Betolar Oyj (BETOLAR) Earnings Call Transcript & Summary

Good morning, everyone. And first of all, happy Valentine's Day. And also welcome to our Betolar's financial statements review. So today, we have Riku Kytomaki, our CEO; Riikka Ylikoski, our CFO. And I'm Melina, if we haven't met before, I'm heading our Sustainability and Investor Relations. Riku will go through the main events wrapping up our last year. Also, we're going to talk about our Q4 highlights. And then Riikka will go through the financials and also update on our business objectives that we released today. And after that, we're going to have the Q&A. So as usual, if you have any questions, there's a chat box. Feel free to use that either in English or Finnish. So no worries about that. Riku, please?

Thank you, Melina. Good morning. I will start with summing up the entire year 2023. It's a rather lengthy list, but carry on. In March, we updated our strategy. You will hear more about this progress a little bit later. And in the strategy, we have shifted our focus from concrete products more towards structural products with higher added value and more to the mining solutions. Also, we have released a patent for electrical energy storage that was expanded to Europe and in the U.S. markets. And a rather big investment we made in Kannonkoski Center of Finland. The work was completed in the summertime and we are ramping up the facility. First agreements we also secured related to side streams. In September, we got a very positive decision from Business Finland with a EUR 2.7 million grant for our side stream research studies. In autumn time, we also made structural changes to strengthen the implementation of our strategy and we have also adjusted our cost structure. The saving is rather big, it's EUR 5 million average expected to come fully through in 2024. In the management team, we also made it more efficient, compressed by 3 people down from 9 in December '22 to 6 in December '23. Also, we have updated our midterm business and financial objectives actually today, that is after the reporting period, as well as we have received almost EUR 400,000 support from Finnpartnership for ramping up hollow-core slab production in Malaysia. That was also after the reporting period. Here, some more highlights from the quarter 4. First of all, actually, this is divided according to our strategy, those 5 bullets here. So first bullet, we're talking about side streams. We are developing and actually getting also some contracts already, analyzing some new alternative side streams. Latest example is Estonian energy company called Eesti Energia. Second bullet, we are continuously looking into how to get more grip on our value chain. We have worked solutions now, for example, with Metso for where customers utilizing the side streams coming out from the lithium hydroxide process. For the upgraded Geoprime production, we have made some tests, of course, in a factory scale, but then updated our mix design and dosing system as well that worked pretty well in a plant scale. In the third bullet, we also tell here that we are -- we have entered into a negotiation phase with several prospective customers. And then our intention is to scale up with the large volume, scalable customer segments. And when it comes to market approach, go-to-market, we have opened some new markets, for example, UAE. And also we have made the previously mentioned tests in Malaysia, what comes to hollow-core slab product and we are ramping it up now in 2024 in Malaysia. For that, we got the Finnpartnership support and fund. The last one is about AI. We have also great progress over there. The focus is now on commercial services and soon, about to be released, the first commercial service based on our data platform. Here in the next couple of slides, I'll give you examples of our offering. The first one is for mining sector. So we have 3 solutions there. First one is so-called paste backfill. In better terminology, we call it a cementless paste backfill. So we don't need any cement at all, but that is to fill both underground mining tunnels actually with the side stream with a binder that is not using cement. The second one is about the shotcrete CEM III based solution and that solution can be used in that, for example, coating tunnels and so forth, the metro tunnel or something else in mining, for example. Last one is a rather big area. There are all kind of tailings when talking about mines. For example, gypsum sludge pools, we can make them solid and stabilized. So always free solutions or products we are accelerating now, talking to many international and national mining companies. The second example is from the side stream segment. This example, which actually Metso's slide -- main part of the slide, where Metso covers more or less the entire value chain when it comes to the battery production. What Betolar -- kind of role Betolar plays is in the end when Metso has provided a lithium hydroxide equipment to the customer when as an end result, in addition to producing lithium, so there will be some side stream so-called analcime sand. And for that, we have developed use. So it's a win-win. Metso will, of course, more easily sell entire package, including actually kind of a solution for the side stream. And of course, for us and the end customer, we can utilize the side stream for something else instead of landfilling. Here, a couple of examples. I don't read all of them through, but a couple of examples from the concrete products. For example, in Denmark, we have helped our customer, IBF, paving a 1.5-hectare parking area. In the Middle East, whereas in December, we were ramping up and piloting with Fujairah Concrete Products. In Belgium, for example, we have developed solution for Tubobel, and they aim to change all of their production to Geoprime-based recipes. And in India, we continued ramping up and producing with Vyara Tiles. And of course, here in Finland, our big and good partner, Consolis. They have been developing recipes -- or solution for the hollow-core slab and those tests have been completed successfully and we continue the collaboration with them. And yes, also opening up new markets, for example, in Malaysia. This slide is about our innovation portfolio. And if one person wondered why to invest in Kannonkoski Center of Finland, here are a couple of reasons. So the facility in Kannonkoski enables to utilize it for radical innovations, enabling new experiments, wider material treatment capabilities. We have, of course, good lab where we can continue developing the material analytics and doing those lab measurements in a better way. And the facility itself provides with a standardized conditions for the raw materials we are using in the lab. And because of the size of the expansion, we can also develop bigger and more demanding structural elements that we can pilot in our own facility. And of course, now we can streamline the laboratory work itself and give a good layout to the laboratory works. On the right-hand side, you will see that we have very strong patent portfolio. So we have already 5 approved patents and many of them internationally already approved. And in the pipeline, we have as many as 9 innovations in the patenting process. And in the bottom, we give an example about one of those patents that is related to electrical energy storage and also expanded to in, addition to Europe, to India and U.S.A. Here, my last example of a development that we have carried through is related to AI data-driven service business with what we have been developing. And soon, about to be released, first commercial service where a customer in certain segment can test automatically the side streams they have in their hands. And the side stream analysis concludes and includes those elements listed here, chemical properties, physical properties, strength development, other relevant development requirements. And we can test it quickly with help of AI and then continue to the next phase to the laboratory work. So thanks from my side. I'll give over to CFO, Riikka Ylikoski.

