Alexium International Group Limited (AJX.AX) Earnings Call Transcript & Summary

Good morning, and welcome to the Investor Update Webinar for Alexium International Group Limited. My name is Simon Moore, and I'm the Interim Chair of Alexium International Group Limited. Today, the order of business will be a welcome from myself. The Chief Executive Officer, Billy Blackburn, will speak to a presentation. That presentation will be available on the ASX website. We will then have a Q&A session where you can lodge your questions with the moderator, who will be today Lisa Hubka, and Lisa will pass those questions through to Billy. We are conducting this from remote locations. So there might be a little transition bump as we go from person to person. And for that, we apologize. Just to set the scene, Alexium has been on a bit of a journey in terms of migrating its technology away from a single product to -- which was really being delivered to a single segment of the bedding market. The company led by Billy over the course of the last 2 years, has been working on a number of developments, which will broaden both the product set using the technologies that we have in hand and also broaden the customer addressable markets. We have made progress across each of those initiatives. And we feel we are getting extremely close to the position where a number of large opportunities are approaching us, and we would hope are going to drop in the not-too-distant future. This has always been an exercise which typically, in my experience in other context of similar stage of life companies tends to take a little longer than you'd hope and ultimately involve a little bit more capital than you initially expected. But I can reassure people and confirm that the company is making significant progress. And with that, I'd also like to thank the management team for their continued efforts. These earlier-stage businesses are never easy and what the company has managed to achieve with a very small team is quite significant. The other thing I would like to do is to thank Dr. Bob Brookins for his contributions to the company through time. Bob will officially finish up on the 31st of October with the business. He has led the business at different points in time as the Chief Executive Officer and then working with Billy as the Chief Technology Officer. His contributions on the technology side have been very significant, and we are fortunate to have access to him on a go-forward basis as a consultant to our technology team and to Billy. And with that, I will hand over to Billy to commence the formal webinar presentation. Thank you.

Thank you, Simon. I hope everyone out there is doing well. I'm going to move through a few topics here tonight and put a real focus on what has changed over the last year and what is positioning the business for sustained success going forward. I'll give a brief recap of the last fiscal year and outlook for the year ahead. So in our last webinar, we talked a lot about the company's full-scale effort to refocus and optimize our entire commercial approach. And that included sales, our supply chain, our distribution and our manufacturing. We've recognized in order to grow our niche position in flame-resistant materials and phase change materials and bedding, furniture and apparel, we had to change the way we were operating and get the business ready to scale. And as a part of that, we've narrowed our focus and really the summation of this whole writing here is we've created significant focus by focusing on less items. Alexium has a history of developing a lot of intellectual property and technologies and also has a history of inventors and creative folks being behind the scenes, creating those opportunities and new technologies and products that are offshoots of those technologies. Oftentimes, though, that will lend itself to a lot of different pursuits and a lot of different markets and products that can come from that. And it takes discipline to narrow the focus and really pick the ones that are best suited to grow the company and get financial results. And since I've been here, we really have paired it down. Those opportunities don't go away and those chances for growth and innovation do not go away. We just put them on the shelf for a short period to focus on the ones that are much more developed and ready to scale. So with that, we've sharpened our strategic focus to concentrate really in 2 different areas that are particularly strong for the company now. And that's thermal regulation and flame-retardant technologies for sleep products. And that's really -- you've heard me talk about it over the last few years, our core market in bedding and then bedding products as well. And then beyond that, it's flame-resistant and wash-durable durable coatings for military. And then from the military that would move into workwear, which is a much larger market. But from a go-to-market and product focus, that's led to really us paring down to 3 real specific areas in the near term, and that's AlexiCool microencapsulated phase change materials. We've had significant breakthroughs over the last 12 to 18 months in the way we make the microcapsules, the way we formulate from them and also improvements into the quality and thermal stability of those products. The other is our AlexiShield FR technology. Pressures from environmental bans and safety bans on flame-resistant