Hi everyone, and welcome back to ABG's Investor Days. My name is Lara, and I'm an analyst here at ABG. With me here today, I have Markus Jonsson, who is the CEO of I-Tech, who will be giving a presentation of the company, which will be followed up by a shorter Q&A. Please, Markus, go ahead.
Thank you very much, Lara, and thank you for the opportunity to come to present to you today. So I-Tech, for those of you who do not know us, we are a technology provider for the maritime shipping industry. More specifically, we are marketing and selling an active ingredient that is used for anti-fouling ship coatings, so the coating that is under the waterline of ships to prevent them from fouling. I will start by showing you our most important asset, and it's actually the complete company here. We are 16 people today. We are a quite asset-light company. You can see here many of the colleagues are working in innovation R&D, and that is a key competence for us.
So essentially, it has enabled us to speak more eye-to-eye to our key customers, which are the coating manufacturers then, so the companies that are producing the coating for the ships. Besides R&D, also, it's mainly in marketing and sales and process development. So we are outsourcing production today and thereby a quite asset-light company. So what are we addressing? Well, we are addressing three challenges that arise in the global shipping industry. So 90% of all goods that are being sold has sometime during their life been transported by ship, and shipping is responsible for 3% of the global CO2 emissions. So definitely, the emissions of CO2 to the air is a very important development area for global shipping, and we also see then the IMO, for instance, taking really concrete steps in sort of achieving a net-zero emission policy.
On top of the emissions to air, there is also a challenge with shipping because the ships that are traveling around the globe are also then bringing with them what we call invasive species, so essentially marine life that do not belong in particular areas or protected areas along our coasts. So this is a growing issue, and it's something that is affecting, you could say, biodiversity around the globe. The third and last point, which is also quite important, is the emissions to water, so essentially chemicals and other substances that are being released by shipping as they travel through the seas. So these three areas then we are addressing in I-Tech. So looking at the CO2 reduction ambitions of the IMO, there are clear milestones.
2030, they are aiming for a 40% reduction of CO2 per transport work, which means also that they will have to look at new renewable fuels. By 2040, the checkpoint is 70%, but preferably even 80% reduction, and then to achieve net-zero by 2050, and that's around 800 million tons of CO2 left to go for the shipping industry, so that also gives you a number for the challenge, right? So the IMO has published reports then, okay, if we disregard the renewable fuels, which have to be implemented in the end, right, to become really net-zero, what can we do to address this challenge, right? And they are mentioning or highlighting certain areas in terms of ship design and sort of ship maintenance, so for instance, optimized propulsions, propellers, etc., that can save 15% of the total CO2 emissions. Improving the hull design of the ship, that's another 20%.
What they are pinpointing and where we come in is actually then better biofouling management because if you have fouling on the ship's hull, that increases the drag and thereby the fuel consumption to have the same speed through water. The other option is then to slow down significantly, and then you may not meet, of course, the timetable that you're on and you want to ship the goods. So although you can say that protective or anti-fouling paints have been around for many years, there's still a lot to do here. A recent study by I-Tech, actually, when we did a check on 250 ships that came in for dry docking, so sort of maintenance after five years, 40% of those ships had more than 10% hard fouling.
That is actually a very significant number because 10% fouling is probably resulting in 30%-40% more fuel consumption that you actually need. There is still a lot to be done then, you can say, in improving these paint systems that are applied to the ships. If we look at the end market then that we are addressing as I-Tech, let me see where I should be standing. It is really the new build and the service of ships. There is approximately 1,600 new vessels built every year in the world. Since there is a global fleet of about 110,000 professional ships, you have actually 20,000 dry dockings because every five year they have to go in for maintenance. That's when you also recoat the ship and apply a fresh paint, a layer of paint.
So if you look then for substances that you can add to this paint to prevent growth of biological substances or biological life, this is about a $300-$500 million opportunity that we are addressing, you could say, with I-Tech's solution. So the market as such, if you see it, new ship building, it is really dominated by Asia today. China, you can see more than 50%, followed by Japan and Korea. So more than two-thirds of all the shipbuilding is being done in Asia today. Similar for dry dockings, and here China is even more dominant in terms of the dry docking business. You see other countries in Asia, and here actually Europe comes up with 7%-8% of the dry dockings in total. Turkey is another important market.
