Hello everybody and welcome to this IR webinar where we will present the first quarter of 2022. I have Nina Forsvall here, the CFO of the company, and I also invited Daniel Röme, who is responsible for the R&D and the product development in the company. We will start to share some highlights of the quarter. I will also share some of the challenges that we are facing at the moment, and then we will also talk a little bit about the silver debate that is happening here in Sweden, then also to talk about the businesses, the protection, and the freshness. Nina will give you some update on the financials, and then we end the webinar with a Q&A. You are welcome to write your questions in the chat during the presentation. First, I would like to summarize the quarter.
I think it was a strong quarter if you look at the circumstances in the world at the moment. We deliver a sales of SEK 5.1 million, and I think that is quite good for it to be in the first quarter. As you know, the textile side of the business only contains of 1.5 months because of the Chinese New Year. We are facing lockdowns in some of the strategic areas where we have a lot of textile productions due to COVID. We can also present strong key figures. You need to understand how we present the results. The EBITDA, which is the operating result before depreciations, we deliver SEK 9.3 million, which is quite in line with it was last year.
We also have a strong margin that is also very good for the future, and then we also can see we have a positive cash flow, but we will come back to that later. In January, we finalized the acquisition of SteriTouch, and that is the antimicrobial business we bought from Radical Materials. The first quarter has been quite challenging to actually get that business into Addmaster setup. Now today, we are finished, and the formulations and the products are transformed into BioMaster's business setup. That will be very good moving forward. We also saw some good new partnerships during the quarters, and I will come back and talk a little bit more about that later. Addmaster had received several prize awards and nominations for the excellent technologies, and I will also go more in depth of that after.
Also another positive thing is that we've been out on the road again. We have actually already in the first quarter attended three different trade shows. We had one in Portland last month. It's a functional fabric show that is quite big for the industry, where we had a booth. Today, we are present in Munich on the Performance Days, which also is a material show that is very important in the industry of textiles. We are in full speed to launch the new website. We are still living in two separate websites, but now from around June, we will have everything under one umbrella, and that will be more clear for the industry what we are doing in the new group. That's also very exciting.
If I go back to the challenging, we have challenges we have seen in the first quarter, of course, we have the situation in Ukraine. It doesn't affect us directly. We had only a few customers in Russia. We lost SEK 200,000 in orders that we canceled because of the situation. Indirect, of course, it affects us because it is uncertain situations out there, and that affects our customers as well. That is something that we, among other companies, also are facing right now. As I also mentioned, is the temporary lockdowns in China, and China is still the biggest production region for the textile side. We have seen lockdowns in strategic areas. We also have problems to meet customers because our staff is under lockdown in Shanghai and have been. I think they still are.
The last month they have been strict lockdowns, and that of course affect the business. When it comes to the supply chain, we got a lot of questions about the situation, and I would like to update you on the polymer side, which is the one that is affecting us at the most. We have seen the polymer deficits for one year now, and we have actually took some good strategic actions to navigate in this field. What we have been doing is that we first extended the number of suppliers to get the raw materials, and that is a long process. It's been a couple of months that we've been working with that because you need to change formulations, you need to update all the technical data sheets, you need to test it again.
It's not just to buy something on the market. Now we have another three suppliers that we could actually have a better chance to get deliveries. We have also tried to change formulations from the ones that we have a deficit on to others that we have more in stock of and try to get the same effect but using another raw material. The third thing that we have take action on is actually to plan very well the deliveries and the orders. The purchase department, together with the technical team, has been very good to plan and deliver the most severe orders first, and then the ones who can wait, we will deliver them later. Everything depends on when the customer needs the goods.
If they place an order today that we normally will be shipped out. We will check with them when the production actually is gonna happen, and we can maybe delay the order and give the raw material to somebody else. That actually led to that this quarter we haven't lost any orders. They are just delayed, some of them, but I think we managed very well, and then we can see that for the next six months we have secured stock for being able to deliver what we have in the order books. We don't see any light in the tunnel in the close future. I think this will at least go on for a couple of more quarters, but I think with the setup we have, that we are very fast-moving, and we can adapt.