coatings and also recent pressures from this administration on tariffs have created some opportunities for us domestically in the United States for our AlexiShield product. And then last year, 2024, we reported that we had developed a new formulation that was free of any ban materials and flame-resistant coatings in a lot of industries, but particularly in bedding and furniture have gone through a lot of scrutiny over the last few years to move out materials like polyfluorinated halogens, antimony, fiberglass and other dangerous materials. Next, we've continued our efforts with the U.S. military, and it's been a slow-going process but it's now actually stepped up in pace and the military is quite active. Although I will remind everyone, they're not quite as active right now because they're on pause as our U.S. government has shut down at the moment as our Congress quibbles over the budget. So when they come back to work, we'll be right back to testing. So I'm going to give some live updates today. And I'm going to go off script a little bit and share some videos from our recent tests because I'd like for our investor base to see the product in action and the type of rigorous testing it goes through. So background on number one, AlexiCool microencapsulated phase change materials. Historically, Alexium formulated products from microcapsules in 2 ways. We made paraffin-based capsules -- we bought paraffin-based capsules that went into formulations for textiles. And then we made our own microcapsules that were bio-based, and those also went into textiles. So what has changed is we have now started making our own paraffinic microcapsules alongside our bio-based products. We still offer the bio-based products, but they haven't gotten the traction that we would have liked and that the bedding industry wanted. There's been a shift in the bedding industry to foam and polyethylene and other synthetic materials and the need for the sustainability story for the coatings on those has really been downplayed because of the amount of those synthetic materials in the bed. So it's been a shift away from the drive for sustainable coating to performance and economic coatings. So to answer that, we moved into our paraffin-based shell production. And in that pursuit, as we were developing the manufacturing process and the actual microcapsules, we had significant breakthroughs in the technology. In summation, really what that meant is we made a shell that had more thermal stability, which allowed us to start drying the material and making high solid formulations that go into foam and also drying the material, spray drying it and making powders that get embedded into foam. So we've shifted through diversifying into 2 different types of capsules, one that allows us to open up a foam market. We were very concentrated in textiles in the past. Now we're working actively in the textile side of the bedding and furniture market, but also the foam side of the market. And that has really grown our addressable market and the opportunities within foam in our current pipeline. So -- and the foam side of PCM market in furniture and bedding is much larger than the textile market. And that's been the shift around the world as people move to foam mattresses and e-commerce mattresses in a box. So it's been a shift, and we've shifted our product and manufacturing to meet that. For AlexiShield, that product is also a formulated flame-resistant material that we make in the United States. And we made different formulas for the different type of textile applications. So roll coating, knife coating, spraying it. We have to make a very robust product and different formulated SKUs for that product for the different types of applications for the component manufacturers in bedding and furniture. We also opened up foam opportunities in that market, which to me 2 product as we're selling cooling products through PCM into bedding and furniture, we've created opportunities to sell more products in those same accounts and same markets. It's similar to our PCM where we've created textile and foam applications and formulations that meet those applications. And then lastly, AlexiFlam. That is a wash and durable coating. It's a completely different product than our formulated products, a synthesized material. And it has to be very wash-resistant, very durable to make it through the rigors of being in military uniforms, industrial workwear, and they wash these materials 50 to 100 times through industrial launderings. Industrial launderings use harsh detergents and chemicals to clean oils and other materials off of these uniforms. So it has to be a very robust coating. And proud to say we've passed over 50 washes. We've had successful burn tests dating back to 2023 and then as recent as a month ago in September. And really, what changed with us there is when I got to Alexium, we were almost idle on that work with the military, and we were working through vendors that were too far removed from the actual user base and the testing base with the military. Since then, over the last 2 years, we've moved closely in a direct relationship with the military and the testing that goes on in the United States at DEVCOM. We've had 2 rounds and 2 basically chapters to our improvements of this work. We were given grant money for some testing twice now. Both times, we've been successful in delivering improved results