Bergen Carbon Solutions AS (BCS) Earnings Call Transcript & Summary

Good morning, and welcome to Bergen Carbon Solutions' Q4 presentation and the company update. I'm Odd Stromsnes, and I'm the CEO of the company. In addition to the general BCS update, we have in today's agenda, chosen to deep dive into the growing carbon nanotube market, what we call CNTs. Q4 was very much a continuation of Q3, both in terms of product enhancements and cost reductions. The exit speed of 2023 equals to the speed and the modus operandi for entering 2024. Q4 was very much a reflection of the progress we announced in Q3, continuing the technical qualification of the nanocarbon enhancing the batteries' functional quality, make the battery charge faster, replace scarce material, make it cheaper and extend the duration and overall battery lifetime. We continue to make a good progress with no red flags to report closing in towards the specified requirements. Solidly, we confirmed earlier this year by the extension of the Huchems agreement. It could be said, however, that the speed of the quality improvement was slower in Q4 than in Q3 as the last mile is sometimes the hardest one. An increased number of other interesting client discussions have been taking place, both in Europe as well as in Asia. And in order to speed up the verification process, a decision of investment into a battery lab was taken, the ordering of long-lead items have been done. An improved sustainable battery production program is high on the global electrification agenda. And as such, new battery regulations are being established by the EU defining the environmental footprint, among other aiming for local sourcing of sustainable carbon for the battery industry and all this is spot on for us. And finally, with the financial burn rate on budget, we have, all in all, delivered a quarter in line with expectations. And our financial numbers confirms this as we are continuing to have the finances to execute on our strategic plan. We have a solid cash balance with a cash burn of NOK 6 million in Q4, that includes interest income of 10 million. We had an adjusted net loss of NOK 5.6 million in the fourth quarter and a full year cash burn of NOK 60 million as per budget. We are now at a stage where we have a solid cash position of NOK 230 million, still zero debts and an equity position still above 19%. We will, however, have further investments into 2024, following our strategy to invest in the battery lab and other equipment needed, to accelerate our product qualification and process optimization program. 2023 was the first full year following our strategy shift communicated at the end of 2022, where we proved that the concept of producing advanced green carbon like CNT, which the world's electrification transformation is solely dependent on from the greenhouse gas itself, is a second-to-none equity story. 2023 was indeed a year for consolidation, which I said before, it was a year for product quality improvement. We spent time on process optimization, cost reduction and not last, organizational development. We spent all our efforts on our core business technology. meaning improved performance from the electrolysis activities. And this was also reflected in our organizational development and our recruitment initiatives. The CNT market is very much about complying with technical specifications, and we really did see significant improvements in terms of particle size and morphology, which is so important in order to enhance the battery performance in a sustainable way. We have, as such, tried to show different function of our CNT in different battery applications during our previous quarterly updates. We did see an increased attention during the year, through our product and our CCU capabilities from large international industrial players. And with several of these companies, we are now in a product qualification process. They test over CNT in their different battery applications, and we are expecting results of these tests in the coming months. Our investment into battery material testing and verification equipment will accelerate the speed of this process. And finally, EU's critical raw material politics with strong emphasis on local production of sustainable battery components are growing on the international agenda and with the battery fabricators, which obviously is good for us. Then BCS in brief. It is important to reiterate the message that Bergen Carbon Solutions is a high-end technology material company. We are one of the very few CCU developers, in which the CCU concept do see an increased focus from among others, EU and large industrial CCUS developers. Our business is driven by the value of what we produce, combined with how we produce it, which from the CO2 consuming nature is in line with current EU regulations and policy developments. This illustration, we have seen before, but it's good, and it illustrates the overall in the full carbon-based value chain, where BCS can play a critical role, both upstream in terms of carbon capture close to large CO2 emitters and downstream in terms of carbon utilization close to a carbon end user, like a battery fabricator. The higher CO2 concentration in the flue gases, the more effective is our electrolyzed based capture process. Today, many of the planned battery factory startups are being based on imported anode graphite from Asia, produced from petroleum, coal or mining. And then we know that 1/3 of a battery CO2 emission comes from the anode material itself. It is paramount to seek local solutions in order to drive also the battery component emissions down. I believe the lack of sourcing of sustainable battery components has not yet gained enough focus from the battery producers. Many companies are interested to talk to us merely as a capture company as they have a lot of CO2 to get rid of. So it is important to emphasize that our business case again, is absolutely dependent of the utilization element by the fact that we need a commercially viable agreement of our product offtake. We are all independent of geographic location as long as we have CO2 and electricity. And based on clean hydropower, this production is a net through CO2 consuming exercise. And as many of you know, we documented this by a successful proof of concept last year together with a large waste incineration plant here in Bergen. We are currently focusing our efforts on the CNT market. And why is that? Here, we have made most progress in our client discussions. We know exactly what the market wants in terms of product qualifications. We think also that this is commercially the most interesting carbon product. And last but not least, the significant growth potential in the CNT market overall. And we know that 70% of today's battery contains carbon nanotubes. And this percentage is expected to grow with future battery chemistries as the criticality and the importance of the nanocarbon in these new battery chemistry will increase. And this is why we are applying and participating in several industry-based development project for new and more sustainable battery chemistries. Most of our product qualification work during last year, we concentrated our own multi-walled carbon nanotubes or the CNTs where we have a good understanding of the market and the required product specifications. We have a number of time pointed out that BCS do have a key role for supply this noble clean carbon material. And it's important to stress again, it's both for anode and for the cathode side of the battery. CNT will, as an example, for lithium-based battery chemistry act as a reinforcement agent on the anode side. The cathode is a lithium metal oxide component, releasing lithium ions and electrons during charging and exception during discharge. The nanotubes acts as a conductive agent and increases the conductivity between the particles. That means adding nanotubes to the cathodic material will therefore increase the energy density and enhance the conductivity, which basically means 3 things. It's increasing the