Hello and welcome to this Q3 presentation with I-Tech. With us today, we have CEO Philip Chaabane. My name is Christopher Bergen, and I work for Finwire Media. After the presentation, there will be a Q&A session, so if you have any questions, please visit finwire.tv and click on this Q3 webcast where you can write your questions. We will take care of them after the presentation. And with that said, I hand over the word to Philip.
Thank you, Christopher, and very good to be here again and thank you for tuning in to this Q3 presentation from I-Tech. For you who don't know us, we are a listed company, of course, Nasdaq First North. We are in the biotech sector, although very much adjacent to the chemical industry sector. We are in possession of a very nice product. We call it Selektope, which is available and has been available for quite some time now, meaning a few years into the marine coating industry, which means we are in the shipping domain. That explains our first picture. The product we have is approved, which is a very important thing when it comes to these active antifouling agents that we are talking about here. Knowing from shipping, we're obviously in a global market. We're exporting everything we produce.
We have, year by year now, a proven efficacy in paints, various paint systems that merit paint makers to take use of the product and feel comfortable about the performance. I will come back to that. We are a Gothenburg located company, I should say, as well. The picture to the right here shows where we're located, meaning in the AstraZeneca BioVentureHub area. This is the site of their Mölndal facility, and we're sitting there with 30-35 different other tech companies of different sorts. The focus for us is the underwater side of the ship, as you have understood, and it's about keeping marine growth away from the ship hulls, which has been a problem for the last, you know, since ever basically. A lot of different attempts have been made to try to combat this problem. We're taking a different approach.
First of all, we're focusing on the barnacle larvae, which are the ones who grow the biggest shells and cause the biggest frictional losses on the hull. These creatures are then well understood from the research that has preceded this project, this company, meaning that researchers have identified ways in this case, molecules in which they can stimulate a certain behavior of the barnacle larvae, a behavior that is actually some sort of swimming high energy activity level, which means they cannot settle on the hull. So it's like trying to put two magnets together with the wrong way against each other. They simply deter, they leave the surface and will attach at some other surface, maybe a competitor ship. The effect of this very specific approach, where we combine then the biotechnologies with the chemistries, is a very high protection level on the ship.
And at the bottom, you can see a patch painted with Selektope containing antifouling. Then we supplied to, in this case, Chugoku Marine Paints, who did this trial many years ago to see its enormous efficacy, even if a ship is laying idle for extensive periods. The comparative surfaces are traditional highly loaded copper paints from the same manufacturer. So there is a big difference here and a big power that Selektope now enables to paint makers to make ships cleaner than ever before. When we say ships, we talk about different kinds of ships, obviously. The most interesting for us and our customers is the ones to the left, which is a big merchant fleet. They are clearly the largest consumers of fuel. They have the tightest cost bill, maybe, but they certainly do have a high exposure, at least to the fuel costs.
I think it's around 50% on most ship segments, at least. So it is very important that fuel efficiency is at the best to make sure the journey is profitable. These vessels are quite many in number, like 50,000-ish, not all as big as this one, but quite a few of them. And you see different ship classes here, containers, bulkers, tankers, LNGs, and so on. Even cruise ships belong to this size of ships. The good thing is that they have around 10,000-15,000 dry dockings per year, meaning they are forced to maintain their ship, taking them out of water, repairing not only coatings, but normally other issues as well, every five years, sometimes more often. So it's a very recurring business. On top, there's about 1,000-1,500 new builds coming out to the market every year in this segment.
This is where the key focus is: large underwater surfaces, which is good for volume demand, and then the link with the efficiency aspect on the fuel bill. Then there is a lot of working boats, industrial boats, which have a less important underwater surface, of course, but nevertheless have a large interest to stay clean. That is a segment that uses similar coatings as the bigger ones. Therefore, it's quite relevant that once you start in the bigger ships, you will quickly move over, or at some speed at least, move over to these industrial boat segments where supply ships and tugboats are the clearly dominating ships of interest. We should not forget, however, the enormous fleet of leisure boats, although very small in most of them at least. Still, that represents a fouling problem. They're laying idle, I mean, still at quay most of the time.
So from that perspective, a very relevant sector. And we have now started our journey into that segment in the U.S. and in Japan, most importantly. Good. I will move on to review the quarter in general. It is a positive quarter with a strong contribution from an expanding customer base. We have reported in quarter one, as you may recall, also quite a broad customer base. Now we repeat that, which is very promising for us. What should we say? Like five of the nine biggest are now clearly contributing to the top line. And that, in this case, actually amounts to 35% of the revenue line is from other customers than Chugoku, who is the leading one.