and moving closer to being shortlisted. Now I can't give guarantees to our investors that we're going to win all of the military's business, but I can guarantee you we have a much better percentage opportunity of winning business than we ever did in the past. And it's been through the work of the last few years in improving the product, the way we're approaching the customer and all of the testing. The other scenario there is the strategic approach has changed where we have a much more robust offering to the military now where we're selling a coating that can be applied by most military textile producers that knit and weave the fabrics and finish them. So the Army is very pleased with the coating we've come forward with because it's free of any banned substances. They like the application method and it's robust across their supply chain. The U.S. textile supply chain for military apparels has been under pressure for years since the U.S. government rolled out NAFTA in the 1990s. We've lost a lot of our textile depth and a lot of our textile capacity has been sent offshores. These materials have to be made by the Berry Amendment. They have to be made in the United States and having a robust supply chain made in the United States for the U.S. military is a mandate. And we have a coating that works across that supply chain in a lot of places. So it's well positioned. Where we're moving now is to the next phase of testing, then the government intends to put this out for bidding in the next 18 months, and we're anticipating be included in that bidding. So a recap of 2025. We're really focused on the retention of key accounts in North America. And I'm going to speak to the concentration that we're working our way out of from the last few years. And really, the market since 2022 has been depressed in bedding. Alexium, when I started here, and we still remain in a position where we're working out of this, but it's -- we're gaining strides. And as Simon said, we've done a lot of work to position the company and the results will come and they're coming soon. They're just not here yet. But I would tell you, retention of key accounts, we've retained our position in bedding in North America, and it was concentrated from 2022 until now in mainly one large brand in the top 5 worldwide brands, mainly in the textile piece of the business and mainly with PCM and mainly with bio-based PCM. Since then, and I'll talk more about our strategy. We've been focusing on diversification. And really, the retention has been successful, but the volumes have significantly contracted. So as the market recovers, you'll see those volumes rebound. And then as we knock down the new projects getting started over the next year, you'll see the diversification reveal itself. And we've seen some glimmers of hope recently. And I think there's still a little bit of people being stalled out in the consumer side of spending money, but the money is there and the optimism is there. We're just waiting on it to break loose. We believe that will happen with the administration in place now, bringing business back to the shore and the lowering of rates in the markets. When interest rates come down, you should see consumer confidence and spending start to rebound. So for diversification in our strategy, clearly, we want to grow, but we're going to grow through diversification. So that customer concentration was with one large brand in the top 5 in the world. I can happily say now of the top 5 bedding brands in the world, bedding manufacturing brands, that is, we are active with all 5. When I got here, we were active with 1. So our pipeline has active development projects and opportunities across the top 5. So that's the diversification of customers. The diversification of products within that customer base has been the 2 PCMs we now make, and we're vertically integrated to manufacture our own and formulate from those microcapsules. But we've also diversified into the FR for furniture with AlexiShield and then FR also into [indiscernible] being less of a single concentration of PCM in that single customer in a single region in a single type of capsule to multiple types of that product, multiple customers in that channel and multiple substrates. So foam and textiles have been diversified. So our products are much more robust to cover a lot more of the addressable market now. And then lastly, international expansion. We have a number of opportunities, and we'll be making some announcements in the coming months, some new starts. And that's in Asia Pacific, Australasia, Latin America and also in Europe. And we've been very active in bedding across that region. Adjacent markets, that's something we paused when we started to shift the strategy and really create focus. And again, I'll go back to -- we were focusing on too many things. Now we're focusing on less things to create more focus. And that seems to be breaking the log jam to getting many projects moving along and closer to starts and significant growth. So we pulled back from trying to chase packaging, sporting goods, footwear, headwear, just as a few examples, electronics, and to focus on where we were very concentrated and where our products were much more ready for scale. So that brought it down to apparel for workwear, FR apparel and workwear, military apparel and also bedding and furniture. So let's talk around 2 adjacent markets, but