tracking of assets on the ground that really only became possible once you had these small satellites delivering these types of services.
What this meant is that many more commercial entities have started to come into this sector. In the past, space was very much the preserve of large organizations and very large corporations. What we have seen over the last 10 years is that more and more small companies with great ideas are coming into the market and are actually starting to apply those ideas to actually make a business out of those ideas. We have been working with a variety of those. Much that nowadays what we are seeing is a little bit the opposite, is large corporations, large companies with a big track record on using space and with experience of using much larger spacecraft, they are now coming to talk to us and saying, "Okay, we see that this sector is growing.
We are very interested in your technology, we would like to actually start buying your satellites, your small satellites, to do some of our applications. This was seen last year when we had Eutelsat, one of the world's largest satellite operators, coming to us and buying two satellites from us for Internet of Things applications. Now, those satellites are what we call a full turn-key solution, and they are one of the products we supply. We are offering, as I said, from small cube components, so you see in this slide a picture of actually many of our components that we supply, and we then also build them into full satellites, so into missions.
Those can be just in terms of platforms, we can supply a platform to a customer that then integrates their payload, or we can actually do the entire turn-key mission for them. That's what we are doing for Eutelsat. We're also doing something now that we believe it's a big change in the market, and we are seeing that as one of the big growth opportunities in this market, and that is space-as-a-service. We are seeing more and more an interest of many of these companies, not in owning and controlling their own satellites, but actually just getting the service they require from space. This allows them to focus on their business, on their core business, without actually having to have the infrastructure and the staff to actually control satellites.
As such, we are starting to offer space-as-a-service, and our first contract for that has been with ORBCOMM last year, another large operator of satellites in the world, and they decided we don't want to actually have to operate all these satellites. You guys, you design, you build them, you put them in space, and then you operate them, and you just give us the service we need. This is a trend that we see continuing. We are seeing more and more people coming to us and asking us, "Can you set up a space-as-a-service business model?" Our company is transitioning, so from being a subsystems and component supplier with some platforms and missions and a little bit of space-as-a-service, to becoming a much more, subsystem still a big part of our business, but the growth is on the platforms and missions and space-as-a-service.
That's where we see a lot of opportunity. This is something that it's validated by the market. We see our customers more and more coming to us and asking us, "Can you actually set up these types of deals?" Just to give you a little bit more of information on what space-as-a-service is. It's a combination of missions. We design and build and arrange the launch and do the commissioning of a satellite, and then we actually manage that satellite, that service, on behalf of our customers. In the case of ORBCOMM, what they do is they get a few messages every day, a large number of messages actually, from their AIS, automatic identification of shipping terminals. The satellite collects those and then downloads those to the customer, to ORBCOMM.
It could be images if we were doing that for an Earth observation mission, we could just actually deliver to the service user, we could just deliver them the images that they need. It's a powerful model because it allows customers, it allows users not to have to actually think and worry about how to manage the space segment of their business. That is becoming increasingly important because these large constellations require quite a lot of maintenance, they require actually a range of ground stations. It is for a supplier like us, a manufacturer like us, it is fairly cost-effective to actually operate many satellites at the same time. If you're only operating a small constellation for yourself, it can become less cost-effective. Hence why asking someone like AAC Clyde Space to take on that part of the business.
This is part of our strategic agenda. When I joined the company about a year and a few weeks ago, May 2019, we set out to actually consolidate our business, so we did quite a lot of work on the reduction of costs through introduction of standardized platform and subsystems. We focused very much on the constellation customers and how do we actually grow from just producing one, two satellites to large constellations. We started by looking at M&A options. There are some interesting opportunities in terms of technology and in terms of business models. That was the first job, and we continue to do that one. We also looked immediately at improving, so we looked at how to increase our production capacity. We needed more staff, a bigger workforce with different skills, with more skills.
We have been doing that, we have been putting that in place. All of this, of course, maintaining the high reliability, the quality, and performance that we are known for. AAC Clyde Space has a long history in the space sector. We have actually demonstrated good quality, we have demonstrated reliability of our equipment and also performance, and we want to keep that. That's probably one of our unique selling points, and we like to actually make sure that whatever we do, we maintain those qualities. Of course, we are looking at how to grow. We are currently working on growing our production capacity from roughly eight satellites a year to about 20.