What this means, of course, is that I-Tech is a company that is based here in Sweden, in Gothenburg, but our sales and our customers are predominantly in Asia, Northeast Asia. So 90% of our sales is in Asia today. So what about I-Tech's solution? Well, it's actually an innovation coming from University of Gothenburg and Chalmers, where they were looking for new substances that were active against hard fouling and barnacles, more specifically. Barnacles are these small creatures that you see to the right here. So Selektope, as our product is called, is actually an innovation that comes out of the pharmaceutical industry. So the substance, which is called Medetomidine, is actually used as a sedative today in pharma applications. So it is being injected into humans and animals more or less on a daily basis. It's a very popular sedative.
But what the researchers found is it has the reversed effect, the opposite effect on barnacles. So when they get exposed to the substance, they don't fall asleep, but they become hyperactive. And this means that their swimming fins start to paddle in the water, and they cannot settle on that surface. So it is a quite unique effect, and it doesn't harm the animal. It's a temporary effect that passes when they sort of leave the surface, which is quite nice then. And it's also differentiating Selektope product then versus other technologies. So what I-Tech has done really well in the last years is actually investing then in R&D and formulation capability, as I was saying in the beginning, which makes it, you could say, easier to have conversations eye-to-eye with our customers, which are the coating formulators, because coating formulations, they are complex products, right?
And you need to be able to formulate a product with our substance, and it's not trivial, you could say. So that capability is something that has served I-Tech really well and which we will benefit also in the years to come as we are going for increasing penetration. There are extremely long sales cycles in this type of business. As I was mentioning, a dry docking cycle is five years. So I-Tech's first commercial sales was in 2014, which means that now we are at two dockings, you could say. So a ship that was originally painted, which was very, very few ships in 2014, they have had two cycles now where you can actually see how the product is performing over time.
That's what I mean with it has been a slow uptake, you could say, in the market because you really need to prove yourself in this very conservative business. That's what I-Tech and Selektope has done now. We are estimating that we have now been applied to a little bit more than 2,500 ships out of a fleet of 110,000. I don't know if it's visible here, but it's a very remarkable effect here. These are the barnacles on the side. You have a patch that has been painted with the paint containing Selektope, and essentially that area is completely clean or no barnacles, and then you have full of barnacles just next to it, right? It also shows you the temporary effect, right? It doesn't harm or kill the animals as such. They can coexist next to the substance as such.
The product is sold to six out of the nine biggest paint companies today, but there is one customer, Chugoku, then, that was the first customer that took in the product in 2014, and that still represents, you could say, two-thirds of the sales today. But we are seeing then a diversifying customer base, which is great, that also the other paint companies are using more and more Selektope. The value proposition then is to help to reduce the emissions to air simply by saving fuel then, which is clear for the ship owner and for the ship operator. It helps to protect the marine ecosystem because if you're not traveling around with all these barnacles, these barnacles can act as sort of a host or sort of a little biotope for invasive species.
So if they are not there, then it's less likely that you will spread invasive species. And then the last part is the effectiveness of Selektope, which I need to say as well then. So traditional anti-fouling paints, they contain copper cuprous oxide, which is a classical biocide, and there you use up to 40% or 50% of the formulation is actually copper cuprous oxide. Selektope, it's enough with 0.1% to 0.15%. So it is a dramatic reduction in the amount of chemicals that is being sort of released into the oceans every year as well. So it's a very important thing to stress as well in the comparison of different solutions. Havstulpaner. And barnacles is one type of fouling. It's called hard fouling, right? You have also a problem with soft fouling, but this is not what we address.
We address the hard fouling, so the barnacles in the sea, but also tube worms, some other species which are similar to barnacles. If you look at the company today, as I mentioned then, we have sales today active to six out of the nine big companies. The market is very consolidated. Essentially 10 customers is what we need to focus on and to be successful with 10 customers. That's also why we believe we have quite a scalable business today, and we don't need many more people to service the customers better, right? It is quite scalable in that sense, right, from a sales and marketing standpoint.
It is a unique technology, and we have built up intellectual property and formulation know-how around the product that protects us, also around the production process of the product, although we are not producing it ourselves, but our OEMs are doing that for us. So asset light in a sense and easy to scale business. The penetration, as I mentioned, 2,500 ships out of a fleet of 110,000, so definitely more to be done for us going forward. And the value proposition is quite clear, right? So if you have 10% fouling, that is unnecessary fuel consumption, 30%-40% more than what you have to. The trick is, of course, to get that message out to the people that needs to act upon it, and that is our challenge because the business is quite complex.
