Hi, and welcome everyone to this Fireside Chat with I-Tech. With me here today, I have Magnus Henell, who is Acting CEO, CFO, and Director of Operations at I-Tech. Magnus, I thought we could start off with a brief introduction to the company for those who are not familiar with I-Tech, and maybe a little bit about yourself.
Okay. Lovely. Nice to be back here. I-Tech, well, you can take me shortly. I am a finance guy with a background as a CFO in quite many entrepreneurial, small and medium-sized startups. I have built up some companies down in Gothenburg together with a fantastic crew and management team, of course. So, in general, my background is within entrepreneurial startups. And I-Tech started up as a young startup many years ago. And actually, it started in University of Gothenburg in a research project 25 years ago, where they had the ambition of securing a better antifouling for Swedish water, protecting Swedish water. And in this work, they screened a lot of substances. They found a substance, medetomidine, which is the active substance in our product Selektope today, that had a tremendous effect on barnacles. They kept all the barnacle larvae swimming away from the hulls.
And first, they didn't know why, but then, of course, research showed up why we do it. And it is a physical effect on the barnacle larvae. So they actually have a demand to swim for three, four hours. Then they go back to normal. And then a lot of work started, a lot of research, a lot of regulatory filings within the E.U. And in 2016, we had the first commercial paint in the market. So since then, we have tried to, or the crew before me, but I've been here since 2018 or 2017. And we have tried to grow this into many paint manufacturers in the world. So now we actually have six out of the nine biggest ones in the world, a lot of ships sailing with paint that is containing our product Selektope in it to protect the hulls.
We're saving carbon dioxide, and we're saving the ships.
Sounds very interesting. Thank you for the introduction. If we just dive in quickly to your quarterly results, as you know, you had a very strong quarter in Q2 with record turnover and sales volume.
Yeah.
Could you maybe give us some explanations to the key drivers behind this and what we should look forward to for the remainder of 2024?
Yeah, I think there are different things behind this growth, because we are in a growth mode generally. And one driver in that is that, as I said, we started with commercial sales in 2016 on a very low level, which continued to grow. But every ship needs to be repainted every five years at the latest, which means that if there are ships out there with satisfied owners that really see that these paints are working, they're coming back now. So some of it is ships coming back. And then, of course, we need to sell into new markets. And it is a general trend in the industry going to premium paints, where we have a place, and as well as saving carbon dioxide, saving the world oceans from invasive species, which can be the effect if you have fouling on the hull.
So I think it's a lot of general trend. We're sort of going through the hurdles in this quite conservative business. We've been there now for since 2016, eight years with commercial products, and they're starting to gain traction more and more.
What can we expect for the remainder of the year?
I think we are in a positive trend. I would say we will see continued growth. I'm pretty sure about that. Then, of course, there could be quarters up and down. It could be, because very much dependent on the production schedules within the customers. They are quite as much just in time with the deliveries. But we're well equipped with production, etc., to be able to manage this. But in general, we are in a growth mode.
Very exciting. If we just go into the geographical split and your market development in Asia, as you know, you have major sales in Japan and South Korea with 35% and 50% of sales in Q2.
And almost the other remaining part in Asia as well.
Yeah. So a lot of your sales in Asia. Could you maybe elaborate why you're so successful in these geographies?
Yeah. Also here, again, different parts. Of course, Asia is the largest shipyard industry there is in Asia. So most of the repainting of ships, new building maintenance is done in Asia. Why do we succeed in South Korea, as an example? Well, there is actually where we came into the market, because we came in as a new building product. And just to give you an example of that, in Korea, they have large problems with barnacles growing on the ships when they are laying idle for 6 months-12 months under the equipment of the ships. So they construct the hulls, put them in the water, and then they finally equip them, which means they are under tremendous attack by barnacles during this period. And the shipyards in Korea have had this problem for a long time. And now they really see that Selektope makes a difference.
Let's take some water.
Yeah, of course, of course.
In Japan, on the other hand, it's not so much new build. It is a new building in Asia, but I think that the main reason is that Chugoku has their headquarters. It's their home market. Any product they are releasing to the global market is tested in the Japanese market first. So, all of their new products, they have quite a few new products today. We are in almost all of their premium paints, and trying to gain traction, so to speak. I think that it's mainly driven by CMP and their development in their home market.
Are you expecting to grow further in South Korea? You've had tremendous growth in Japan, but what is the outlook for South Korea?
I think that there are growth potential still in South Korea, because the sales we're talking about is mainly to customers. We all have the other four with commercial paints out on the market that can grow quite significantly. We have one of these, are the largest paint manufacturer in the world. Chugoku is number two. So there are still growth potential.
That's good to hear. Looking forward to seeing what happens. And if we just move on a little bit, you discussed increasing your gross margins with a new supplier in India. Can you give us a little update on this, and when can we expect to see results from this initiative?
Yeah, everyone wants to see results. Yeah, that is something that we've been working with quite some time now. Just to give a little bit of background on that as well, we have one major supplier today, which is a very good supplier who are delivering most of the material for us today. We have a second supplier that we have used previously, or that we are planning to use a little bit forward as well. And then we have a third supplier coming in, which are under development. They have done all the laboratory work. They have proved that they can manufacture. Now they're building up the production capacity. So I would say by end of Q4, there should be some result out of these, both negotiations as well as the new producers in this. But I say the main effect would come next year, I would say.