Thank you, Riku. And sorry about my voice, I'm having a terrible flu, but let's try to cope. So yes, 2023, our net sales was EUR 515,000 and it, of course, was higher than the previous year but didn't develop exactly according to the expectations. Q4 was strong for us, especially due to the nonrecurring engineering fees from the technology projects. And our gross margin was EUR 340,000, and of course, that's a very positive effect for the company and it was also due to the NRE fees. Our operating loss increased to EUR 12.2 million, and it was, of course -- the loss was higher than the previous year. And we have been now, as Riku told, very much concentrated on the strategy development. And the proportional part of the personnel cost was also a bit higher and then the other operating expenses on that was a little bit lower. At the end of the period, our cash and cash equivalents were EUR 14.3 million. And I will then further tell about our activities to improve the situation on going forward. Our personnel amount was, on average, during the period was 60 persons. And of course, you can see that from the Q4 figures that we have been decreasing personnel and that was also one of our cost optimization activities. During the Q4, we had only one new customer pilot, and of course, now, as Riku told, we have been very much concentrating on our ongoing customer base. We have still conducted 24 new customer pilots in 2023. And then when you combine all the other years together, so we have quite extensive customer base. And of course, now during the Q4, we especially piloted the Geoprime developed new recipe and the dosing system. Of course, in the start-up company, you need to be very, very aware of the cash position, especially in our case. And yes, we made a EUR 5 million cost-saving program during last year and some of those cost savings were already visible at quarter 4 -- end of the quarter 4. And of course, it's balancing all the time and we are pushing forward the strategic actions and then also focusing and keeping our costs down. During the IPO -- or before the IPO 2021, we received EUR 7 million loan from the Climate Fund and we withdrawn the second item, EUR 2.5 million last year and we have still outstanding EUR 2.5 million to be withdrawn during this year. We have approximately 2 out of 3 milestones already reached for that withdrawal. And of course, one of the greatest highlights was the EUR 2.7 million from Business Finland and we have very active projects ongoing on that field on the side stream research. And it will be a project that will last for 2024 and also the beginning of 2025. And then we are starting the development and piloting in Malaysia for the hollow-core slabs as our road map on the load-bearing elements. And we received a grant from Finnpartnership on -- at the end of January. Yes. And we updated our strategy in March 2023 and we have -- ever since we have been focusing our activities. And during the IPO, we released our short-term, midterm and long-term targets. Since the IPO, we have achieved all the short-term targets. And now on the strategy, we decided to change a little bit our business objectives and also update our medium-term financial targets. We are accelerating research and application development in alternative side streams. And there,for instance, we have the Business Finland fund supporting on that. And we -- there is also a road map for us to really create a stronger position and start to having more value-creation potential in the side streams value chain. And we are all the time scaling to the high volume and scale up our customer segments like the load-bearing elements on the construction side and especially on the mining segment. And of course, we follow the markets and our market entry is very much based on the green transition [ where ] the market is ready for new solutions, and also one very evident item is that we need to secure the availability to -- on the side stream side. And of course, we are all the time developing the -- our ability to deliver our productized applications. And the data platform, the AI platform, for us is extremely important, especially when thinking of the long-term targets. So we are building the data-driven business ecosystem and also developing the commercial platform services to the -- our own AI system. And as Riku told, we are ready to -- soon to launch the -- as a system for our first customer applications to really understand the market in that area better. And then on the medium term, we have decreased our net sales target and it's really to the EUR 50 million to EUR 100 million, and it's really because we now see that our focus on the strategy needs the engineering before we go to -- before we start to scale to the larger volumes. So it has slowed down the pace a little bit. But one thing to highlight that we are targeting to achieve the positive cash flow from the operations during 2024 -- '26, sorry. And our long-term target has remained the same. And also now since the Q1 reporting 2024, we will also include one new operational key figure, the number of new nonrecurring engineering projects. And this is really to show that we have -- even though that our number of new customer pilots are going down, the engineering customers are going up. And of course, then, first, we make the engineering to our customers and then we are ready to pilot the solutions. Thank you.

