Hello, everyone, and welcome back to ABG Investor Days. My name is Adrian Gilani, and I'm an equity research analyst here at ABG, and I will be moderating our next presentation, which will be given by CEO of OrganoClick, Mr. Mårten Hellberg. He'll give a roughly 20-minute presentation, and then we'll have time for some Q&A after that, hopefully. With that being said, Mårten, I will leave it over to you.
Thanks, Adrian. Nice to be here. My name is Mårten Hellberg. I'm CEO and co-founder of OrganoClick. 17 years ago, I met two Swedish professors when I was at the end of my studies in biochemistry. They had been doing research within natural chemistries since the mid-1990s. That is, looking at what is, what is the chemistry behind a tree becoming so strong, or why do some leaves become water-repellent? And the purpose with this research that they had performed was finding new materials, new chemistries, that can replace plastics and different fossil chemicals in cellulose-based materials. When we met, they had developed a technology which we call modification of cellulosic fibers. That is, we can click on different molecules to cellulose fibers by mimicking the way nature doing it by itself.
This research and this science is called Biomimicry, that is, looking at and mimicking the way nature is creating different functions. If you look at what the technology platform that we started off, it is a way of clicking on molecules to cellulose fibers in wood, in textiles, and in paper, in order to change the properties of these materials. Today, 17 years later, we have developed technologies in order to create improved water resistance, improved mechanical properties, grease resistance, and fire retardant, and also rot resistance to these materials. So this has been from a core technology of clicking on molecules, we have then gone into various fields, depending on what we are using.
The name of our company, OrganoClick, comes from two different chemistries that we are utilizing, and the first one is organocatalysis, thereby the name Organo. We were one of the first companies in the world, I would say, starting to work with this catalysis that is replacing metal-toxic catalysis in order to create chemical reactions. We were pretty pleased and happy when this was awarded the Nobel Prize in 2021, the science behind organocatalysis. And that is because it can, It's a green chemical reaction, green chemistry, that can replace fossil chemistries. Then the click in our technology is coming from Click chemistry, which is a different fundamental research.
You click on molecules, and we were pretty surprised and even more happy, I would say, when that was awarded the Nobel Prize in 2022. So the whole name from what we are working on has now received a Nobel Prize, and we were one of the first companies in the world started to commercialize different areas from organocatalysis and Click chemistry. Today, it's being used also in pharmaceutical development. It's being used in other type of industrial processes, but we are unique here working with material chemistry and the cellulose chemistry with these two fundamental chemistries. From this basic science, we have developed products within a number of different fields. We work with what we call nonwoven materials, which is material in between textile and paper, so it's like a soft paper, you can say.
I'll talk more about that later. There, we have developed bio-based binders that, which is connecting the fibers, which replaces plastic binders that have been utilized in the past. Here we see a typical example of a nonwoven material, and this I picked up here at the hotel. It's the napkins that they have here, and actually, I can say that this napkin contains 15% of our binders. So, and I know this because I know the pattern of our customer's napkins, and I can smell it because our product smells different compared with the plastic binders. So, I'm very happy that we, I found this, yeah, actually, both the colored and non-colored materials. So here we have 15% of our product in these napkins, but that's a typical nonwoven product.
We also work with textile impregnation products in order to create water repellency on textiles. There we replace a chemical called the PFOS or fluorocarbons, which is the chemical that is also in firefighting agents that you have heard all about the problem that they have in Kallinge and in Uppsala and so on. So it's the same type of chemicals that have been used for textile impregnation historically, which we are now replacing with bio-based chemistry. And then finally, we also work with wood protection, where we are replacing biocides and different heavy metals with natural minerals that is creating a physical protection instead of being a toxin to the fungus. Today, we are a green chemical company.
We have our own factory up in at Arninge Industriområde in northern Täby. A 5,000-square-meter facility where we have a number of production lines with a total capacity of 20,000 tons per year right now. Last year, we had revenues of SEK 115 million. We surpassed that now after the third quarter this year. Come to the financial figures later on. And we are also work now completely with renewable energy in our production, so we became a certified Climate Neutral company according to Scope 1 and Scope 2 in 2022. And this is, of course, also very important because part of what our customers want is to become also climate neutral and fossil- and becoming completely fossil free.
