Betolar Oyj (BETOLAR) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Betolar's Q3 2024 webcast. My name is Tuija Kalpala, I'm the President and CEO of Betolar. And today, here, I'm with Mikko Wirkkala, our newly appointed CFO, as well as Soila Soderstrom, our General Counsel and Senior Vice President. So let's get started. So I will talk about the highlights of the quarter. Then about the business review, then we will have Mikko Wirkkala, talking about the financial review. And then lastly, at the end, we will have the question-and-answer session by Soila Soderstrom. And if you have any questions, please do send us the question, so we will then talk about those at the end of this webcast. Okay. We have some technical issues here. Okay. Very good. So main events in Q3. So we announced that we have a partnership with Latitude 66, Finnish Australian mining company to explore sustainable mining solutions for Kuusamo cobalt mining projects in Finland. Also, we mentioned already on our last quarterly review, what happened after the period was this partnership also with Norge Mineraler. And this is also to develop sustainable mining solutions in their mine in Norway. During this period, we were also looking at our financials, and we successfully completed a direct share issue, raising a total of EUR 2.4 million. We also had this cost awareness program, and we were very carefully looking at our cost. And our CFO will talk about this in a bit in more detail. We also had got a new -- three new patents. One was for large-scale use of side streams in road, soil and ground construction, as well as CEM III/B accelerator solution. So this CEM III is a solution for low carbon solution for use cement in construction. Then lastly, we purchased the MetalCirc waste combustion ashes technology. We talked about this on the last quarterly view, but this is what has happened now on the patent side in Q3. Also, one of the highlights that we have our new CFO, Mikko Wirkkala, has joined the company early on September. And this means that now our management team is complete. So it consists of three people. So there has been quite a lot going on this year for Betolar and especially now the past quarter. So then some of the business highlights. So the sales pipeline and the number of proposals sent increased during the period. However, what we see that the market conditions, particularly in the construction sector still remain challenging. And even though -- we are still in a start-up phase of a company, so we're still not cash flow positive as we have said that publicly earlier. So we're still in a start-up phase. However, we have been putting quite a lot of effort in the past couple of months looking at how we can increase the sales pipeline and also the proposal set. We did during the period, a commercial agreement with Hycamite to explore the use of carbon nanofibers, and I will shortly talk about that in more detail. Also, what we have seen is there are more and more interest in -- especially in Australian market, and we got a new order for Geoprime pilot from Australia, that will happen later on. Outokumpu research development project has been progressing very well. I will also talk about that on another slide, but we are very pleased with how this project is moving forward. Also during this period, our Geoprime-based product successfully passed the double-sided salt freeze thaw tests, proving the durability and the reliability in extreme conditions. And we are very proud of this achievement. And we can now say really, really that our solutions, this Geoprime solution is meeting all the standards and regulations what's needed, and it's even our cement-free solutions are meeting all these requirements. And they are commercially ready. Side stream analysis service is something that we have been working on several years and for this concept, it was finalized earlier this year, as we have mentioned it earlier as well. And we have been now commercializing it, and we have been growing this site. And I will now talk about in more detail. During this period, two research projects were completed on -- based on this analysis service. And this analysis service, it's -- I would say, it's speeding up the industrial circular potential. It's a side stream analysis service that it's easy, easy, fast and cost-efficient way of revealing the potential of different kind of materials. And it definitely enables circular economy and it's suitable for a wide range of industries. So the past couple of years, we have been working on developing this kind of database that is AI-based. And we have been starting and researching hundreds and hundreds of different kind of materials. So we have been building this database, and we are able to then use the database using AI-based technology and optimizing different kind of recipes. And what this means is that, we are faster than ever able to make these recipes and understand the capabilities and the potential of different kind of materials. And it can also analysis the most challenging materials and this AI-based service also makes it much faster and faster turnaround compared to traditional methods. So it's really a quick identification of profit potential for our customers, and also what comes out of it is a clear report and recommendation and action plan for our customers. So what this means to us is really that this service is an enabler for scaling up our Geoprime solutions, because this way we can find different kind of materials that we are able to utilize in construction and mining. And therefore, able to then optimize our own Geoprime recipes for our end customer for mining or construction site. Or, of course, also infrastructure is one, where this can be also then implemented these materials. So then a partnership with Norge Mineraler. So in Norway, so we are working together with Norge Mineraler, we have signed a memorandum of understanding with them. And it's a big new mining project in Norway. And with Norge Mineraler, we are talking about many different solutions where Betolar's technology can help them to lower their greenhouse gas emissions. We are talking about tailings. They have several millions of tailings available once the mining is ready. And of course, we are looking at how we can, the best way, manage the tailings and also other solutions that we have, how we can implement them and use them in their mind for greener mining. Then Hycamite. So we have entered to commercial agreement with Hycamite. Hycamite is another very interesting start-up in Finland, and they have -- they have just opened their first pilot plant in Kokkola for green hydrogen and also producing a different kind of low carbon products. And so what we are doing with Hycamite is that we are exploring and studying how these kind of nanofibers could be used in our final product, improving the concrete strength and also reducing the carbon footprint. Then a couple of words about the Outokumpu case. So we have been continuing working with Outokumpu. As mentioned earlier, this is a 2-year project, which will still continue until end of next year. This year, we have been developing this kind of low cement, CEM III type of a solution on a shotcrete for Outokumpu. And next year, it will be cement-free. Or we have already started studying and making the recipes for this cement-free solution for them. During this quarter, we successfully carried out a pilot in their mind, and we are very pleased that we know that our solution is almost ready to be commercialized. Little bit more about the shotcrete market in general. So we're estimating that the global shotcrete market is worth of EUR 7 billion. And underground mines of this is estimated to take about 20% to 25%. And the average growth rate in the market is about 8%. So in minds that we have seen that there's about 500 operating undermined grounds (sic) [ underground mines ] globally. And the average use of shotcrete in this is estimated to be about 20,000 cubics per year. Of course, it depends on the size of the mining. There are smaller mining sites, and then there's this large mega size factories or mine sites that are then taking much more shotcrete. But on average, we're estimating about 20,000. The shotcrete can be also used in infrastructure, in tunnels, bridges, repair and renovations and also reinforcement of slopes. If looking at the opportunity for us, especially in the European market and based on figures -- last year's figures 2023, there are about 25 operating underground mines in Europe. And currently, the market is using CEM I class cement. So this is a cement-based shotcrete that is currently in use and what we are now developing for Outokumpu, for example, is the CEM III, which means that it's a low cement and it has side streams in the solution. In the future, we believe that our solution can replace the use of traditional cement-based shotcrete. And also, we are aiming at transforming the market towards a lower emission solution. And then, I will hand it on to Mikko Wirkkala, our newly appointed CFO. So Mikko, all yours.