I think we can minimize the risk of this in the future. Then we also have the longer lead times that we have been living with for the last year. It is like a new normal. Everybody accepts that there are longer times to delivery. We also accepted that the freight situation is the same, that we have problems to get boats and transports to get goods out. But still, again, there is nothing that is lost of the business. It's delays because everybody is living in the same situation. Of course, the uncertainty in the world also lead to cost increases and inflation. It's on raw materials. It's on transports. We haven't took any strategic decision to date to adjust our prices.
We have a very strong margin structure that can absorb this, and we're following it, of course, very, very closely to not hit our overall margin as much so much. Then also the challenges this quarter, actually, after the quarter was closed, is the negative publicity we got in the Swedish local newspaper, and we will talk a little bit more about that. What is this Swedish silver debate? I will just give you some background and facts about what happened, and then I will hand over to Daniel Röme, who will educate or at least elaborate a little bit about what it is in this article that we believe is so wrong of the newspapers to write. First, you need to know that this has been going on for a long time, at least for 10 years.
We have these articles in Sweden. Every now and then, they pops up. The background is actually that Svenskt Vatten, who is a Swedish lobby organization, is driving this very, very hard and aggressively, that they don't think that silver in training clothes or any clothes should be, have a place in the market, and we think they are completely wrong about that. The article was published on the 14th April, just before the Easter holidays, and it was behind a paywall, so it was quite local, but it had a really, really big impact on the investor markets. We saw an overreaction, and more than five million shares were traded during these four hours on this Thursday, and that is a completely overreaction for this article. We haven't seen any reactions from our customers or for the business.
It's business as usual. The publicity has only been located in Sweden, and we had maybe two customers, two Scandinavian customers, that actually just reached out and asked, "What's happened? Can you give us some more information?" They are cool with this. There are no jeopardizing of the business. We would like to keep it local in Sweden because we don't have a big market in Sweden. It's 10 years since we actually actively approached the Swedish market because of the silver debate. We have put in place a short-term and a long-term strategy, how we're gonna handle this and meet this in the future. I will not go into exactly what we are going to do and what action we will take, but for short term, we answered with press releases.
The first press release was sent out the 14th when the article were released, and we just go out and say, "This is totally wrong." Now yesterday, we followed up with a second press release where we actually pointed out what we believe is wrong in this article one by one, the statements. We answered everything with facts and data and proof of that the technology works and that we have a place in the market for this technology. Then of course, we have prepared a lot of material, so if anyone would like to know more, or if any of our customers will ask, we have a good database of material to send out to them. This is something that I said pops up now and then.
We had the last storm was two years ago, and actually, it didn't affect the business at all. We have been growing since, actually. I think it's disturbances, and it's really tough for us, but in the same time, we just focus on the business and do what we believe in, and then I think we will just get over this time as well. Now I will hand over to Daniel Röme just to give some education or some knowledge to you because what this reaction we saw, it is completely understandable that people don't know what we are doing. If they can read a headline and react like this, then there need to be some more education or at least understanding for what we are doing.
Yes. Thank you, Ulrika. To try and elaborate a little bit on some terminology and some things that you might read about so that you have some better understanding of these things. The first item here is a biocide. What is that? A biocide is anything that you use to control bacteria. If the growth of a bacteria is affected, you're using a biocide. That would be if I'm using ethanol to clean my hands, it's a biocide. If I drink a glass of wine or a pint of beer, the ethanol in that is not a biocide. The purpose of what I'm using determines if it's a biocide or not.
We want to control the growth of organisms on a textile so the product that we use, regardless of what product we would use, is a biocide. Any of these biocides are controlled or regulated by the EU Biocidal Products Regulation. Here one has identified some specific areas where we need biocides because we see that they have a purpose. They support a better use of materials. We work in particular in the area of preserving plastics. Preserving a plastic with a biocide is one thing. If we would use the same biocide for something else, that may not be approved. It's important to understand that just because a biocide is approved for one thing, it's not approved for something else.
When it comes to the area of preserving plastics, there are only a few biocides available. The main one that we are using for textiles is through silver chloride because that one is suitable for textiles. That is why we are using that one. Some of the other applications which we are using when it comes to Polygiene U.K. type of business where it's inside the plastics, we're using slightly different biocides because they are the best for that purpose. This is something which is very important to remember that biocides have specific purposes and specific regulations for the areas where they are used.