charging time of the battery. It's [indiscernible] cost to charge the battery. It increases the durability between each cycling and a longer battery life span. The CNT market is expected to grow significantly over the next 10 years, driven mostly by the increase in electrification of transport. The electrical vehicle market drives the global increase in battery supply itself, but also an increase of the CNT utilization in each battery is important. And the global CNT market was in 2020, $1.3 billion. And with the predicted 15% annual growth, gives a $5 billion market in 2024 and more than $11 billion CNT market in 2030. And as you can see from this slide, the CNT production today is variation centric with obviously China as the largest and dominant player. However, Europe is expected to increase the market share going forward. And as you can see from this slide, the 10 largest battery cell producers today is covering more than 90% of the market, and they are all located in China in Asia, in China as the single largest producer. And this is obviously the main driver for China's ambition to totally control the access to critical raw material, which is needed for this industry. As the Asian market is more mature with respect to CNTs, we, as in Bergen Carbon Solutions, generally attracts a higher attention in the marketplace than we do here in Europe, and that's an interesting point. However, we know that there are 40 to 50 battery factories currently being planned in Europe. So the European market share is expected to increase to around 25% in 2030. And that's why the new EU regulations now defines a set of critical raw materials for Europe to be more self-sufficient with more local production and synthetic graphite is one of these materials. Additional fossil-based production of CNT is today performed through a CVD process, chemical vapor deposition. This is a well-proven and operational, mature process, but it's very energy intensive and with significant greenhouse gas emissions. We have identified through scientific papers, CO2 emissions from this CVD method, above 400 kilos of CO2 per produced kilo of CNT, in comparison with our methodology, where we are consuming around 2 kilos of CO2 per produced kilo of CNT. And there's also a substantial delta in the energy consumption, where we are able to push down towards 20 kilowatt hours per kilo of produced carbon, which is less than 10% of the energy consumption from the CVD process. These comparisons are interesting, and they are obviously extremely important for our value proposition. And obviously, needless to say, it attracts a lot of attention in the market. The global produced volumes of CNT is relatively small, even based on a significant growth to around 70,000 tons in 2030. But as I said, they come with massive greenhouse gas emissions. And that is why it's so important for us to focus on the environmental impacts of the battery components and should, as such be high on the ESG agenda for the European and the Norwegian battery suppliers. Just by blending in a small amount of our product into the mix will contribute with large CO2 savings. We need to focus on cost and quality, and then you can argue the rest will go by itself. Our carbon clients are very technically competent and cost focused. And we do need to ensure we are meeting the requirements on these fields. But we also acknowledge, however, the importance for us now to secure additional client commitments going forward. And the following actions are what we will do in order to meet that. We will continue to focus on process improvements. It is worth though to repeat the fact that we do make a tailormade product. We're not making bulk material, which fits all. Each customer has its own recipe for the confidential battery chemistry. And this has indeed a strong bearing towards the specification of our deliveries as the characteristics of both the nanocarbon and the graphite plays a key role for the battery performance. New and smaller equipment is now being implemented in our process to speed up the testing and the verification time line to reduce the turnaround times from carbon characterization and the subsequent operational adjustments we then had to do. All in all, this will reduce the time for the CNT qualification process and costs. We need to produce a material of industry grade for battery production at a competitive price. So as I said before, we announced a pretty aggressive cost reduction program last year, and we are repeating the message that we are delivering on it. Our new CO2 separation and filtration methodology is now commissioned and in full operation. It will reduce our electrolyte consumption by more than 90%, and we are now basically able to recycle our electrolyte with our CO2-based technology and almost eliminate the use of the previous methodology based on acid, and this is a win-win situation. And this is a very important milestone for us as the cost of the electrolyte is a substantial part of our total cost picture. So our target of bringing the cost down towards the fossil market alternative within this year remains fixed. And client validation. We continue to have talks with many different potential customers all over the world confirming the different specification levels, mostly for CNTs. More specifically, we are in concrete validation and qualification processes currently in several of these, but it takes time and the speed of the process is not always something we have control over. We are dependent of the internal testing speeds in many of these houses. So to accelerate the validation process, we have decided to invest in more equipment and in our own battery lab in particular, where we can test over carbon material in real life battery applications. And the process with Huchems in this respect is progressing, but unfortunately, somewhat delayed. We expect results from them later this month. All in all, this is very good news as we are going in the right direction, and we have absolutely faith that we will succeed and have the right approach and strategy. The entry barrier is high, the choice to reward for improved battery functionality for the end user, that's important to know about. And that's why we see a market with high willingness to pay for the right product quality. A long-term offtake contracts for higher volume is what we anticipate. So the new battery lab I mentioned, here is a slide on it. To speed up the validation process, we have decided to invest broader in our own testing equipment, including a battery lab where we can test our CNT in real life battery applications in-house. That means we'll be able to accelerate our initial screening of the product, and that's important and form an independent opinion, both our product in the different battery applications. In addition, we are teaming up with dedicated test houses for certain post electrolysis tasks. And just for clarity, the battery lab is only meant for us to accelerate our internal material characterization process. So to conclude my presentation, regarding operational priorities going forward, we are continuing to be fully funded to deliver on the following key priorities. We maintain our cost reduction initiatives and promising technical qualification progress. They are significant and paramount for our success. Systemized process optimization and continuous improvement, meeting technical specifications, our post electrolysis equipment, including a battery lab to speed up our qualification process, an exceptional market increase for battery production also with European focus in a market with total Chinese dominance, secure and develop contracts and partnerships recently confirmed with Huchems and other, and we do see, and I will repeat that, an increase in the global client interest for Bergen Carbon Solutions and our product. And finally, we have the capital discipline to support the ongoing activities until we are ready to take the next step. That concludes my presentation and brings us into a Q&A session, and thanks for the attention.

