Betolar Oyj (BETOLAR) Earnings Call Transcript & Summary

Hello, everyone. Welcome to Betolar's Q4 Results webcast. Firstly, here a disclaimer about forward-looking statements, but let's move on. So I'm Tuija Kalpala, I'm the President and CEO of Betolar. I'm here today with our CFO, Mikko Wirkkala; and also our Senior Vice President and General Counsel, Soila Soderstrom. So then let's look at the agenda today. It's a little bit different than what we are typically used to. We have changed a little bit the order. So firstly, I will talk about the main events, the key highlights in Q4. Then Mikko will talk about the financial review. Then I will come back and talk about the customer cases and a little bit looking how -- what does it mean to us, these different progress that we have made. Then we talk about R&D and innovation by Soila, followed by Q&A session. And as always, please send us some questions, and we will then answer to them at the end of this webcast. So let's then move forward. So the key highlights for the Q4 2024. So we had really good progress with the low-carbon shotcrete that we have been developing for Outokumpu. And this new type of CEM III shotcrete that we have made is going to production use this spring. And I will talk about a little bit more about that development shortly. Then we had new partnerships in tunneling. So together with Balsam Laboratory, we were looking at how to utilize sustainable circular economy solutions in the tunnel construction. Also, we did some work with Saudi Readymix in Saudi Arabia about low-carbon concrete solutions. And I will also talk about this a little bit later. Then I think one of the bigger news in addition to Outokumpu was this hollow-core slabs production and moving forward with the Consolis Parma Group. And we have now -- we entered a commercial phase with Parma. But again, there will be more details about this later on. And then lastly, I would like to highlight that the sidestream analysis service that we launched last year called SidePrime. We also had some good progress with that and some new customers that use this service. Then more highlights for the -- more like about what happened in the market. So we saw that the strong market interest in Betolar's low carbon and waste-free solutions in the mining sector. And there was really a lot of good discussions and good progress in the mining sector at the end of last year. And our solutions are really creating a lot of interest, especially now the shotcrete and also other solutions that we have for mining industry. And I will talk about these solutions also a little bit later on the presentation. Then on the other hand, on the construction sector, the market situation remains quite challenging. There was a high interest towards our low-carbon concrete products despite the slow pace in implementation. And it's looking like that I would say that there is some light at the end of the tunnel for this year, but it's still quite slow how this construction site is moving forward with this low-carbon solutions. It's due to the fact that there was a downturn in construction area at the moment. Then if looking at our results. So in Q4, sales, they were at the same level more or less as last year. And we had really good success in different customer projects. So we did quite a lot of different pilots in an actual production environment, and they went well. And for example, this Outokumpu is definitely one highlight of this. Then, of course, there was the commercial progress now with the hollow-core slabs. We have been working on that for some time now. So finally, we were able to move on the commercialization phase of this hollow-core slabs. And what is great about it that these slabs are compliant with EN standards, and they really pave the way forward for greener construction practices. We also had breakthrough in product development. We filed new patents also during the period for innovative uses of sidestreams, as well as this new innovation for metal separation. And we'll talk a little bit later on that. Soila will give some insights on our patents and this R&D work that we are doing. Then over to Mikko, the financial review. Please, Mikko, go ahead.