Because I think if you go out and you look at the materials, there are a lot of happy developers who market different kinds of biocides which are super to use, and we would be the happiest to be able to use them, but they're not regulated in the Biocidal Products Regulation, and therefore, we're not allowed to use these. That's something to keep in mind. Any biocide used by anyone on the market needs to be regulated, otherwise you cannot use it. Now we have this biocide that we're using to control microorganisms. The important thing is to be able to be sure and measure that we're actually affecting the microorganism or the bacteria, that they're not growing.
Doing this live is very, very difficult, therefore the industry has developed certain standards which we can use to test this, and these we follow. The U.S. has one which they prefer, Europe another one, and Asia a couple of others. In these, you more or less take a piece of textile or a piece of plastic, and then you apply water containing bacteria, and you give them some good conditions to grow, and you see what is the difference between the treated article and the non-treated article. There you can then see that you have a reduction. This is what we have been doing, and as said before, thousands of tests, so we are very confident in the effect that we have for the different applications where we offer solutions.
To go further from that, there has been discussion about why more studies are not made to look into the change of consumer behavior. This is because this is quite complex. We are able to show very clearly that we can affect bacteria on a fabric because that is a controlled environment. When we then get into a person, there are so many different things. If you remember, I mentioned that the use of a biocide is regulated. The use of biocide in a textile is very different from the use of biocide on the human body. Therefore, a treated article can only deal with the odors which are in the textile.
If you start to run these tests on live people, you have many other areas which also need to be addressed for the odor. There it gets very complex. Second, it gets complex because a person will only change if they want to. It's the people who see washing less as something which is actually important to do because that's what's gonna, let's say, lower the footprint of clothing or textiles. It has to be a person that recognizes this because then they will wash less. Some people don't care. They don't want to wash less. It adds to the complexity of that type of studies. We're very confident, as we know from the 1950s, that sweat in itself does not create any odor. It's the bacteria that creates the odor.
The test that we run, we can see controls the bacteria on the textile and thereby then the odor generated in the textile by that sweat. That is the only part that we can guarantee from the function that we are delivering. That is talking about what it is that we're doing and such. We're adding something to a textile, so we are actually a cost in some way. Where can we see the gain is? That's when you go into something which is called life cycle analysis. This is used in many different ways. To try and explain a little bit is that the answers that you get from a life cycle analysis depend very much on how you set your boundaries.
Just looking at a T-shirt, you will get one result. Looking at using a T-shirt for a long period of time, you get another one. It's only when you start to look at the bigger picture and the actual use of a garment that everyone will wear a T-shirt, and if that one breaks, you will wear a new one. That is the life cycle we have to look at, the use of T-shirt, not just the T-shirt as such, because then you're not seeing the full picture. What we do know is that wearing a T-shirt will wear it down, but also washing it.
This is the basis for Polygiene, at least when it comes to the textile offer that we have, that we present, that we need to reduce the amount of wash needed because thereby we can extend the life cycle or the use of that garment and thereby seeing positive effects in the life cycle analysis. Yeah. This is kind of complex stuff. We're very happy to try maybe answer more questions in more details. I hope that this at least gave you some level of better understanding when you read things that it's important to try and understand what are the boundaries they have set up. Are they actually using things which they are allowed to use? Because for us, the key is to contribute, to be used in things which are within the regulation in the right way and being sure that they work.
For us, testing is very key, abiding to the regulations that are key and that our product at the end of the day gives a positive impact is also key for us. Thank you.
Thank you, Daniel. Please, if you have more questions to Daniel, you can just write in the chat. Okay, now we're going to the business and see how the quarter developed. We have two business areas. It's the freshness side and the protection side. As you can see, we have more protection. It's around 58% and freshness is a bit smaller. If you look at the full year 2021, it's around 50/50. Due to the close of the Chinese New Year, since most of the textile production is in China, it is a smaller part. That is normal. You can see it was the same last year. If you go to the region, we can still see that Europe is the biggest one for the group. That is mainly because 80% of Addmaster sales is within Europe.