Okay. I think we're ready for Q&A. My name is Fredrik Oksnes. I'm the CCO in Bergen Carbon Solutions. Today, we have a lot of questions with regards to specifications of the product. We also have multiple questions as regards to time line and customer commitments. So the first question, I guess, will be, I was still confident that we -- that BCS during Q2 will get some kind of customer commitment.

Okay. First of all, thanks for the interest to Bergen Carbon Solutions and the questions. I think I tried to answer that in the presentation. I mean, we are building a new industry. We're developing new technology. That requires sometimes a certain challenge to predict the correct timing. We have a big -- we have a large dynamics towards different clients. We're testing our material towards the different specification, and that is in good progress. As I said in the presentation, we are seeing that some of these process takes more time. That's why we are investing in in-house equipment. We are continuing this work. And as I said, then during the next month, we will get feedback from a variety of different clients using our CNT in different products, both in Europe and also in Asia.

That sends us to the next question. What about -- it's a huge focus on Huchems. What about other customers? Can you say anything about that?

One of the reflections I've seen among the question is that there are quite a limited amount of information coming out from us. And why is that? That's because we are developing a product, we are optimizing the process, and we're talking to a number of different clients. But there are clients we cannot really go officially out with . And they have also a specification to work on. So I would say that we are currently spending all our time in the dynamic life span between different clients and developing our product accordingly. At the same time, as we're accelerating our capabilities of testing this equipment towards these clients -- but I can say that there are very interesting potential clients. They are big industrial companies, and they are in many different spaces of the supply chain. And that is, I would say, the most promising piece of news, I would say, during Q4.

Would you say that the whole market for the CNTs are tailormade products? Or have you identified like a standard product?

As I said here, we are not making bulk material. There are differences in the specifications of what the client wants as it has different purposes in the battery. So today, we are working in different routes of what we're trying to achieve.

Yes. And then we have one question here in regards to our previous Tokyo trip to Japan last week. We have one of the questions asking if you can give us any news with regards to that?

Even though the world is difficult, it's not more complex than sometimes face-to-face meeting brings a lot of value. As I said, we get a lot of attention in Asia, we need to meet our client physically. So this was a great opportunity. It was a big nanotech conference in Japan. We sent some of our guys over. We had several very good meetings with clients, potential clients, which we are currently working with and qualification with. So I mean this is business as usual. And if I should say one thing, we will probably do more of these type of activities.

And then one from the live session here.

The Huchems agreement was basically a result of meetings in Seoul in South Korea.

Thank you. Will the battery lab increase the costs in Q1, and further on, during 2024?

There will come further investments into 2024 for this equipment, but that will not alter the forecasted cash burn for this year.

Okay. I think that concludes it. Thank you.

Thank you.