Thank you, Tuija. My name is Mikko Wirkkala, and I have now been at Betolar for a bit more than 2 months. And during my time here, I have had the opportunity to work and meet most of our employees. And I must say that I'm really impressed how bright lines we have in the company and how brilliant ideas the people have. It's really great to work with such a talented professionals here. About my background shortly. Previously, I worked in Neste and in Fortum, mostly in financial roles, but then, I have also worked with pricing, M&A and sustainability. Despite worked -- having worked in large corporations, I have also had my fair share of growth businesses. This was a bit more than 10 years ago when I was part of the team that was building Neste's renewables business turning the business from negative results to positive results and also reaching the all-time high results in the company. And now my aim is here at Betolar to use these learnings here as well. But let's then have a look at finance sales. So in our financial review, our third quarter net sales was EUR 276,000. This was 65% more compared to last year, the similar period. And out of our net sales, 61% came from customer pilots and research projects. And the remaining came from material sales and licensing sales. And I would also like to draw attention to the year-to-date number, EUR 551,000. And here, we have already passed the full year number from 2023. Then if we look at our EBITDA, it was still negative, but it improved EUR 1.7 million from last year. And this is mainly thanks to our cost saving actions, what we have completed during this year. And this is also visible in our personnel number and average number of employees was 44 during the third quarter this year when it was 59 a year ago. Our cash balance was EUR 10.7 million, and that was helped by the share issue, where we raised EUR 2.4 million in September. Then if we have a look at our operational indicators, our order intake, EUR 237,000 is roughly on the same level or a bit smaller than compared to a year ago. And we had one new NRE projects and two new customer -- pilot customers. And it's also worth noting here that even though the number of NRE projects and pilot customers is lower compared to last year, but the order intake is roughly on the same level. This means that we have been able to focus in our projects on a higher revenue end. And lastly, as mentioned, the number of personnel is 44, that is lower than what we had earlier. If we then have a look at our actions that what we have done actually to strengthen our financial position this year. So the target what we had was EUR 5 million annual cost savings. And majority of the actions to reach that one have been completed. And what we have done is that we had the reorganization of the company and the employee change negotiations earlier this year, and there, we reduced 13 positions in Finland. But that's not all. We have also focused on our cost structure, and we have reviewed and actually that really thorough review of our costs. So we have reduced the use of external consultants, we have reviewed our rental contracts and have fund savings in there. And also, we have cut traveling administration and all other non-business critical costs. And with these actions that we are getting the cost savings, but we still have a tail there, because some of the changes that will take effect only after a while. But I'm expecting that we will have then fresh cost base when we go to the year 2025. And as mentioned, we successfully completed a share issue where we raised EUR 2.4 million. Then we still have outstanding loan from Climate Fund, and that is EUR 2.5 million. And we are planning to raise that one during the fourth quarter this year. We also have EUR 2.2 million remaining of Business Finland grant and the total amount of the grant was EUR 2.7 million, and that was for side stream research. And then we had also a smaller grant from Finnpartnership partnership that is then building a project in Malaysia. And in total, if we look at our liquidity, we have EUR 15.8 million when we combine our cash balance, outstanding loan, and grants. And next, I will then hand it over to Soila.