Americas is down a little bit. You can see it's because we have some big orders last year from a big manufacturing of T-shirts. That orders we are waiting for. I think we received something in the second quarter from that customers. APAC have been up a little bit of the share of sales. During this quarter, we launched some really good partners, collaborations. Some of the top customers of sales this period was actually from one of the really good premium ones, Tommy Hilfiger. They just launched a series of men's shirts treated with BioStatic. They are out for sales at this moment. We also launched with O'Neill, who's become a very close partner to us. They launched an activewear collection with also BioStatic treatments on. Myprotein is a U.K.-based company and they are an online.
They're selling from production directly to the end consumer online. They have been very successful and they are selling in many, many countries around the world. They also launched a special training collection with Polygiene BioStatic on. We also have launched a collection with swimwear together with Calvin Klein. This is the Europe part of their business. It's a collection of men's swimming shorts that has been launched. I'm really happy to see that these are moving forward. Close partnerships with very, very good visibility in the market. If we go to the protection side of the business, we can see that we have. I just highlighted some of them. As you know, we haven't press released. We don't press release every time we got a new customer. We've been very busy this first quarter with annual reports, quarterly reports.
It's been a bit on the backside. I just want to share with you some of the successes from this quarter. First, we have a long-term partner, Flowcrete. That was actually one of the first customers Polygiene gained back in 2006 when we started. When we sold the business to Addmaster, we sold the protection business. They actually continued to use Polygiene as an added value because they really like the brand Polygiene. Now they launched a new set of hygienic flooring. They are doing a lot of flooring into the food industry where it's super important to have bacteria not affecting the production. It's called Flowfresh. Also Flowcrete been bought by a bigger company. They are part of a bigger group. That is a very good opportunity for us to grow into the other subsidiaries in the company.
We also launched some promotion items. It's drinking bottles and coffee cups that is treated with an antimicrobial solution. It's better because if you know how much bacteria is in these items, this treatment can actually save a lot of disposable coffee cups and plastic bottles. I show this because this is super good way for us into the other categories we have. For instance, with sports and outdoor, many of the customers are also manufacturing water bottles. I will show you later what we're going to do when we launch this into the sport category. We have a company called Lader. They are doing airport security trays and I think this is in Edinburgh, in the Edinburgh airport that they have launched an antimicrobial tray. This is super important also for the entry we want to do in the transport industry.
Tommee Tippee is a long-term customer with BioMaster. Now we also want to show you that we are doing also with ScentMaster. ScentMaster is a technology that is not antimicrobial, but it add a scent or a flavor to the end products. This is a super interesting cross-selling for ScentMaster into other categories as well. I'm really happy to announce all these awards, and this is to show you how appreciated this technology is and how it's been. I mean, there's so many nominations. Just under this quarter, we had the Queen's Award, where we won for the innovation category, and it was a big ceremony in the U.K. last month. We have this mobile phone.
It's the first full antimicrobial mobile phone with Caterpillar, and it got award for the best innovation in the Mobile News Awards. We're also nominated in Made in the Midlands. I think it will be revealed end of May, but it's an award in the export category in U.K. We also have an award for the Crystal Cabin Award, and that is the most prestigious prize for aviation interior. We have a partner, ELeather, who launched a collection that they call Essence, I think, so that is nominated in this category. It's really interesting to see how this is picked up by the industry, this technology.
I think it's also because of the recent pandemic and the demand for antimicrobial technologies in surfaces and materials. I'd like to show you just a little bit preview of the new branding. We have the Polygiene Protection, and we're gonna go really aggressive into the transport industry, and we will start in June on the biggest show for aviation interiors. It's AIX in Hamburg in beginning of June. We created a lot of materials to cross-sell now, both hard and soft surfaces, into this specific area. We have some good partners that will join us in panel discussions on this show, and we also set up a really nice booth.
I just want to show you that we are working really hard to get the integration of the, of the two sides of the business. We're very excited to see what this can bring for us. Bear in mind that it's long-term to enter a new category and actually get the sales in. It will take another 1.5-2 years before we can actually see the impact of this. We really believe that we have a strong messaging in this field. Yes, back to the drinking bottle. Now we started with the cross-sells for real, that we really want to introduce the BioMaster, the ScentMaster, and VeriMaster, and other technologies from Addmaster's portfolio into the old Polygiene categories.