that would come after the next phase of growth for Alexium once we've delivered significant results in those core markets. Lastly, strategic alliances and co-development. This was a nuance to our strategy on the supply chain side. One of the things we've learned and getting better at selling our products and getting them adopted by customers is we had to bring prototypes, and we had to get into the supply chain of where customers would make products that use our technologies. So for MPCM manufacturing improvements, we now have added partners where we can do high solid slurries and dry powder. So we're drying PCM now. And we've had successful scale-up of these processes. Dry powder PCM, the #1 application of that is instead of a coating that goes on top of the surface of a textile foam, it's usually embedded. So we're now selling powder PCM that's embedded in polyols and foam production. So the cooling is actually embedded in the foam itself. For DelCool, we still have opportunities with that, but we've taken some of the emphasis off of that to focus on our chemistry and coatings, but we do have active projects there. And we put new finishing partners in for producing a wider substrate where we could get across a number of applications, including full-size king size mattresses. We have been told we have a new launch coming in the Australasian region for DelCool. We anticipate announcing that in the new year. So stay tuned. And then AleexiShield for flame-resistant barriers and bedding. The production of woven and nonwoven prototypes has helped us sell that. It's helped us get through the testing, which really for selling flame-resistant materials, you have to make prototypes of the material, components and also the actual finished products, and then you have to go burn them. We've been successful in that in finding partners to make the prototypes, speeds up the [indiscernible] for testing and approvals and the adoption and sales process with customers. And with that, I'd like to diverge here a little bit and share a video. A couple of videos. So bear with me. I am an amateur at Zoom. First, I'd like to share a video of a PyroMan, burn. And what you see on the screen here is the PyroMan, and this is a technology owned by North Carolina State University in the United States. It's a public university in the Southeastern United States. And they have an advanced materials school, engineering school and laboratory there, and we have a few of their graduates working at Alexium. But we do use them for testing, and this is an accredited testing through the ASTM standard, which is American Standards. So that's an accredited test to prove these products work. What you're seeing there is a U.S. Army Combat uniform. That's a warm weather kit made for warm weather theaters. It's a nylon cotton fabric that Alexium produced with one of our textile partners, and it has our AlexiShield coating on it. The video here is the first time we passed the PyroMan, which was back in 2023. And I'm happy to report we passed 6 of 6 uniforms being burned in September, just a month ago. But I wanted to share this video with our investors. You can see what the coating does. And the key is that this manikin had sensors all over it, and they're testing it for second and third degree burns. And there's -- it's getting burned from 4 sides, 8 flame throwers, and it has to pass a certain level of second and third degree burns, which we've passed at a 4-second interval. So what they're doing is simulating an incendiary scenario for a soldier in a raging fire essentially. And the key is for the material not to be breached and for it to self-etinguish. So with that, I'll pause and show everyone the video. [Presentation] So that's a passing result. I thought it worthwhile to show the investors the product that you've invested in and the company invested in. That's a monumental task for us. We had a good outing in 2023. And from there, we left those tests and went to work on the aesthetics of the fabric. And when I say aesthetics, I'm talking about the breathability, the weight, the softness and drape of the fabric to get it ready for actual enlisted personnel to wear it and it to be comfortable and protective. So that's the final stages that we're in right now is the testing of the breathability, tear strength, weights of the fabric, color fastness of the camouflage print and the reflectants for near infrared and short-wave infrared. There's a lot of drones in the war theaters now around the world that can get heat signatures and reflectants as part of that technology. So the new printing of the camouflage and colors that are used in these uniforms have to have reflectants criteria to mask them from drones and infrared cameras. And our FR coatings and wash durability have to be compatible with that. That's created a lot of complexity for the FR coating, and happy to say we're making great progress on that. From there, I'd like to show an AlexiShield product. We have AlexiShield coatings for textiles, and we have AlexiShield for foam. I'm going to show a foam video from a vertical burn chamber and I want to talk about this because there's a lot of foam mattresses out there, but this is opening up new markets for us for AlexiShield and transportation. And foam products used in seating and acoustic panels and sound dampening and transportation have to be flame resistant. So with that, let