Thank you, Tuija and Mikko for the presentations. We have received very good questions in the meanwhile. So we will now have the questions and answers session. First question is about the first analytical services and this maybe goes to Tuija. First, you said that first analytical services for two new industrial side streams were successfully completed. How do you expect cooperation to progress with these customers?

Very good. So we have not necessarily announced who are the customers. So I can't say too much details about it, but what I can say that -- but of course, the way we work is that we're helping our customers to then identify if there's a potential for certain material side streams and waste. And then we are looking at what is the potential. In some cases, there's no potential. In some cases, maybe the material is something that cannot be utilized or the utilization rate is very low. So in those cases, it's, of course, up to the customer what they want to do. Do they want a landfill, if they think that it's a better option or -- of course, that we are always trying to find a solution. And in these particular two cases, we are talking with the customer, and we're trying to see how we can move forward. And I think in both of the cases that we see a lot of potential for future collaboration. And of course, this is something that we're hoping that we can reach an agreement and then see how we can commercialize these side streams. But as I said, it's not always the case, even though in many cases, we can see that there's always a solution what we can do. And it's our target to find a better solution for these materials than the landfilled because we want to enable this circular economy.

Okay. The next couple of questions are about Outokumpu and about the next steps of the Outokumpu project in the Kemi mine. So what is the -- what are the next steps with the low-carbon shotcrete project? And then the second question is about -- can you just give us a ballpark what is the financial impact of Outokumpu in the next year? So first, maybe, Tuija, you could start with the next steps?

Yes. So the next step with Outokumpu is that we are now finalizing the CEM III and then the plan is to commercialize it next year. So it will still require more testing and fine-tuning the recipe, but it's all going well. And at the same time, we have already started Geoprime cement-free shotcrete development. So that's really, I would say, the big next step on this development work is to be able to have this kind of product in the marketplace and firstly, of course, to Outokumpu. And what comes to these financial figures related to Outokumpu, unfortunately, we are not able to relieve the exact numbers for this opportunity at this point. Mikko, anything you would like to add on this?

Yes. Exactly what you said, that unfortunately, that we are not able to disclose the numbers.

Then about the patents that Betolar has gained, we have gained a few patents during the third quarter. So could you open a bit a road map, how you are planning to commercialize that potential value of your entire patent portfolio? And then there was a question about the -- how do you see the -- like the next steps with this?

Yes. This is a very good question. And we have -- this is, of course, on our management's agenda all the time. We have right now 10 patents with Betolar. And this is, of course, something that we need to be actively commercializing the patents. There's no point having patents if there's no use, of course, for the patent. So for example, this MetalCirc technology that we purchased during this period is something that we have been working very hard. And we have been able to see some interest in the marketplace for this technology. And we are working towards the conversation of all these solutions that -- or patents that we have. So it's a work in progress. And hopefully, we will be able to announce some good news regarding that in the future.

Okay. And about Latitude 66, the collaboration started with the signing of the memorandum of understanding. Is it still in that phase? Or has it moved forward?

Yes, it's still in a mall phase. So we are still waiting for the projects to kick off. And unfortunately, I can't disclose more on that because it's, of course, between us and then between Latitude on how we can move forward on to the commercial phase.

Yes. Then the last question. So what is currently the most important or most common reason if your pilot client decides that it will not proceed with Geoprime to the commercial phase?

Yes. This is a very, very good question as well. So how it goes. So we have been doing in the past several years, we have been doing with the Geoprime, a lot of pilots with different kind of concrete manufacturers whether it's been pavement stones, hollow-core slabs, or different kind of other elements that our pilot customers have been producing. What we see that one of the biggest challenges right now is the market. Many of our customers, we have already made solutions for them. We had successful pilots and the challenges that our customers are now waiting for the demand to pick up. And I would say that most of the customers are on kind of standby mode. Some are producing some, but there is a kind of standup mode waiting for the construction sector to really -- and the building really to pick up. And once that happens, of course, we're going to be able to see it also on our side with the increased sales on the construction side.

Yes. Thank you. I said that was the last question, but I want to ask one question for Mikko. So there was a question about, was there any grants Business Finland or Finnpartnership received during quarter -- the third quarter?

Yes. Yes. We had grants received in the third quarter from Business Finland, and that's basically the difference what you can see -- what you can see or majority of the difference, what you can see that between the used grant from Business Finland and what was remaining there.

Thank you for the good questions. And then, thank you for your interest, and we will have our next event in February 5, 2025. So and we will publish our financial statements balloting. So thank you very much. Thank you, Mikko and Tuija.

Thank you, Soila.

Thank you.