On Outdoor by ISPO, which is a big sport and outdoor show in June, we will start to promote now the coffee cups and the drinking bottles and show how we can add value to their products and make them more desirable. We created a lot of materials with the new graphics that will come later in June. Okay, Nina. Over to you.
Yes. Thank you. Let's have the first quarter in brief. We had net sales of SEK 45.1 million. This is an increase of 7.5% compared with the same period last year. The first quarter last year was a strong quarter, so therefore a growth of 7.5% is, we're happy with this. It's very satisfactory. We're still, even though we're still facing global changes, and we need to have in mind that during this quarter, China was closed for quite a period of time. We had the Lunar Year, as every year before. China was closed down, but then China also closed down due to their approach to the COVID pandemic, more restrictions and a longer lockdown.
We had the gross margin, 76.7% compared to last year, increased, and this is due to sales of products with high margins and royalties in this quarter. The operating costs increased also and includes a non-recurring amount of SEK 700,000. This is related to the SteriTouch acquisition, which was closed in January. Somewhat higher admin costs, and that's related to consultancy work. We're continuously focusing on the implementation of the ERP system, everything from purchasing, stock keeping, sales, and accounting in order for the whole group to be in the same system.
Personnel costs, also included in the other operating costs, have also increased in line with the growth of the organization. We have an EBITDA SEK 10 million, the EBITDA is SEK 9.3 million, 20.7%, but adjusted for the acquisition costs, the EBITDA amount to SEK 10 million, which gives us an EBITDA margin of 22.2%. Looking at the EBIT, this time we have adjusted the EBIT for exchange rate changes related to internal loans and acquisition costs. I actually got a question on this already, if we can clarify the nature of the costs associated with the exchanges and relating to internal group loans. The EBIT is here adjusted for exchange rate changes. Polygiene took a loan from Addmaster in January 2021.
The main part of this loan is repaid in this quarter, and there was an exchange rate cost of SEK 4.7 million, which we had in this quarter. We have a positive cash flow of SEK 1.4 million. Last year, the same period, we had a positive cash flow of SEK 31 million, but that was related to Addmaster and the acquisition of Addmaster that we closed in January last year. Total cash as of March now is SEK 54 million. The organization, end of March, we have 49 employees working full-time, 43.8%. We have some organizational changes. Sue Bethel is now taking the role as CTO for Polygiene Group. She will be replacing Dane Momcilovic, who left in January earlier this year. Sue Bethel is located at Addmaster in U.K.
She will lead the team, the technical team from there. Nina Forsvall, myself, due to the growth of Polygiene Group, I will hand over the CFO role to a new CFO. I will focus on HR and process-related projects going forward. The search for a new CFO is in process, and most likely that transition will take place in late Q3 or early Q4. Now there will be some time for question and answers. We will come back to you here. We have some questions here. Let me see. Some questions are related to the sales and some to the article and the impact of it. Let's start with the sales. Regarding lost sales of orders, are they being deferred or lost indefinitely?
As I mentioned before, they are not lost. There are delays in the productions. The main part of these delays of production is not in our hand. It is when our partners are having their plan for their productions. What we can see is that they are not canceling the orders. They will produce, but it's a later phase.
We also have questions on Addmaster sales outside Europe. They are very strong in Europe, but how are the sales developing outside Europe?
As I mentioned, around 20% of Addmaster sales is outside of Europe. Since we have a global team now, we have a team in China, we have a team locally in U.S. They have started to do the cross-selling, what we call it, when they start to actually promote the BioMaster technology and the other technologies from Addmaster into their regions. That is happening already now. As you know, we have quite long sales cycles. It will take a while until we see the results of that, but it's full speed on growing the businesses outside of Europe.
I have a question here on forecast for the full year sales and the EBIT, and I believe that is related to our long-term goals. If we have any forecast on the full year sales.
On this year?
On this year.
We don't do any public or official forecasts. We have, of course, internal budgets that we are measuring very closely, but we are not guiding on the forecast year by year. We have our long-term goal of five years, and we stick to that. We got a lot of questions if that are going to be revised now. We think these quarters is too early to do any changes. We will do a new evaluation after the Q2 and maybe beginning of the autumn to see if there will be a delay in this 2026 goal, if that will be 2027, or we will stick to it. The only risk or the challenges now is if we want to finance new acquisitions with new shares.