me show one more video. [Presentation] And this is a AlexiShield foam burn. That's a viscoelastic foam, very commonly used in furniture, seating, transportation and mattresses and bedding, pillows as well. On the left is untreated. As you can see, it punched through and melted and ran everywhere. And on the right, you can see in the vertical burn tests, our coated material self-etinguished. So we've got a very effective product there. It's also well ahead of any regulatory ban. So it doesn't have any of the recent materials banned in it. So no polyfluorinated materials, no fiberglass, no halogens, no antimony, no toxic species that are banned. So that's part of the regulatory piece we talk about where we've reformulated and we have a material that's fully compliant and ready for the next generation. So the strategy has been to grow and diversify. And as I said, we're -- we've had to apply discipline to focus on less things and to ready these products not only to be robust enough for the market to adopt them and pass all the stringent testing we have to get through, but also getting our company ready to scale up in manufacturing. And since COVID and then recently with the tariffs and all the geopolitical quarrelling going on around the world, supply chain diversity and supply chain strength has been critical. So we've spent a lot of time making sure we have strong supply chains around our raw materials that we are free of any significant tariffs that would limit our business and that we're ready to scale. So we spent time on our manufacturing processes, time with our suppliers alongside improving the products and getting them ready for growth. So when we say we've been focused on commercialization, we mean more than sales. We mean supply chain and manufacturing and quality as well. So going forward into the rest of the year, we're going to focus our sales and marketing activities around AexiShield. And I realize the video I just showed you says AlexiGuard. That's an error on that video. It's actually AlexiShield in that coating that was on the foam video. So forgive the admission, we'll correct that, get it on the website. That's an AlexiShield formulation. We're going to be focused on FR barriers and bedding and furniture. We're going to focus on AlexiFlam with the military, where we're highly active. MPCM sales to formulators serving the bedding and furniture markets. And that's another thing that came out of our integration of our microcapsule manufacturing for Alexi PCMs over the last year. We opened up the opportunity to sell globally, not just in North America to global partners, microencapsulated PCM slurries, microencapsulated PCM cakes, and microencapsulated spray dry powders. And that's the formulators that have a position in certain markets and certain customers that need a superior microcapsule. And then alongside that, we also do formulated microencapsulated PCM. The paraffinic base materials are formulated under the AlexiCool brand, and that's for mattresses and pillows and then the bio-based formula, also mattresses, pillows and BioCool. In operations and supply chain, we're going to focus on secure and cost-effective supply of raw materials. We've been hard at work doing that. And this administration in the United States has certainly put that to the test. It's putting everybody's supply chain to the test right now. One day, you have 100% tariff, the next day, it's 20%. The next day, it may be 0. And then a week later, it might be 150. So it's been a bit of a move in target. I'm happy to say, though, that our supply chain and critical raw materials are secure. We do not have any significant tariff impacts to our supply chain to make our products. We are having to navigate around certain customers that may be making products over in Asia. And as they move production to other countries, including the United States. So there's been a lot of juggling and jostling of people's manufacturing as this trade war tends to play out. But happy to say it hasn't hit us on the raw material side significantly. We've increased our manufacturing scale. We're going to continue to focus on driving efficiency to lower our costs and keep the quality high. We're going to continue formulating products to create differentiation for our customers. And we're really focused right now on service, too. That's another thing this company had to go through some maturation on, and we're still growing up and getting better each day, but it's operational excellence and giving really good service to customers. This organization is learning now to answer the call and to answer the call quickly and succinctly. And I'm proud that the team -- the small team that's in place has really grown up and performance is really getting better. Not to be too critical, but 2, 3, 4 years ago, Alexium was rather slow and not good at answering orders and answering the call from customers. That has certainly changed. We are ready to grow. A little more on the products. So AlexiCool and BioCool have been our primary formulated PCMs over the years, and they are the primary source of our revenue. So as you heard, we vertically integrated to make the AlexiCool formulas and the microcapsules that go into that. And that's opened up the markets. If you take one thing away from what I'm saying today and the change in us making those microcapsules for AlexiCool is that it has really grown