There has been some delays in the setup of the production, so it's pushed a little bit forward into the year.
Good to know. And if we talk a little bit about the E.U. regulatory process, which has been a major focus area for you in the recent quarters, can you give us a little update on the current stage and the next steps?
Yeah, I almost said I love to do it, but I don't love to talk about that. But of course, that is something we need to handle. And as we have communicated earlier, ECHA has then sort of they stayed with their opinion that Selektope is endocrine disruptive and shouldn't be renewed in the E.U. So what's happening now is actually that we are in a socioeconomic analysis under public consultation that has started. It's actually started on Friday. On the other hand, all the information on the ECHA website is very strange today. It doesn't look like these public consultations normally look like. That's why we haven't communicated it yet, because we are not totally sure what we're going to communicate to our stakeholders. And what we are doing now is trying to understand, is this a flaw, or should it look like this?
Then we need to readjust our information. But there will be information about this coming up very soon. And this process is a 60-day process, where one part is that we conduct a socioeconomic analysis with a third party that makes a neutral analysis. And then all our stakeholders, paint manufacturers, ship owners, etc., can come in with the argumentation why we should be renewed. And all of this is then melted together. And in December or in February/March, the Standing Committee on Biocidal Products will have discussions. And then they will decide, okay, will they go forward with the recommendation for continued approval, or will they follow ECHA line? So we will. I'm not saying I'm sure, but we have good possibilities to effect them into going into the renewal process.
Sounds promising.
And then finally, there should be a decision before end of first half next year.
Okay. As I said, it sounds promising. We'll see what happens.
Yes. It's a long process.
It's a long process, but it takes time. It's always like that with regulatory processes. As you mentioned in your report, Selektope has reached 20 metric tons in sales, which is a big achievement for you. It was a milestone. Could you share maybe with us if you have new innovations or product developments in your pipeline?
Yeah. I actually want to come back to these 20 metric tons, because that is actually quite fantastic. We're talking about when introduced into paint, we're talking about 10 million-15 million L of paint on these 20 metric tons, which then is roughly 2,500 ships out there in the world, so it is a major milestone, and of course, we are working on increasing it, but if you're talking on product development, we can't change the molecule Selektope. That can't be changed. But what we are doing in our R&D, we are working on other ways of getting it into the paint to make it even more effective, or to get it into paint that we can't be in today, for example, silicone paints.
So that is actually where we're spending quite a lot of effort right now to make sure that we can have Selektope in all different kinds of paint out there and have a very good efficiency or efficacy against barnacles in all.
Sounds exciting, and finally, I would like to ask a little bit about the new CEO. Could you maybe explain a little bit of his background and when he's expected to take office, and what can we expect from this new CEO, and how will this impact the company's future growth?
There's a lot of questions in there. I should try to take them in order. Markus Jönsson is our new CEO. He was recruited during the spring. He has a background within specialty chemistry, which means, well, all different kinds of special chemicals out there. He's now coming from Perstorp, a chemical company. He has a lot of experience within business development of this kind of products, taking existing products into new markets or new products into existing markets. Actually, what we really see, and which is a perfect fit with the strategy that was decided quite late last year, that we should try to broaden I-Tech to go into other chemicals in the paint market or surrounding areas.
And where Markus, I think, he will be a tremendous asset in this work and guiding us through all this work with developing I-Tech into a new, better, larger company.
Can you give us a date of when he's going to start?
He's actually going to start on Monday next week.
Okay, so soon.
So the 16th. Yes.
I think we actually have time for another question. I just wondered if we were in.
Unplanned questions.
No, but I just wanted to ask a bit about your new products. You're expecting two new customer launches.
Yes.
What do we have update on this? And what markets are they targeting? Is it more dry docking or new building, or is it a combination of both?
It's actually now maybe my business development people will correct me if I'm wrong here, but one of them are mainly into new buildings. It's mainly into the Korean market in the beginning. As I said, we normally start in Korea and that we foresee will come within the time span that we have discussed. Of course, also the paint manufacturers are looking into what's happening in the E.U., but we're then talking about the Asian markets, so in the short term, that will not have an effect, then the other one is actually both new building and dry docking already from the beginning, or if they start with new building and then take it into dry docking as well.
That's quite a significant step for you, maybe?
Yes, it's significant that they are going into these markets and that they're coming on as a new customer with commercial products, of course, but all of the paint manufacturers have sort of a ramp-up period, and if you look on Chugoku, which has grown into a significant customer of us today, it has taken some time. As I said, the first commercial product was in 2016. We are now eight years later. I'm not saying that everyone will take eight years to get into their volumes, because there are paint manufacturers with the potential of reaching or actually exceeding Chugoku volumes as well.
After these two new potential customer launches, you will have eight of the customers.
Eight of the nine largest paint manufacturers in the world.
The ninth customer is something that is in your pipeline, or?
It's in the pipeline, but it will take some years because it needs some other regulatory approvals.
Okay. Very clear. Well, that was all from my end. And thank you very much, Magnus, for your time. And thank you for everyone listening.
Yeah, thank you very much for having me here.
Thank you.
Thank you.