Thank you, Tuija. As Tuija mentioned there, our net sales was EUR 210,000, and that's roughly on the same level than a year ago. And then if we look at our revenue on the second half of the year, so it was EUR 486,000, and that is some 26% more than what we had a year ago. And then when looking at the full year numbers, so our net sales reached a level of EUR 762,000. And you can see that it's a bit more than EUR 200,000 increase from last year. And then if we draw the attention then to EBITDA, so our EBITDA level, you can see that improved over EUR 1 million in the fourth quarter compared to the previous year. So here, even though we are still on the negative side in the EBITDA, but you can see that what we have been able to achieve in our cost reduction program during this year. So what we have done, that we have focused on the cost side and gone through every single cost item, what we have there, that we had the employee negotiations earlier in the year. And then we have looked at every contract, we have reduced use of external consultants, looking at our rental contracts. Also, we have streamlined our laboratory operations and many other things. And now we see the cost structure and all these actions have been now completed, and then we will get the clean start to the next year. And EBITDA for the full year, you can see that was minus -- almost minus EUR 8 million and compared to minus EUR 13 million a year before that. So you can also see that already this year that we have huge improvement in there. At the same time, that also that what is visible in the news that you can see that what we have been developing that we are getting something ready as well and not that extensive development -- developed work is needed there. So we are now working on a more lean cost structure. Our cash balance at the end of Q4 was EUR 9 million, and I will comment that one a bit later. And looking at the order intake, which means new orders what we have received during the fourth quarter, so almost EUR 300,000, a bit more than what we had a year ago in the comparison period. And number of new nonrecurring engineering projects is 5, and you will hear some of those -- about some of those ones from Tuija later on today. And the number of new pilot customers 1, and number of personnel was 37. And you can see now the effect there if you compare the average number what we had last year, which was then 57. Then looking at our financial position. So as mentioned, our cash balance was at EUR 9 million at year-end. And then on top of that one, what we discussed last time already that we had the plans to raise the outstanding EUR 2.5 million loan from the Climate Fund. And we did that one during January. So we have that cash already in our bank account as we speak now. And on top of that one, then we have the grants from Business Finland and also from other parties and the total amount of those grants is EUR 2.6 million, what are still remaining that what we haven't got the cash for yet. So all in all, the total liquidity that amounts to EUR 14.1 million. And as discussed already earlier, so the cost reduction program, so what we had as a target EUR 5 million annual cost savings. So these were achieved. Then we have also revised a little bit of our financial targets, and then we're also commenting and guiding a little bit of our 2025. But first, if we look at the financial targets. So our target is to achieve positive cash flow from operating activities by the end of 2026. This means that we will focus on growing the sales, getting the commercialization up to speed, but at the same time, keeping the cost structure lean, so that we can focus on the profitable growth. The long-term financial target to achieve EUR 1 billion in revenue and 30% EBITDA margin by the end of 2033. That remains unchanged. This means that our ambition level remains high, that we focus on growing also after its first successes. And when looking at our markets, and you will hear more about markets later on today, so the markets where we operate are growing, and we also are planning to get increasing market share in those markets. So that is the reason why we keep our long-term target on an ambitious level. So we believe that the markets are big enough for us to grow. Then looking at more near-term. So we plan to continue growing also in 2025. And hence, we expect that our revenue is expected to increase compared to previous year. And then next, if we jump to the sustainability side, we are happy to announce also that our carbon handprint is this year exceeding our carbon footprint. So this means that with our Geoprime solutions that we have been able to increase our carbon handprint, and that was almost 3,000 tons of CO2 equivalent this year, what our customers have been able to save in emissions. And at the same time, we have been able to then reduce our own footprint, and that was roughly on the level of 1,000 tons of CO2 equivalent last year. And this was that we were able to reduce the emissions as an absolute amount, but also as an amount per employee. And next, I will then hand it over back to Tuija.