You have ship owners, they pay for the paint, not necessarily for the fuel, and then you have an operator that pays for the fuel, but not necessarily the paint and have nothing to say on what paint actually comes on the ship. So it is, of course, it's a market that we need to navigate in the same way and also, of course, then to do it in a smart way versus our customers, right, to implement the product. So how are we doing on time here? 12, all right, great. So the company as such then, really strong quarter three, 27% sales growth over Q3 last year. Our operating margin is slightly lower than last year, so 23% versus 25%. I will come back to that reason actually in just a few slides.
As I was mentioning, it's very positive for us that the diversification of the customer base continues, right? So we now see that 33% comes from the broadening base, and we see also then very good growth rates at the newer customers. So Chugoku, our biggest customers, have really had a head start because they were the ones starting back in 2014, right? And yeah, I-Tech was actually then awarded, you could say, the Gazelle Award this year, so a company that is growing fast and hiring new employees, etc., which is, of course, a nice recognition for the team. So is everything rosy and dandy? Well, we do have challenges for the company, and that is actually regulatory pressure for our type of products. So although Selektope is not harming directly the barnacles, it is classified as a biocide, right?
Biocides have a specific regulation within Europe and also in other areas, right? As the situation is now, all the biocides that have been registered in Europe for use in anti-fouling are up for re-registration. It so happens that Selektope is the first because our approval was actually expiring already in 2021. We sent in the application for re-approval, but the authorities came back and said, "We're too busy, so we give you a temporary license to operate until 2025 when we are in any way doing all the other biocides." Hence we have been sort of first in line here for this re-registration.
Unfortunately then, the expert committee on biocides recommended that Selektope should not be given a renewed approval on the basis of suspecting endocrine disruption, which is, we, of course, do not agree with the science behind it here since it's being used as a sedative and comes from the pharmaceutical industry. It is approved for human use and is injected into people every day. So you could say this regulation on endocrine disruption is a rather new regulation, and you could say the tests and the test methodologies are not completely developed as well. But as you know, the burden of proof for any regulation is on the industry, so we need to prove that it's safe to use. So they can exclude us based on a suspicion, and we have to prove that it's not the case.
Now we are following this standard procedure, and actually what happened now in November was the closing of this public consultation where essentially all the stakeholders in the industry were able to send in their opinions on the recommendation from the Biocidal Products Committee, but also on their use of Selektope and the importance of using this in the market. We are very happy to say that we registered that more than 50 different organizations actually came in with, yeah, with comments to the proposal from the Biocidal Products Committee. There are some clear errors in the recommendation as well when it relates to the interchangeability of technology, etc. We are quite hopeful that in the end then, what the commission would recommend is what is called then a derogated approval for Selektope that we can remain on the market in Europe. Why is.
Det är gifter eller vad menar du då? Yeah, a biocide is by definition a substance that sort of repels or you could say harms or injures other organisms, but also then if it's a biorepellent, it actually falls under the same legislation. So even if you don't necessarily kill the target organism, it's still considered a biocide by regulatory definition. Yeah. So this is the process that we are going through in the EU at the moment. And as I mentioned, 90% of our sales is in Asia. So I mean, even worst case that we do not get a re-approval in Europe, it has a very limited effect on the business today. Of course, long term, this is negative, and we want to fight this to the bitter end with the EU.
We do not agree with the science, and we will definitely develop the proof to back that Selektope is not an endocrine disruptor, etc. So this is the battle that we are fighting at the moment then for the business. If we take an outlook for the business then, we see that the favorable market conditions that we are experiencing will be continuing. So essentially, as I was saying in the beginning, the shipping industry is in an energy transformation. So a lot of new ships are being built. You know, also there is the Red Sea crisis, so ships have to sail a longer way when they go from Asia to Europe. So more capacity is needed for that. The shipyards are simply fully booked for the two coming years. There's a lot of new production, and of course, the service business is regular every five years.
So it is very stable. We see that our customers have launched additional products, and they are becoming more and more popular in the market. So they are growing their shares, and we are growing our sales based on that. For the EU process, we see that this continues to absorb attention and resources, and that was also the link then to our operating margin, which has gone down a little bit because we are investing, you could say, in support to handle the European process. We also see that that will continue at least until half of next year approximately with some higher costs. But we believe that we can well absorb that, you could say, within the projections, and it won't harm, you could say, the results as such. Also, as we are growing now, we can see that we can realize operational improvements.