Great. Thank you, Riikka. And here, just to summarize what's coming up regarding our investor calendar. So we have our annual report coming early March. And then we have our Annual General Meeting in late March. And also here, you can see the financial reporting date, so business review, financial review and then, again, Q3 in November.

Then going to our Q&A session. We have a few questions come up, maybe one for Riikka, one for Riku. Riku, why are you starting to commercialize hollow-core slabs in specifically Malaysia? Is there more demand than elsewhere? Or is there some differences in construction regulation?

Yes. Hollow-core slabs are needed all over the place, not only in northern part of Europe, but also demand is great in Asian markets so that is not to take away from European demand or activities. For sure, we are ramping up in Finland as well. With the collaboration with Consolis, we are looking for pilot in a real scale -- in a real factory scale. That will continue and we hope to have some more news related to that in the springtime.

Thank you. Then Riikka, what is holding back the license-based revenue?

Yes, we have been now piloting our updated recipe and also the dosing system and developing together with the customer. There is still, in our revenue, there was license-based fees and also the chemical fees. And of course, it's based on the customers' demand from the markets and that's what's affecting to that portion of our revenue.

Okay. Thank you. Then there was one question regarding the Q4 pilot number, but I guess you've tackled that quite well. Then let's see if there's actually -- I guess, we had a quite short Q&A session this time unless you have some more questions come up. But otherwise, I think we're good to go from here. Thank you, Riikka and Riku. And hopefully, see you in our next, Q1, business review. Thank you.

Thank you very much.

Thank you.