All in all, that gives us a 16% revenue growth amounting to SEK 13.8 million, which is a very good figure in a quarter that historically has been quite troublesome for us, or at least challenging. Probably that explains the large uncertainties in the market in general, that traditional patterns are not kept at this moment. Apart from the growth increase, we report a strong EBITDA of SEK 2.8 million and a positive net result. These are very strong figures, and therefore it's a positive quarter, of course. As you can see also in the chart in the below section of this slide, Chugoku continues to be a bit of a disappointment when it comes to growth. Still, though, quite high demand levels, although not increasing. So it's not a big problem in that sense.
It's just that inventory levels that we have spoken about earlier seem still to influence their purchasing behavior. I'll come back to that later on, but there is a lot of activities ongoing there that hopefully will change this moving ahead at some point, not too far away. We have this unnamed customer who continues to increase. He's moved up to quite high levels. Expectations on continuous increases are obviously lower the higher you get. So not so surprising, but we're very happy with the developments there. And then there's a bunch of interesting activities going on in these customers below those, so to say. This shows a quite positive story, which we obviously are proud to communicate at this point. As always in these times, we have to highlight that there are still effects of the pandemic. We see shutdowns, lockdowns in certain yards at certain times.
People are really on their toes in not creating a new outbreak. It's still an issue to travel for most into Asian countries. And even if you can travel, it's very difficult to get attendance at customer sites. So obviously this slows things down. It makes it more difficult to promote. And maybe there are also some more pessimistic views on the resolution of the pandemic in Asia than what we have here in Sweden. So we have to be aware that that can continuously impact the quarters quite significantly as we're highly dependent on Asian markets. We do have less of a material cost problem, what we're hearing, meaning not I-Tech's cost, but our customers' cost. But they're still on high levels on certain raw materials that include epoxy, resins, and some metal oxides. On the other hand, the green transition is more emphasized now than before.
I'll come back to that. For the quarter, we also want to highlight the IFF collaboration, which is an R&D event. I will have a slide on that. IFF is a big player in the microbial control area. So that is interesting for us, and we'll hopefully open up to new activities later on. If we look more detailed on the figures, we can see the sales amounting, as I said, to SEK 13.8 million . Gross margins are fairly much on the same level, which is a good level. Saying that logistics still are a challenge here and there when it comes to availability of ways to transport goods, which normally drives up cost and makes it a bit difficult. We've been quite successful in transferring that over to customers. On the EBITDA level, very, very pleasing figures.
Knowing that this is a figure that will change a lot or can change a lot, has changed a lot in the past as we're in a period of quite high investments or cost when it comes to the regulatory areas and the R&D areas. This quarter, some of those costs didn't come in really, and that fuels a good EBITDA, a level that we should be in normal circumstances, at least, and above, of course. The cash flow on the operational side is good. Very strong developments there despite late shipments in the quarter, which shows potential upside there. The total cash flow then turns to negative, mainly due to payment of loans, loans that are soon, at least parts of them, paid off completely. That is what is driving the negative impact on those.
For the year, so far, first nine months, it looks very similar to last year, meaning that we are in this pandemic year of, how to say, stable activities, but not in a clear sign of growth yet. So back to this interesting collaboration that's now been announced between the microbial control units at IFF, a U.S.-based giant in various kinds of biosciences products. And then now actually sold the microbial control to Lanxess, equally a very strong player in the microbial control area, German-based. The project continues despite all this, of course, with untouched speed. The point here is to develop new antifouling solutions that can inspire customers to take a next step in antifouling coatings, meaning higher performance and reduced biocide release, which is in line with the sustainability aspects we see in this part of the industry.
This can be done through combining their products, Sea-Nine Ultra mainly, with Selektope. These two are then complementary in terms of effect on the biological spectra that we need to consider on the ship hull. So taking care of soft fouling is a very important aspect, which Sea-Nine Ultra does very well. And then we take care of the hard foulings. And if we can get this and understand the links between this, we are sure that we can, together with our joint customers, offer more support and more inspiration on how to take this forward. The press release was picked up here and there in technical journals. So it's not something that will contribute to the top line as we speak right now.