We are talking about satellites that are all slightly different, so they all require quite a lot of non-recurring engineering, so they take a bit longer than if we were just building the same satellite over and over again. If we were building the same satellite over and over again, we probably could ramp up our production to about 100 satellites per year already quite easily. If we are actually doing a variety of satellites, we are actually limited by the number of engineering hours that you need to put to those, but we are increasing that capacity. We're also looking at geographic expansion. We have said many times that we see the U.S. in particular as a market of great interest for us. We are actually quite successful in the U.S. market. We supply quite a lot of components and subsystems and satellites for commercial entities.
If we want to actually supply the more institutional markets in the U.S., we need to be present there. We need to have a facility there. We are working on that. We have said this many times, of course, we need to find the right deal. We have looked at a variety of options from setting up a facility there to actually acquiring a company in the U.S. We have looked in quite a lot of depth, but we need to do that in the right way. We are looking quite carefully at the opportunities. Then, of course, the growth, as I mentioned before, the growth path for the company is developing space-as-a-service offerings. As I said, we see quite a lot of demand from the market for these kind of offers, and we are actively working with customers on this.
Our key milestones in 2020, we are finalizing our fully in-house test capability. We are acquiring test facilities and test equipment that will allow us to actually do our tests in-house. We already do quite a lot of it, but it allows us more flexibility, reduces our costs, and also allows us not to be dependent in terms of schedule, not to be dependent on third parties. We do enough satellites to actually justify having these capabilities in-house. We are opening a new satellite integration facility in Uppsala. This will increase our production capacity by about 20%. We have the space, we have the facilities, we have the people, so it actually makes sense to use that.
It reduces our needs to expand to new premises with all the associated costs, and also allows us a geographical distribution so we can operate in different territories, and that sometimes has advantages. As I said, we are growing our workforce, so across the board by about 20%. We will be producing about eight satellites towards the end of this year, and that requires an increase in our skill base and manufacturing capacity, and we are also introducing our first iteration of the Platform Functional Unit. You might have seen that we received the support of the Scottish government to develop this unit. This is a new, highly standardized, highly flexible satellite control unit. You can use it for a one kilo CubeSat, all the way to probably 300 or even 500 kilo satellites. It's a very small unit, but extremely powerful and very configurable.
You can, just by changing the software, you can reconfigure the way it works. It will allow us to very quickly reconfigure our satellites without having to actually change massively the hardware. That is one of the reasons why satellites cost a fair amount of money, but also take time to build. That is also one of the reasons why, for instance, we have limitations on our capacity, on our yearly delivery of satellites, is because we need to do quite a lot of changes when customers ask us for different missions, for different kind of applications. With something like the PFU, the Platform Functional Unit, we can very quickly reconfigure the entire satellite to have a different payload, to have a different instrument, and to deliver a new format.
That is becoming increasingly more important as we see not only the communication sector, where we are already quite active and quite successful, but we are also seeing quite a lot of demand from the environmental monitoring sector. All the issues around climate change, around environmental threats, those payloads usually are more complex and require different types of satellites than communication payloads. Not so much complexity in terms of its inner workings, but in terms of the needs of the satellite. They require pointing, they require a series of other capabilities. As such, I think the PFU will be a very important thing for the future. As just key takeaways, the market for small satellites is growing. We are an established player, and we are very well positioned to capitalize on the growth.
We offer full end-to-end solutions and state-of-the-art small satellites to both industrial, commercial, and institutional clients. These offer quite a lot of opportunities for recurring revenues. We have quite a clear plan to grow both organically and through bolt-on acquisitions. That plan is for the next five years, and we are working on it very actively. We just want to become the world leader in commercial small satellites. Thank you.
Thank you so much for this presentation. What would you say are the main risks for your operation to develop?
The main risks are always the operation in terms of the global market is we are always dependent on the customer flow. For instance, big financial upsets in the market might actually force some of the customers in these big markets to delay their plans. We are not yet seeing that happening, but that is always a risk that exists. There is also the risk of new regulations, new demands on the sector. I think actually those are very well controlled right now.
Okay.
In terms of looking forward, I don't see a particularly risky, I see a growth path. I think the industry is growing, and I think the industry is actually quite buoyant despite the current crisis.
What do you think about the possibility or the risk that your customers will withdraw their orders due to the COVID-19 crisis?
Well, so far we haven't seen that happening.
Okay.
Far, we actually believe that is not happening. I don't know of other companies in the sector, but it hasn't happened.
It has happened in other sectors, I think.
Yeah
Your financial situation at the moment, how would you describe it? You've taken in some money recently and how is the
The financial situation, I would say, is stable. As a CEO, I would always like it to be better. I can't say it is bad. We are well-financed. We have taken measures anyway during this period to actually take cash flow, like I think most companies did. We are in a good position, I feel.