So for them, it's very important that our production is also fossil free. If we move into our different business units, our company is organized into three business units, one which we call Nonwoven and Fiber Technologies. There we are targeting big industrial producers of products like this. We have the Green Coatings and Maintenance business, which is more consumer-related products. It's also chemistry, but packaged in consumer packages. And then we have the Functional Wood, where we are working together with wood impregnation companies to impregnate wood for the building industry. But if you move into the first segment, the Nonwoven and Fiber Technology business unit, here we are selling these bio-based binders, which I mentioned replaces plastic binders in nonwovens.
So when you produce a nonwoven material like this, you start with cellulose fibers, different type of pulp, and then in order to bind them together, you often use binders, and then historically, you've used plastic polymers. So a napkin like this, historically, had about 15% plastic in it. That you don't probably know as a consumer. You believe it's just paper, but it has had 15% of plastic polymers, and that's the same in, for example, hygiene products like diapers or feminine care products. These materials also contain plastic polymers as binders, and this is where our products come into place. We can replace these type of plastic binders.
And applications are tabletop products like napkins, hygiene products like diapers, feminine care products, wet wipes is a big area, agricultural textiles, these type of textiles that you see over field in agricultural lands, and packaging materials. In meat packages, for example, there is often some type of material that meat is placed on, and that is a nonwoven material. But you also find them in filter applications, medical applications, and other things, but they are a little bit everywhere, these nonwoven materials. Today, this is an area where we, this year, have really taken a new step. We have started to supply big customers within this area.
Today, we have customers like Duni, American Glatfelter, which is one of the largest nonwoven producers in the world, Finnish SharpCell, and Finnish Ahlstrom, and Ahlstrom is also one of the biggest nonwoven producers in the world. The market for binders is a niche market. It is an additive into the nonwovens, and it's valued to around SEK 3 billion-SEK 4 billion per year. This is, for us, a perfect market. It's not super big, which makes it not super attractive for the big chemical giants, but it's really big enough for us to have an opportunity to become a much larger company.
So our ambition here, which I believe we can do, is to become one of the major suppliers of binders, and this is something which we have really started to move on to right now. If you move into our Consumer Goods business, the Green Coatings and Maintenance business, here we are. Our major product is the OrganoTex textile impregnation, which you see here on the picture. This is, here, we are replacing the fluorocarbons, as I mentioned, with bio-based products instead. We are the first company in the world to be able to supply bio-based textile impregnation for consumers. We have had really good growth now during the last three years within this segment, and we are today selling to customers. This is retail customers.
We are selling to resellers, and we today have customers like XXL, Naturkompaniet, Bever in the Netherlands. They have 75% of the Dutch outdoor market, and Partioaitta . And I would say that we are probably the market leader soon in some of these areas, because we have taken the major retailers, then, which have often also removed the previous leader within this field. This is also a niche market. It has a market of around 2 billion SEK. Also a really nice niche for us. It doesn't attract the big giant, so the competition is not super hard, and this is an area where we believe that we also can take a market-leading position within our segments in our geographical markets.
Finally, our first business area, which was which was the first product that was launched, the functional wood area. There, we are selling these biocide-free wood impregnation technologies. We're working together with the largest wood impregnation company in Sweden, Beijer Timber, to produce these products. And, the wood is mainly sold to professional users. So professional users is about 85% of the market, and then, of course, also some consumer products. But mainly this, this wood is used when you want to have an eco label on your building. So, different type of eco label buildings, that is when our wood is coming into place, because then you cannot use the traditional impregnated wood. Here, customers that, and resellers that, we are working with is Beijer Bygg, for example.
They are one of our biggest, biggest retailers within this segment. Nordström Group is also a big reseller for us, which is working towards the professional construction sector. Germany is the fast, the big, the second-biggest market for us, and there we have one of the leading distributors right now, which is called Karl Götz, and in Finland, we have a very good distributor named Sarokas, and Finland is the third-largest market right now. Wood protection chemistry, the market for that is around SEK 5 billion. So another niche, not super big, but certainly big enough for us to be very interesting for us as a company. So in total, we are targeting markets of around 12, 13, or around 12 billion SEK, and within three different niche segments.
Looking at what we believe we can achieve from having moved into these markets, we have one very fundamental goal with what we are doing today, and that is to have 100% bio-based products. Today, we have around 94%, which is extremely good, but we want to get up to 100%. This, we believe, is the most critical competitive advantage we have over our customers. We believe this also can create us to become a market leader within these three different segments, because the interest for bio-based and eco-label products are really growing within these markets. Finally, we believe that we can have a sales growth of around 20%-30% per year.