As I was mentioning, we are working with OEMs, and as our volume is growing, we are now able to bring in additional suppliers, which gives us redundancy and also more negotiation power. We are definitely targeting operational improvements going forward. That was in brief, Lara, the presentation as such. I want to save some time for questions as well. That would be great. Thank you for a great presentation, and I can start off by asking a little about the competition. If you could just explain or go into the competition a little? Yes, so then it is not completely straightforward because you can say that there are many types of competition. If you say active substances, as I was touching upon in the presentation, the classical substance that has been used is cuprous oxide. And so, of course, that is a competition for us.
But that was 40% copper or 0.1% or 0.15% Selektope. So you could say it's an easy sell in terms of technology replacement. There are other active substances which are also then working against barnacles, like Econea from Janssen, for instance, but is not as effective as Selektope. You cannot get the same impressive results, and you need a higher dosing, but that's a competition. But then you can say there are also different coating systems, right? So some of the producers, they have product lines which they market as biocide-free, and that where they claim that the performance is good enough, even if they are biocide-free, and that you can combine this with cleaning your hull, for instance, right? So it's an indirect competition, you could say.
So far, we are not too worried about that because it's quite easy to prove that in most cases, the biocides are really needed to keep a clean hull and performance-wise. So I would say Econea and cuprous oxide, if I have to. Yes, and as you know, the market is quite consolidated with the nine global paint manufacturers, and you have products with six of these. When can we expect the next product launch, and will you have products with all these nine paint manufacturers? Well, that is definitely the target. There have been several new launches this year. So PPG has launched a new product. We also see that another customer, Kansai Paint, have developed new products that have been registered, but what they told us now is we will actually not start marketing this product.
If there is a decision on this EU case, we will actually wait and hope for that it is a positive case, and then we will market the product, right? But we do see that most of the companies are working actively with including Selektope in various product lines, right? So we do expect more products to come on the market. Great. And Selektope recently reached 20 metric tons in sales, which corresponds to roughly 2,500 painted ships. Obviously, you can't change the molecule and the product, but you're still investing in R&D, as you mentioned. Could you give some examples of R&D initiatives that I-Tech are currently working on to maybe make the product more efficient? Yeah, it's actually what is important to us is to become even more successful in dry docking, as you saw in the data.
Dry dockings are around 20,000 a year, and the first market we came up into was actually the new build because it's very easy to prove the value proposition. The bottleneck in ship production is the dry dock. In the shipyard, they hurry to put the ship together, and they put it into the water, and then they complete the ship once it's in the water. It can stay there for six to 12 months, and during that time, then it's ample opportunity for a lot of different creatures to attach to the hull. What they did in the old days was that when they were ready with the ship, they had to pull it out of the water again into the dry dock, blast the whole hull clean, and then apply a fresh layer of paint, and then deliver it to the customer.
With Selektope-containing products, they do not have to do that anymore because there are no barnacles on the ship, right? So they can just go straight to the delivery. So that's why you could say from the beginning, that's the segment where we were most successful with. But of course, as the ship sails during the five years of time, right, there is also the buildup of barnacles, right? And that's the segment we need to grow even more in, right? And there are different technologies, different paint systems, different product lines, etc., and we need to get into more of those. So that is a very important area for the innovation team. But also, you could say we were looking at complementary actives, so other active ingredients that we could potentially market and sell together with Selektope that would make the value proposition stronger.
Because as mentioned, Selektope only works for barnacles and tube worms, but there are other problems as well for the ships. That's great. Currently, the majority of your sales is in Asia, as you mentioned. Are you planning on expanding in other geographies, or do you think you can grow outside of Asia and how much? Yes, absolutely. A market that we've been looking into is the yacht market, so more leisure crafts, and there the US is a very important market. But here again, we have been in the process to register Selektope on the US market, and that has taken a long time, right? The challenge is that these processes are quite unpredictable in terms of timing.
So now the ball is back in our corner, and we are quickly then preparing the dossier, and we aim to submit this in the beginning of next year to the EPA in the U.S. And depending on what comes back there, maybe it will be more clear to us how long the process will be in the U.S. But we are really going for that market as well then. Great. I think that's all we have time for. Thank you for your presentation, and thank you for everyone listening. Thank you.