For how long are you financed, would you say?
Well, we are financed for the next few years if we actually meet our plan. We have always been at a long-term plan.
No worries there.
Predict what the future holds for us.
Okay.
I don't see a problem.
You seem to be very positive regarding the growth in the market, but you're doing so many things. You are detecting pollutions in the sea, you are helping actors to improve their weather prognosis, and well, you do a lot of things. What is the main drives? In what kind of operations will you earn the most money, would you say, in the near future?
I would like to have a good crystal ball to tell me exactly where.
Yeah, I'm sure you've been talking to the customers. You know who are the most eager to cooperate?
We see a great opportunity still in the communications and the machine-to-machine Internet of Things environment. That's a business vertical that is growing very quickly.
Yeah.
It's also a business vertical that has quite a lot of potential to grow further. We're also seeing.
Could you be more concrete? Internet of Things could be a lot of things, but in what way could you contribute there?
We can provide a lot of monitoring of assets, so asset monitoring and tracking around the world. Some of which can be ship tracking, truck tracking. We are doing that with ORBCOMM, for instance. There are also lots of other deals in Internet of Things around monitoring, for instance, gauges in the rivers, monitoring performance of engines and in factories. There are all sorts of activities, and in that sense, the space-based Internet of Things and the space-based machine-to-machine is a very flexible platform. It allows you to try many different things. You can use it for cars, for autonomous cars, autonomous ships, even autonomous planes in the future.
And-
We see that as an area, and then we also see the environmental monitoring. We are actually seeing quite a lot of interest in weather forecasting, in monitoring of the oceans, monitoring of crops, pollution, forest fires.
Yeah. What about safety in terms of border controls and other safety issues? What can you say about this sector?
We have a variety of applications. Again, some of these applications that are generic in nature also then can be applied specifically to border control. There are certain aspects of IoT, for instance, and machine-to-machine that allow you to have detectors and sensors on borders, controlling crossings, for instance. You can do in remote areas where it would be difficult to use, for instance, 4G or something like that.
You can actually do a lot of that work using space-based assets. Of course, we have a role to play in there. I think there is a variety of solutions for that, and we can definitely work on that.
Would you say that the competition is about at the same level in all those sectors that we talked about, or are you stronger in any of those compared to your competitors, or are there competitors at all parts of the market?
We operate in a diverse environment, we actually have competitors that are specialists in certain areas. We tend to compete specifically with a few that in the IoT area and the machine-to-machine communications, and the broadband also. Comparing us to themselves, I like to think that we have some competitive advantages and we have some success. I'm sure they would say similar things about their business. I'm sure that we have a good position in this market, particularly in the communications. We are one of the leaders when it comes to small satellites.
Looking at your main shareholders list, do you have any comment on the structure of your composition of your shareholders?
We are very happy with our shareholders. They have their own strategic objectives. We always aim to have a diversified base of shareholding. We are always very happy to actually support our shareholders and to see how we can support them in their investment.
Do you have any institutional investors?
We have some institutional investors, but there are not a large number of them, although they do have big shareholdings in the company.
Yeah.
They've got their own strategy, we are aiming to.
So listening to you-
maintain a variety of shareholders.
I take it, you don't think that there's anything important things to do regarding the shareholders, or you're not aiming to change it in any way?
We are not. I think some of the shareholders have indicated that they would like to divest, others would like to invest, so it's a normal day-to-day.
operation. We are not aiming to make big changes.
Okay. You are not a big shareholder yourself, I understand. You are a shareholder, or?
I am a shareholder.
You are a shareholder.
I'm a growing shareholder.
Okay.
I'm a growing shareholder.
You're a growing shareholder. That's good. Any plans for the stock, for changing of the list or anything?
We have looked at actually changing to the main market. This is still an objective that in the long term, that we will analyze and will continue to analyze. We looked at it in quite some detail.
Yeah.
We could see that the costs associated with that didn't actually justify yet the move. This is something we are continuously evaluating, and depends on the growth of the company.
No new list, no moving to the main market in the near future, I take it?
If the conditions improve, if we grow, and if we actually see, we have done most of the work. We have actually done most of the work, the groundwork in preparing for it.
Okay.
We'll see how things evolve, but it's an ambition. It's something that we want to do, but the conditions have to be right.
Yeah.
As always, it has to do with what is best for the business.
Okay. Thank you so much. I hope we have the possibility to come back to this question later on. For now, I wish you all the best, and thank you so much for your presentations.
Thank you very much.