our addressable market, and it really opened up our opportunities in foam. And again, the foam part of the mattress and bedding market is much larger than traditional textile for our products. So that's been the change there. And then BioCool was our original PCM and buoyed the growth from '19 through '21, '22 and it has contracted a bit since then, but mostly because of the market. But there's still opportunity for bio-based PCMs and especially in developed countries and sustainable products. And we're getting more requests actually in Europe for those bio-based materials now. And we've had some success with the supply chain in that area where we've had significant cost reductions in our raw material supply. Meanwhile, in parallel, improving quality. That doesn't always go hand in hand. So we've been able to lower our costs and increase the quality. So that's a nice outcome for our bio-based products. But we continue pushing those into the market, but expect more of the growth to come from AlexiCool in the foam space. For our flame retardant technologies and portfolio, AlexiShield, AlexiGuard and AlexiFlam. I just showed you a video of the AlexiShield coating on foam. We also make that formula for textiles. And we've had some requests recently for textiles that actually go into construction, which is a large volume applications for that. There are fabrics that get used in roofing and other construction materials. So we're starting to answer some of those requests. It's a new world for us and a new level of testing, new regulations. But we're excited to position that product for larger markets, even much larger than the bedding space. We do still make and sell AlexiGuard, and it's also used as one of the FR packages in some of our other coatings. If we put cooling coatings on certain textiles or foams, we traditionally will put an FR material in it as well to offset and provide further protection for those products. AlexiGuard is a very good softener, and it's really the bands of substances like halogens and fiberglass. It's been mostly in furniture and bedding. AlexiGuard is still a really good FR product for other markets and it's also a self-extinguishing flame-resistant material, but it also adds a softener to certain textiles. So it still has a place in that market and mainly in the construction space. And then AlexiFlam, you just saw the PyroMan test, but that's our wash durable coating for FR apparel and textiles. So in summary, Alexium, I know we said this in our last presentation. It's been about 3 to 4 months now, but it's -- we're still in this cycle. And unfortunately, this market doesn't move as fast as we would like. As Simon said, unfortunately, it often takes longer than you expected and sometimes more capital than expected, but we remain in the fight, and we remain at an inflection point, and we're expecting a significant turnaround and growth of this business in the year to come. And again, from our microencapsulated PCM through the diversification in that end markets and applications to foam and textiles, the customer diversification, the geography diversification pushing out globally. You'll hear the new starts get announced as the year ends towards the holidays and the new year. Also the focus on our flame retardants in the private sector for furniture. And then lastly, flame retardants for the military. It seems that the military is finally moving on a change in those materials, and they're spending money. I know we're on pause with our government right now in the States, but they're spending money now to restore the military's coffers for the United States. And the current administration and the heads of the war department are certainly very public about it. If you turn on the news in the States, you'll hear all about it. But they have unleashed a lot of spending in the military sector and apparel and next-generation protection for our soldiers is going to be one of the areas that you'll see kick into action next year. So we expect to have more results around that work and more announcements around that mid to second half of next year as they position to put it out for bidding. So with that, I thank all of you for coming and tuning in tonight. And it's a brief update. But with that, I'll turn it over to Simon to bring us home, and I believe we will field any questions that came in through Lisa, she will kick them back to Simon and myself and happy to answer them.

Thank you, Billy. And again, thank you for joining, everybody. Lisa, we might pass over to you to see what questions you might have from the audience.

Well, I have an easy job tonight because there are no questions that were submitted.

Well, that being the case, we give everybody an early mark who's on from the U.S. online, and we thank everybody for joining today's webinar. We will keep people abreast of the developments at the company as we have in the past. The company will be producing its regular 4C at the end of October and we will endeavor to have another webinar prior to the end of the year. I would like to thank again the management team for all their efforts. These things are never easy, and the team is working extremely hard on behalf of all of the shareholders, and we thank them very much for their efforts in so doing. And with that, I might say good night to everybody, and thank you for your attendance. Take care.

Thank you.

Thank you. Bye.