It's more of a strategic initiative to take a big bet or not a big initiative on being part and actually maybe driving even the development of a next generation self-polishing coatings with the super smooth surfaces, very low leakages, and very high performance. Can also address other areas of ships and other ship types in a way that wasn't maybe possible before. So long-term project with high strategic relevance where we both have the same customer base today. So let's see how we can develop this further once results are made available. Looking at the business as such, we do still have these external factors. We still see a certain conservatism in sticking to old traditional coatings, but there's a shift coming in that end. We see some fleet segments, meaning ship types, being in tight earning schedules or cycles.
These are mainly the wet chemistry tanker ships, which are quite many, while still jet fuels and other chemicals are not traded in the same level as before. So there's a bit of an oversupply here on the ships. Having said that, and moving down to opportunity side, we see a higher order, higher rates for many other ship types, should be said, like container ships and bulkerships that are clearly increasing the appetite for investing in efficient clean tech solutions. And we see very clear signs that the mindset has shifted in these segments when it comes to the willingness to pay for efficiency technologies and certainly move from whatever they had before to the high end of premium and ultra premium antifouling coatings. As reported, we have from last quarter more products, end products, that means the customer products are more in number, the quantums are higher.
But also there are more customers now offering this, certainly in the new building area, but also locally in certain markets for dry dockings or maintenance. These indices that we talked about, which I will come back to, the efficiency indices, are also picking up in importance. People are getting more aware, understanding the seriousness from IMO in implementing this. And I think that is going to be the big shift in this industry. And the winds are clearly in that right direction for I-Tech and others in claiming the needs of more efficient technologies. I should also say on the opportunity side and link to the more product comment that Chugoku , our main customer, has clearly showed some public signs of increasing their awareness in this IMO index scheme by putting out a number of press releases quite recently, where most of them actually are regarding their Selectope strategy.
So that gives us even more confidence that they are full speed ahead on this. It's just a hopeful delay now in the demand and the ability to take down the inventories before we see the growth coming back based on all this. Many people ask about this IMO indices and so on. So I take the opportunity to address that briefly here. There have been implementation now or a step towards implementation, I should say, of two different indices. One is the design index criteria, the XI, which means the ship should be designed to a certain energy efficiency level. And then the CII, the carbon intensity level, which is all the colors you see on this on the blue line going down from 2008 to 2030, is then a measure that will be implemented and checked every year on how continuous improvements are made.
If a ship was at 100% in 2008, it should be 60% CO2 emitting out of that total in 2030. The 40% decrease should come from continuous improvements and implementation of new ship types. Seeing the angle of the colored schemes going down, if you look from left to right, means that a ship that was in C class before may not be in C class in the future unless they choose the right equipments. These things may put a continuous pressure to improve. And as you know, coatings will be selected at every four or five years. It's a detrimental aspect in reaching this. If having the wrong coating, one can be very sure that they will not end up in D and E level, whatever other choices they make. It's very, very important for the coating industry.
And in 2023, this will be started to measure annually. So until then, it's about preparation, I should say. So what position are our customers in then? And certainly when it comes to Selectope to respond to all this, well, we have a bunch of products that are official on the ocean-going side, which are then the ships that are most exposed to these indices, mainly through Shikoku, but also Jotun, Hempel and a handful of others, which are now contributing to the top line. So we see that as a very important platform. And that platform is much stronger now than at the same time last year. So much things has actually been improved during the COVID time, although we don't see the transformation of all that into the sales figures yet.
Same on the coastal side, also regulatory driven and even more so when it comes to spread of invasive species and so forth, which are directly related to the hull. In Japan, there's a whole range of products. I think it's one third of Chugoku's total offering in that domain, which is Selektope driven now. So that's very good. And small steps are being made into the leisure boat area with Japan and then a collaboration in the United States to take that market. And the collaboration in the United States is with Pettit Marine Paint, a standalone company owned by RPM International Inc. So nothing to do with Shikoku in that case. Final slide shows Mercy Ships, which is a ship we sponsored.
As you know, this is a hospital ship that's been delivered from newbuild, where Stena RoRo were responsible for building it, but Mercy Ships is the operator and the owner of it, so it's a floating hospital to serve African areas mainly, acting as an extra hospital for countries who suffer most. We are sponsoring with Selektope on this, and after outfitting, meaning the eight months, it's been laying at K to be completed. The hull looks perfect. You can see the pictures here after eight months pre-washing in the outfitting area where the propeller, which we don't have a really good picture on, was heavily fouled, so the product makes a big difference here. In this case, it's not the Chugoku product. It's someone else's.