Thank you, Mikko, for the great insights about our financial situation. Okay. Let's then talk about our customer cases. So firstly, Outokumpu. So as we have been talking in many times before, we have been talking about this great development that we're doing together with Outokumpu in Finland. And as we have discussed, this partnership is aiming at creating a low-carbon alternative for the Kemi mine, which is set to become the world's first operating carbon-neutral mine by the end of 2025. And this is a really, really great target by Outokumpu, and we're very happy to be supporting on this. So what we have done now? So we have successfully completed the Phase 1, and the Phase 1 was to develop a CEM III type of shotcrete. So the CEM III type of shotcrete, it means that it's a low-carbon solution. It has cement, but it's really much less cement used than in the traditional shotcrete. And so what happens now next is that this is going to production use during this year, so in the spring 2025. And now at the same time, we started already last year developing the second phase of this cooperation with Outokumpu, this completely cement-free shotcrete for their mine. And this development is ongoing, and we are doing now in the spring, we are doing production pilots. And our aim is that we will be able to complete this completely cement-free shotcrete by the end of September this year. So stay tuned for more updates on this shotcrete. And then we talked about -- last time also about, in general, the global shotcrete market. And this is just to highlight why we are doing this. And what does it mean to Betolar that we are doing this low-carbon shotcrete. So globally, the market is valued at EUR 7 billion. And with underground mines is estimated that they count approx 15% to 20%. And if looking at what is this EUR 7 billion, so it's divided into 2. So mines are taking a little bit over EUR 1 billion and infrastructure is about EUR 6 billion. So in mines, if looking at the numbers, there are globally 509 operating underground mines where this shotcrete is utilized. So the market potential is quite big if you think about this opportunity for Betolar with low-carbon alternative. The average use of each underground mine is about 20,000 cubics per year. But of course, it depends on totally the different size of the mines. In infrastructure, the shotcrete can be also used in tunnels, bridges, repair, renovation, reinforcement of slopes and so on. So there's also other opportunities for us outside the mining industry. So then if then thinking about just the European market opportunity, so it's about EUR 60 million. There are 25 operating underground mines in Europe where this low-carbon shotcrete can be utilized. Currently, the market is using traditional cement-based alternatives. But in the future, we're really hoping that our solution could replace this traditional cement-based shotcrete. And really, we want to transform the market towards a lower emission and greener solution. Then now that we are talking about the mines, I want to also talk about a little bit this cemented paste backfill that is used also in the mining industry. And what we see that the material use for this application, the cemented paste backfill are expected to double by 2030 and reaching almost EUR 2 billion. So what are the drivers behind this paste backfill is really that we see that there's a rising demand for mineral resources to fulfill the critical metals demand of this green transition. There's an increasing number of underground mines due to this new ore deposits found deeper and deeper below the surface. So there's more underground mines and more tunnels underground that are made. And at the same time, there is more stringent environmental regulations and more focus on effective mine waste management. And according to more than 80 mines globally that are right now in feasibility study, permitting or construction phase. And it's really then looking at 2023, the market value for this and what does it mean that there are 130 operating underground mines that are currently already using this cemented paste backfill globally. And in Europe, 11 mines and just in Northern Europe, our home market, so to say, is 5 mines. And an average use of this cement for this paste backfill, it's about 50,000 tons per year. And why this is so interesting thing for us because we can see that there's a quite big impact that we can create by replacing the cement or partly the cement with our solution that is low carbon and also utilizing the circular materials. But not only that, for us, the recipe that we have already developed, it's also lowering the cost. So it's not only about the CO2 emissions, it's also being cost effective for these mines. And we're really hoping that in the upcoming webcast, we will be also talking about this same topic because this is -- we see a big potential in this area. Then more about these customer cases that we've been doing. So we announced that we are working together with the Balsam Laboratory, the leading Chinese-Canadian tunnel construction solution provider and with them our project is aiming at utilizing the fine crusher dust from tunnel drilling and really trying to find the ways how we can utilize kind of the circular economy within the tunnel construction. And at the same time, of course, lower the CO2 emissions for the construction. Saudi Readymix, we have cooperation with Saudi Readymix in Saudi Arabia. We had a joint project with them that was running from 2023 to 2024. So it was a quite long project. And during that time, we successfully developed a breakthrough low-carbon concrete recipe tailored to meet the growing demand for sustainable solutions in Saudi Arabia. And again, this is something that was contributing to greener construction practices. Then the cooperation with Consolis Parma, the world's lowest emission hollow-core slabs. So this is something that we already 1.5 years ago, we announced that we are doing cooperation with Parma and the Consolis Group on developing these hollow-core slabs. And now we are in the phase that we are now commercializing it, and we have signed agreement with Consolis Parma for 3 years, covering all the Consolis countries, and this solution is now entering the production phase. So really, the next step now with Consolis Parma is to find the pilot construction where we're going to be applying this world's lowest hollow-core slabs. And as mentioned earlier today, the slabs has received approval according to EN standards and also endorsement from the Finnish Concrete Association for the use of activator chemicals as concrete admixtures. And this approval enables the CE marking in Finland for this new type of low-carbon hollow-core slabs. And what is really great about it is really that it's lowering the CO2 emissions by up to 75% comparing it to conventional products. Then a little bit about the market insights about the hollow-core slabs market, especially in Europe, it's estimated to be over EUR 4 billion. And where hollow-core slabs are used? It's really in precast elements and in hollow-core slab. So this precast elements is about EUR 120 billion, whereas hollow-core slabs is about EUR 20 billion globally used. And where is -- it is applied or used these hollow-core slabs is residential, industrial and commercial buildings. The benefits of the hollow-core slabs are environmental impact, cost-effective, high-quality, durability, ease of installation and versatility. And of course, especially when looking at utilizing Betolar's innovation and our technology for making them more environmentally friendly, it can achieve up to 75% lower CO2 emission. Also, this product is -- or utilizing our technology, it's CapEx free. So no new additional equipment needed in the production. Also, as mentioned, it's compliant with the regulations, and we are utilizing the circular materials and trying to reduce the use of cement. But when looking at the market potential for us in Europe, it's about -- in total, the market size is EUR 4 billion. And if thinking about Consolis Parma, Consolis Parma is -- they have -- they are working in 17 different countries, where most of it is in Europe. And if looking at the construction, like the total cost of a building, hollow-core slabs, they count about 10% of the total cost, whereas 30% of the CO2 emissions for the entire building comes from using hollow-core slabs. So with just less than 10%, we can lower the greenhouse gas emissions of an entire building about 30%. So it makes a big impact on the total CO2 emissions of a building. Then our SidePrime analysis service that we launched at the end of last year. So this is a service -- this is an analysis that we are doing for industrial sidestreams. And with this service, we are studying different materials and their suitability as an additive for concrete application. And what it means also, it's an enabler for scaling up these Geoprime solutions when we have a better understanding, what kind of materials we can use for these Geoprime solutions in construction and also in mining. So this is based on Betolar's constantly evolving database with more than 100,000 recorded laboratory test. And it can analyze even the most challenging materials, and it's AI-enhanced service. And the benefit of that is that it's faster, it's more cost efficient and the turnaround time is -- it's much faster than in traditional methods. And we can quickly identify the profit potential for different materials. And of course, then our customer will get a clear report, recommendation and action plan how to move forward. As a sample case of this, we have been lately working with Alva-yhtiot on this SidePrime. They have been -- we have been using the SidePrime analysis service for their ashes generated by their different combustion processes. And this type of material is now -- these ashes are part of Betolar's material network, that we can then utilize in the future in different kind of Geoprime solutions. Okay. And then we move next to the R&D and the innovation part. So Soila Soderstrom, please go ahead.