This we believe can be sustainable within our different markets. From the product mix that we today see and the gross margins that we have within these product segments, we believe we can also reach an EBIT margin of about 20%, and we have reached certain volumes because this is volume, volume dependent. Last year, we started to redefine our strategy, because if you look historically at our company, we have had to move further up the value chain in order to be able to get out the products on the market. So we have supplied, for example, ready-treated wood, bio composites with our binders, and so on.
But we have now what we feel is proven our technology in such ways, so we can go back to the business model that we wanted to work with from the start, and that is supplying the chemistry. So one major thing that we wanted to achieve was to streamline our business to become a completely pure chemical company, and that is by out-licensing the parts where we have sold the final material. And this is something that we have been working on during the year, and we have out-licensed now several parts of what we previously sold as final material.
Finally, we are really now focusing on three different areas: the bio-based binder in Europe and North America, the wood protection also in Europe, and OrganoTex in Europe and North America. And what is good with our market is, for example, in the nonwoven market, the biggest companies are European and American. So we have a very strong home market. And in the nonwovens business segment, three of the 10 largest nonwoven producers are Finnish or Swedish. So we have very good home market in that way. Coming into what we have done in 2023, show figures later on, but we have had really strong sales within our binders to existing nonwoven customers, but we also have signed new contracts with nonwoven producers.
Glatfelter, as I mentioned, is one of the biggest nonwoven producers in the world. We entered into an agreement with them earlier this spring, and the Finnish SharpCell, another nonwoven producer, which we signed an agreement with also earlier this year. Sales of OrganoTex have developed extremely well, and we have also expanded the business into the Netherlands, Germany, Austria, and Poland. And we have also launched 100% bio-based OrganoTex, which is the second generation for us now, and also launched a new wood protection technology that is replacing our previous technology, which was the first generation. If you go into the financial figures, we had a very good third quarter.
We had a 50% revenue growth, mainly driven by extreme good growth within the nonwoven and the fiber technology segment, more than 600% growth. We had also good growth in the Consumer Goods business with 29% growth. However, we had weak construction market, which made that drop 20%. But even with that drop, we had a 50% revenue growth. We improved the gross margins coming from from better utilization of our capacity. We have a very big overcapacity right now, so all capacity that we add is really increasing the gross margin a lot. We had good improvement of EBIT, even though it was not really break even. We were at break-even levels both in Q1 and Q2, but now it was a little bit over.
We had some costs that we had to take during this quarter, which we didn't have to take in the previous quarters. But still a very good improvement on all figures. If you look at the first nine months, we had a revenue increase of around 26%, and a good increase both in gross margins and in EBIT. And here you see that most of the negative EBIT came from the third quarter. The first and the second quarter, we were about break even on that. And the last two quarters, we've also had positive cash flow from operating activities, which we're also very happy that we have come to that stage. If you look at...
If you look at historically a little bit, so here I'm pretty happy to say that we have this year started to get into the right direction when it comes to the EBIT result. As you can see here, in 2021 and 2022, we had quite difficult years. This was the pandemic years, and we were affected heavily by a very strong increase in raw material costs. At the same time, in autumn 2019, we made a decision to invest in more sales organization, and we also invested in more selling activities, which, looking back, was not a very good timing, because in 2020, our salespeople that we had just recruited were not allowed to go out and meet customers anymore.
We had a much bigger sales force, and they were not allowed to go out and meet customers. So we had a high cost increase. At the same time, we got very high cost increases on our raw materials. So we had some difficult years here in 2021 and 2022. But this year we have really, we have really made a turnaround there, and with the sales increase of 26%, we have also had an decrease in OpEx, in cost, of 10%. So we have reduced the cost by 10%, increased the sales to 26%, and that, of course, include all in all, is creating a very positive effect on the result.
If you look at the different business units, we have also done a quite big change. The Nonwoven and Fiber Technology business unit with the binder sales have grown a lot during this year, and now we have three business units, which is almost equally big. The Consumer Goods business is a little bit smaller, but they are actually almost on the same level. And this I'm very happy with, because if we can continue to grow them further on, then we will have a very good risk diversification between different type of businesses. We have the building segments, we have the nonwoven segments, and we have the outdoor and sports goods segments. If you're looking ahead into 2024, well, we will continue to do what we do today.