That could be a bit challenging now since the share price has dropped so much from this reaction. We still see that the existing business and what we have planned for is. It's still there. No changes.
Mm-hmm. There are still some global challenges out there with the lockdowns and logistics issues, but are we seeing an easing of supply chain issues? Are we able to ship the products previously unable to deliver to customers?
I think I touched that before. The things we can actually affect and have an impact on, we did internal and good work to manage. I think the indirect impact of the customer's production and when they can have their components and the other material that goes into their product is something that is a bit out of our reach to impact actually. I think from our side, we have done as much as we have could to actually save, and try to manage and navigate the deficits.
I got one question here on the rising inventory levels, and if this is anything done on purpose or an indication of change in demand picture? It's a combination of it. I believe before Brexit, we had inventory only in U.K. Brexit came, and all the shipping from U.K. to all our European customers became very much more expensive for our customers. We decided to have an inventory here in Sweden as well. We purchased the additive within Europe, and we now have our inventory here in Sweden and can support our European customers without any impact of Brexit. We have a question on products, on replacing silver, if this would have any impact in terms of gross margins and efficacy.
Do we have a replacement product ready, or would we need to invest in R&D?
Well, what we can say to that is we are already investing in R&D. I mean, we're continuously guided by the fact that we need to work with regulated biocides, which are approved to use the best ones and to optimize or minimize the impact of the biocides we choose, but at the same time, maximize the outcome of using those, the function that they deliver. These are the items that guide what we do within product development, so we're confident in that, as the market moves forward, as legislation moves forward, so do we. The products that we have and offer to the market will always be compliant to always give the best performance, I think.
I'm pretty confident in the development that we're doing and the measures that need to be taken, that they are taken in time.
It's also important to add that the silver technology we use today is not our own technology. We can change this technology any day. We have alternatives that could work. It's also important that we are not silver. That is very important. We are selling the function, and we use the best technology that are allowed to use to deliver that function.
There is a follow-up question on this one, and it's: What percentage of your revenue and profit comes from the silver salt solution?
I think we mentioned this.
Yes
... in the annual report too, that if you look at this is Europe, it's also important to say this is not a global legislation. It is the BPR. It's Europe. If we look at the textile side, because this is silver chloride now versus the textile, we calculate around 15% of the total group turnover is actually silver chloride in Europe.
A question on the gross margin. In Q4, we mentioned that it was temporarily higher because of lack of distribution orders, if that's still the explanation, or have you been able to raise prices more than input costs?
We haven't adjusted any prices to the customers. As I said, we need to consider that and check, but we have a strong margin structure. I think we have an advantage in front of other competitors that also will face these price increases. If we look at the higher margin this quarter compared to Q4, it's the same. We actually have less of the distributor orders also this quarter than. The mix of royalties is bigger. For Addmaster, I know VeriMaster is a very good margin product that they actually have some really good orders at as well. That also raise the total margin.
I now believe we have answered all question besides one here, and the final question is that the business looks to go as usual for the company, but the market value is now much lower due to the recent happenings. Has it meant interest from others to now place a bid on the company?
No. Not what I know of, no.
Shouldn't come.
I would like to say, because I saw a question about SteriTouch, and how can I think this is a good quarter when we have SteriTouch? As I said, we have some challenges to get SteriTouch into the system, and they were acquired late January. We actually have just very little sales of SteriTouch in this quarter. It's not worth to mention. We still believe that we can deliver on the earn-out number we had, GBP 1.6 million. We still can see that will be gonna happen. But for this quarter, there were very little sales.
Here actually is still another question that popped in. We just mentioned the percentage of revenues of silver salt solution within Europe. What's the percentage of revenues outside Europe?
I think I answered that.
Yeah.
Yeah, I answered that. Mm-hmm. Exactly.
Or-
Okay.
Yeah. It's in the presentation. We have answered all the questions received.
Okay. Nothing to add? No.
No.
Anything else to add?
No.
Okay. I would like to thank you all for listening in, and thank you for the continuous confidence in the company, and see you next quarter.