There's a small video that will be available at some point where Stena talks about the proper antifouling and how good it has performed so far. So really good indication that more players than Chugoku are offering state-of-the-art antifouling products, which keep fouling away from the hull as well as keeping the color retention intact. So it still looks very red. Sometimes that looks a lot different when it comes to the traditional coating. So very interesting developments. And with that, I conclude this presentation. I look forward to questions.
Okay, great. Thank you for the presentation, Philip. And now we have you on the screen as well during the Q&A session. So let's start with the first question. You mentioned the IFF collaboration. Could you just explain what you hope that the end result of this collaboration will be?
Yes, of course. We hope that the end result will be a range of conceptual formulations that our customers can use to drive the product development into commercial products, meaning the conceptual formulation should be guiding them in what to do, how to do it, and create inspiration on how to convert that into things that they can use based on their other technologies. So hopefully that drives some development of ultra low biocidal antifouling coatings with a tremendous performance against soft and hard fouling.
Okay, great. Thanks. If we look at the EBITDA from the last report, it was quite strong. Could you explain the drivers behind these strong figures?
I think it's an EBITDA that is representative to what we would like to see if we take out many of the one-off high costs that we have in 2021 and partially in 2023, and those costs are related to regulatory markets that need to be newly approved or reapproved or initiatives that we're taking to get into new markets, so some of those costs were coming in in quarter two, but not in quarter three, so it's a very strong quarter, but I also have to highlight there will be variations on the cost line there in the quarters coming because we will take study cost and authority cost to just go through these re-registration periods.
Okay, and if we look at the cash flow, could you please elaborate a bit on that from the last quarter?
Exactly. Cash flow comes from the same phenomena, at least if you took quarter two. A lot of costs that came in that were dedicated to a period of high cost expenditures and investments for the said reasons. This time, however, other things contributed. If you look on the operational cash flow, first of all, that's positive despite having large amounts of deliveries at the end of the quarter, so that shows a very strong figure actually and still being positive. The fact that it actually ended up negative on the final line was the amortizations of loans to the energy agency mainly. One of those two loans that were given for fueling our innovation in the past is now also almost paid off, so that will decrease in the future with quite a lot, so we're focused on the operational cash flow here, and it's very strong.
So we're not concerned about the cash flow nor the liquidity in the company. It's the other way around. We're actually delivering on the IPO promises of taking use of this cash and investing in regulatory markets and R&D and so on.
Okay, great. Thanks. Next question then. During the quarter, around 35% of your sales came from other customers, apart from your largest customer, so to speak. Are you aiming for a certain percentage long term to diversify your business?
Not a certain percentage, but we have been quite clear that a broad customer base is important to be less dependent on one actor to de-risk the case if you wish. It's also a larger customer base is also a higher recognition to the technology and a recognition that more companies master how to use it and actually see the need for it, of course. So I won't say a figure of it, but the more balanced, the better almost. Still good to have one who's leading the game, of course.
Okay, thank you. Next question. I wonder about the stock levels at present. I think during Corona, perhaps build stock while demand was lower. How is the stock situation at present? This is a three-part question, so that was the first of the three. So how is the stock situation at present?
Yeah, inventory levels are difficult to assess in detail. We don't have all of the information, but we can read between the lines that from, if you take Shikoku, who still is not growing, although they have the capacity to grow a lot, they still have inventory levels. Also explained by the late shipments of the quarter maybe that they are trying to push it out. We think it's being consumed quite rapidly, however, as we speak, because there's a lot more demand for these kinds of coatings. So we will have a delay before we see these growth figures coming into play. So that is, I think, the answer. There's still inventory. It's shrinking, meaning there's still some delays before we see the real uptake.
Okay. So the next question in this three-part question, I would like to know a little on the Corona effects for the production possibilities of Selektope?
Okay. We have been very fortunate, I must say. Production is located in India. India has had very difficult times in COVID. They maybe still have less public, though. It doesn't affect our ability to produce, so the two producers have staff enough working to produce our products and all their other products, so we have no alarming messages from them. The only issue, which is unique for every industrial company, I think, in the world right now, is difficulties to sometimes find means to transport goods, certainly when it comes to intercontinental transportation. I think it's very well known that those containers are difficult to find. Airplanes are difficult to find with available space, and we're suffering a bit from that, but as you can see from gross margin, we've been quite successful despite that, but that's the only things we see.
Okay. And the last question in this three-part question, are ships now in Asia starting to move again after Corona?