Thank you, Tuija. Of course, everything that Tuija just explained about the solutions and the applications where we have developed new solutions, it's of course, based on our R&D and innovation. We are -- that's the core of Betolar. That's what we are. And innovation is, of course, in our DNA. So we have been actively focusing our R&D efforts on creating innovative technologies for the sidestream, mining and metals industries. And these solutions and these applications, they are based on our -- the years of research that we have done to analyze different materials, different sidestreams and different mixtures. So by continuously collecting data from our research and laboratory tests, we can enhance research efficiency by using our own AI solutions. So that's very important. And of course, we have our own laboratory in Kannonkoski, which supports our research -- researchers and the laboratory and our researchers they are doing active innovations together. So that's something that's been in our history, a very important thing that we grow to find these commercialized solutions. Our patent portfolio has expanded significantly with new patents granted for various innovations, and we are actively looking how we can commercialize these patents. And many of these patents, they are actually related to same thing, the sidestreams, how we can process the sidestreams that we will turn these sidestreams into use. So for example, road construction, how we can stabilize the road and so forth. And to the innovation. We have many, many great innovations, but this new innovative technology that we have developed to separate valuable minerals and metals as well as a technology for creating green cement. That is something great. We have now tested this in laboratory scale, and we have received very good success in that side. And of course, we will continue the large-scale testing during the spring and then after that to the industrial scale tests. So this green cement, it's to replace the traditional cement and that is the binder material and the material that we have developed and that uses also sidestreams in the process. So that's a great thing and in the core of what we do. Currently, we have 18 patent families and 47 issued patents. So that's quite extensive for a small company like us. But why we apply these patents and have many patents already in the pipeline. It's, of course, that we can protect our technology, and we have the competitive edge by having these patents on our side in the market.

Okay. So then I invite Mikko back on stage and Tuija here, we go to the Q&A session. And we have received lots of good questions here. So firstly, were there any grants received during Q4?

When we're talking about the cash flow effect, we didn't receive any new grants and how it typically works that first, you are then collecting costs and then you are applying for the grants that you get the cash afterwards. And typically, you do that only a few times a year.

Thank you, Mikko. And second one also for Mikko. How much of the EUR 1 million order intake was delivered during 2024?