We feel that we are on the right track right now. We will focus a lot on continued development within our nonwoven segments. We have a lot of projects with other leading nonwoven producers, which we believe can come into real products and product launches in 2024. We will continue to develop the businesses with, in particular, Glatfelter and Ahlstrom, where we have a lot of growth potential within these customers. We are focusing on three areas, and that is the wet wipe area, the hygiene product area, and the tabletop area. For OrganoTex, we are working on our expansion in Central Europe. This is the focus for us.
We have, as I mentioned, a lot of new distributors that we want to turn into revenue growth now in 2024. And the same we will continue with for OrganoWood, we will further do the expansion into the European market. And with that, I thank you for your attention.
Perfect. Thank you so much, Mårten, and we have time for a few questions. I'd like to start off a bit broader on your strategy of. You talked about streamlining the operations. You've already licensed out several of your products that used to be in-house production. What's there left to do on that front? Which of the current operations, what are you looking to license out, and what's going to be kept in-house?
Well, I mean, certainly what we have outlicensed during this year is the biocomposite segment, where we reduced a lot of cost when we did that, which was really good for us. Now we are supplying these licenses with the binders, because they need the binders in order to produce these products, so it, it makes a lot of sense from, from an operation perspective. But we, we are also looking at, the wood segment to outlicense all that, that we are doing in-house today.
Mm-hmm. And, as an analyst, I'm obviously very interested in the financial implications of a licensing model.
Mm-hmm.
Can you just walk us through how that affects profitability, working capital needs, and other, more of the financial side of that?
Yeah. Well, when we, when we are getting rid of the material that we are supplying, then that is tying up a lot of capital because it's extra add-on in terms of just-
Mm
the material that we need to have in stock. So, we will reduce the working capital need in terms of inventory quite, quite a lot.
Mm.
When it comes to profitability, yes, we have higher gross margins on the chemistry compared with the materials. So in that sense, we get up in terms of the gross margin from the raw materials, if you look at the variable cost.
Mm-hmm.
So it increased the profitability for us when we have done and finalized this out-licensing that we are working on.
Mm-hmm. And then, I guess tying that into your long-term margin goal of 20% EBIT margin-
Mm.
First of all, are you able to say any more indication on the timeline of what long-term means? And perhaps give a bit more color on what's going to be the bigger effects of streamlining the operations and scale effects, and what's actually going to drive that margin increase?
Well, well, I mean, if you look at what we have done this year, we have grown the business with 26%. We have an EBIT that improved from -SEK 18 million to -SEK 3 million in the first nine months, due. And that is because we can keep the cost, and just grow the business. And this is a very scalable business that we're working on. If we increase the volumes, we don't need to increase the cost so much. So, coming from that, I mean, I don't- I will not give you a year when we will reach it, because we will also. We want to grow, of course, but it's difficult to say exactly when.
But we want to now turn, move into profitable growth, and this we want to do as quick as possible. So we will not add any more cost until we have seen that we are, have a certain profitability.
Okay, that's very clear. And then, I guess one final one from my end. If we focus on the fastest-growing segment in the nonwoven products-
Mm-hmm
what's the strategy for growth in this area? Are you looking to sign new customers, or are you happy with the ones that you've got and more looking to grow within that?
No, we both. I'd say, I mean, we have only started with the two, the new customers that we gained this year. This is-
Mm
just the beginning of that. There we have a very big growth potential within this customer segments. But then we are working with several new customers and projects as well, and I hope that we will have a few more new customers next year. But it takes time, as some of you that have been with us for a long time, you know that I've been I was talking about this segment for many years, that we were in projects until we have finally, we finally made a breakthrough. But I hope that we can get a few more products out on the market every year from now on.
Yeah. I guess a quick follow-up on that. You mentioned the exciting market potential. I believe it was SEK 4 billion annual-
Yeah
market potential. Are you able to say something about your vision of how much of that you can realistically capture?
I mean, the biggest player in this market right now have around SEK 1.5 billion of this, of this market. I would be, I, I'm not satisfied until we are the market leader.
Okay.
So.
Perfect. I think that's a very good note to end it on. With that being said, I'll thank you for your presentation-
Yeah
and for answering all of my questions.
Thank you.
Thank you.