Yes. I think most of the ship types, many ship types are not only moving, but doing very good business. Bulkers' containers are the most exemplified in this context. They make a lot of money at the moment compared to before on the level that they probably are pushing out maintenance schedules as much as they can to earn while the market is good. There are other segments, however, that are still suffering from the pandemic, which is normally wet chemistry tankers, meaning fuels or different kinds of liquid energy products or chemistry products. They are still having a tough earning cycle from what we understand, and they're also quite big users of Selektope in the past. But yeah, as the world turns back to normal with more traveling and more activities in general, I think all of these segments will see a boost, and that's important.
Okay, thank you. Next question. Does the increase in the oil price compensate for the increase in the copper epoxy price for your customers regarding the total economy when choosing a premium antifouling protection?
Certainly, the payoff period will be helped by high oil fuel prices, of course. And that makes the case better. I mean, it makes it easy for our customers to move on their higher material costs to the ship owner or to the one buying the final product. So in that sense, it's all good. Right now, however, I think they're struggling to actually transfer that higher material cost to the customers. So hopefully this will change moving forward. I do see a lower, at least a less stagnation of raw material prices from what we can hear from our customers. Still on high levels, but I think to the point of your question, yes, higher oil prices will help build the better business case and could then be of help to move and transfer costs on materials. Yes.
Okay, thank you. Next question then. In the report, you say, "I see signs of increased ambitions among several customers." Can you please explain that a bit more in detail?
There is a lot more activity going on to position the customers in the premium level and the fuel-saving level, I should say, of the antifouling coatings. I think I actually also mentioned in this report the complete supplier base in the marine industries who are collectively seeing a higher engagement and higher interest to discuss energy efficiency solutions. So for our customers directly, that means they are now being inspired and maybe pushed into actually enhancing their offerings and make sure they come up with solutions that prove efficiency meeting these CII indices and so on. So everybody's taking it very seriously, and that's what I want to convey in that message.
Okay, thank you. Next question. Can you explain the regulations you mentioned that take action in 2023? I think you mentioned it during the presentation because you elaborate a bit more on that. And do you see any other key drivers long term for your products?
Yeah, it's a good question. So the first one is really pushing the industry, and as I just mentioned in my previous answer, the whole industry is taking this very seriously, that efficiency is part of the game and that there will be a rating on every ship, and the rating will transfer into the ability to get funding for it, the ability to charter the ship to those who want to use it, and maybe even to the end user, meaning those public people and private people who buy things, consume things. That index will have a super big importance in the attractiveness of a ship. That's one thing. It's being implemented in 2023 in terms of yearly surveys of how good the ship is, and up until then, it's about positioning oneself to be as efficient as possible.
It is no longer possible to hide from the fact that independently of the business model that is used in the industry, the ship has to be efficient. So even if you own the ship and don't operate it, you won't be able to charter it out unless you have a really high energy efficiency level on your ship. So that's good. For other regulations, this is a really big regulatory driver for the whole industry. If we then look to another angle, which would then be maybe more long term and maybe less regulatory emphasized, at least globally, we have the invasive aquatic species or alien species that seem to be traveling with ships with a lot of fouling and then jump off and create damage in the ecosystems where they arrive. Now, this has been quantified through research over the years to be actually quite a big problem.
Certain countries, those who normally are in the forefront of this, meaning Australia, New Zealand, and the state of California, have actually already implemented some sort of measures to inspect or at least review documentation on how the hull looks like to make a risk assessment on the likelihood of them bringing in alien species. That's directly linked to the condition of your hull coating. For some owners, most of them traveling to these areas, that is a detrimental part for actually selecting the best possible antifouling coating because you want to have the lowest possible risk of getting caught with fouling because that means you will have a denial on your port call and you have to go out, likely way out from the coast to perform some sort of cleaning measure, which just takes time, is expensive, and so on.
So that is a driver that is coming step by step on local level that will support the expansion of these new tech, high tech, and fuel-saving antifouling coatings.
Okay, thank you. Next question. I think this is the final questions for this Q&A session if I don't receive any more of them via email. So the question is, how are the side projects of antifouling on underwater cables and into plastic materials underwater developing?
I should say relatively slow compared to what the shipping industry is showing us. Mainly, I think because of maybe a little bit of lack of focus on our end because there's so much other things happening on the more important customer market sides. We are still looking at these areas, of course, but it's less prioritized, I should say.
Okay, thank you, Philip. And a big thank you for your time and for your presentation. And a big thank you to all our viewers and to all of you who have written in questions to us. I hope to see you again on the next presentation with I-Tech. And I wish you all a very good day. Thank you.
Thank you so much. Bye-bye.