Well, we are not exactly disclosing that number. But roughly, if you look at the numbers, compare the order intake to revenue. So then you get the roughly result by combining these 2 elements.

Yes. Thank you. And Tuija, how would you approximate the commercial potential of the Outokumpu shotcrete product during 2025?

Yes. So as mentioned, it will go to production use this year. We don't know exactly when it's going to happen, but we know it will happen. And then we are developing now this completely cement-free solution for them. The details are something that we cannot really disclose at this point. But once we have more news about that, we will share them. But now I would say that at the same time, what we are doing is looking at also commercializing the shotcrete solutions also globally. And we will share, hopefully, more news soon.

Thank you. Then about the visibility in sales in 2025. How could you describe the visibility for this year? And do you have a clear pipeline for H1 or even for the full year?

Yes. Of course, that when we are in the beginning of our commercialization journey, so there's always uncertainty. And some deals will go through, some deals won't go through. But then I said that we are expecting to grow, and we are expecting our net sales to exceed last year's level. So that means that we are confident on that we are nailing the deals.

And also, if I may continue, also, we are really looking at -- we have -- we said last year already that we're focusing on the mining and metals. And this is something that we are now really pushing and working hard also in growing in this mining and metals area.

Thank you. Then about the Business Finland. Do you have any conditions which could prevent you from raising the funding from Business Finland? And to double check, this Business Finland funding is your only undrawn funding at this point?

First, answering the second question that we also have some other grants that are smaller compared to the Business Finland grant, but the Business Finland grant is the biggest one. And what comes to the conditions? That we have conditions that where we can use the money. But where we are using the money is the sidestream research. So where we are trying to find new sidestreams, what we could then commercialize later on.

Yes. And for example, this metal extraction that I talked about, that's one project that we have. All right. Then about Consolis Parma, of course, when will you start to generate more significant revenue from this Consolis Parma deal?

So as I mentioned earlier, so the next step with Parma is to find now the first pilot construction and start with piloting. So the actual piloting will happen this year. And I would say that it all depends on also how this market in construction is developing in Finland and in Europe. Our agreement with Consolis Group also covers the other Consolis countries. So that's also something that we are now -- that we have the contract in place, we are now looking at commercializing also these hollow-core slabs in other Consolis countries. And then -- but we are still in the beginning of this journey. So first, we need the first pilot and then we can move forward. So of course, just to clarify that we have done a lot of test and we have produced hollow-core slabs together with Parma already last year. But now what we need next is an actual building where we are utilizing this world's lowest-emission hollow-core slabs.

Thank you. Then about Saudi Arabia. How can we support our customers there from Kannonkoski or how Betolar is planning to support and move forward with this project in Saudi Arabia?

Yes. So I would say that the Middle East is a very, very interesting market, and it's growing, and we see a lot of potential in that area. And especially like the green initiatives and the low carbon is something that is now growing in that region. And we have been talking with several different players in the Middle East. We have done several pilots for different companies on this. And we see a lot of opportunity in Middle East in general. And of course, Saudi Arabia is something that we are very interested in, and looking at also in the future, working and continue the collaboration in that area.

Thank you. I'll get the last question now. We have so many questions. Thank you for those. So this is a good question about our recruiting needs. Do we have some recruiting needs in the future or currently?

Yes. We have currently a few positions open. And -- but we have to be very careful how we are spending our money like what Mikko was telling earlier, we have been doing our cost-cutting program, and we have the cost savings. We achieved the EUR 5 million savings. So we have to be extremely careful, how we are growing the company. But of course, as we are growing and as we are selling and as we have more projects and pilots and commercialization ongoing, it also means that we need people behind it. And this is something that we are constantly looking at and evaluating within Betolar how we can provide and make sure that we have the resources that we need. And of course, there's an opportunity also buy these services outside. We don't have to do everything ourselves. We can also buy certain type of expertise also elsewhere. But at the moment, we have several positions open.

Thank you, Tuija and Mikko. We have the AGM coming up on 27th April '25. And then we will have our Q1 '25 business review 25th of April. That's a webcast like this. And then we will have our Capital Markets Day in 14th of May in-person and as a webcast later on. So we will talk about in this Capital Markets Day more about our technology and more about -- you will hear more insight on this what we have discussed today. So thank you for your interest.