I-Tech AB (ITECH) Earnings Call Transcript & Summary

Hello, and welcome to today's webcast, where we have I-Tech presenting their year-end report 2023. With us presenting, we have CEO, Philip Chaabane. If you have questions, feel free to use the form located to the right, and we'll take it out during the Q&A. With that said, please go ahead with your presentation, Philip.

Thanks so much, and most welcome to the I-Tech presentation, the year-end report and quarter 4 highlights. I am Philip, and I will guide you through this slide deck and we'll be available for questions right afterwards. So for those of you who may be new to the company, short overview, I-Tech is interface technologies. It's an ingredient chemistry technology company, which is supplying molecules or add molecule into the marine coating industry. So we're available -- the technology called Selektope is available in marine coatings. More than 20 are on the market as we speak, used by 6 of the 9 largest paint makers in the world, who together are more than 95% of the global coating industries, that's condensed markets, and we're well advanced in -- within them and their portfolios. And then it has been applied on several ships, more than 1,000 ships are actually using the technology as an ingredient component in the antifouling coatings. And the aim is to resist biological attachment or growth onto a surface -- the ship surface called the hull. Company was listed in 2018 and is relying on unique technology, of course, with a specific molecule in its mode of action and then the patents surrounding it, including also regulatory protection. The purpose is to enhance efficiency in shipping because marine growth adds to resistance buildup as it makes the surface rough and that is to be avoided. And it's still in, as we're dealing with biology, we have to tackle it with biology, science, and that's exactly where Selektope comes in. So it has a unique way of repelling away the most critical organs associated with marine biofouling. So that is I-Tech in a nutshell. Then going into the numbers of the year and the quarter. First of all, on to -- show that or highlight that the profit is a strong increase from the year before based on a 45% sales increase, so there's a huge leverage here in this business model on increased earnings as we continue to grow our performance. And the growth then compared to the last year was 45%, coming from a year already back then with quite high growth numbers. And for the quarter, we were a bit lower, 16% compared to the same quarter last year, which was quite a good quarter. But overall, for the year, quite solid figures. Looking at the margin, the overall year ended up at EBIT margin up to 19 higher than the year before. And due to costs that came into the quarter, it was reduced quite heavily for the quarter, ending up with minus 2. The net result is reported at SEK 20 million, comparing that to SEK 10 million. So that's where the huge scalability factor comes into the case. And for the quarter itself, then a slight negative result of 0.4 comparing to 4.4. I'll guide you through these numbers more in detail as we move on, but to follow out some fundamentals on the technology and the company and our performance, then back from all the way from actually where we started at the NASDAQ stock exchange markets. And you can see that's been a tremendous nice journey in the beginning, COVID flattened everything else. And then luckily, a lot of -- some customers were preparing themselves to take -- to bring forward new products. And those have been fueling the growth that you're now seeing all the way through 2023 with a small adjustment in the fourth quarter. The graph also illustrates how costs are in general terms, low and moving in the opposite direction, that's the sales growth -- revenue growth. And that is the interesting thing with this business model. The fourth quarter itself marks a bit of a challenge, but I'll come back to that. And the challenge is the fact that Q3 deliveries were very high, that put the sales deliveries in quarter 4 lower. It's also a matter of inventory cleanup, assumingly, by the customers. And we also have some exceptional costs that were pushed into the quarter. I will also touch on this. So having said that, we are on the same solid fundamental growth path that we have talked about previously. We are one of the interesting components in marine coating industry that can help reduce the emissions to air quite significantly. The hull itself is associated with a lot of resistance, as I said, and the industry is aligning around a figure of somewhere around 100 million tons of additional CO2 saving potentials only if the performance of the coatings can done, be averaged to the best possible level across the fleet. And Selektope is a component that can help achieve those numbers. But it's not only that. It's the fact that fouling on a ship also is related to the risk of transporting alien species between ecosystems and some of those alien species may be invasive and then it causes a lot of harm, and that induces a lot of costs. A bit more difficult to put a number on the cost, but it's a regulatory issue on IMO level. So coatings are -- is a big focus when it comes to this issue. So keeping them clean will definitely be a priority and it will increase throughout the different regions of the world, although it's most emphasized right now in Australia and New Zealand. But it's also about material optimization and try to make these coatings as high-performing as possible by using the lowest possible amount of chemicals since everything leaches out in this industry, or not in this industry, in these coatings, it's important that we together as the industry try to minimize that and optimize all of that as far as possible. The extremely low concentrations of Selektope that are used can enable a trend shift in this context. Those are the 3 really strong reasons why we are confident about what we do and that we see a very bright future moving forward. We're getting it -- we or I should say the industry, independent of what efficiency measure you actually are developing, selling to the shipping industry. There's a big support of regulatory measures put in place by IMO, which is under the United Nations. The only body that is globally impacting the industry. So they have put forward a lot of different measures. Some of them are related to greenhouse gases, and they have been enhancing their criteria or the guidelines for what needs to be done in the industry, even at 2050, they would like to see the industry to be somewhere close to net zero greenhouse gas, that obviously implies a shift to different fuels. And what we know, as of today, that requires -- or that will imply higher costs, of course, because there are different energy sources will be more expensive and have less energy per kilogram, so to say, than what they have today. And to reach there, you need to optimize everything else on the ship. The coating and underwater hull outperformance is one of the key fundamental aspects to contribute to transition to non-fossil fuels. But before that, the industry has to reach by 2030, 40% reduction in CO2. And that can be achieved through these technologies that are now successfully being implemented step-by-step in the industry, not only in marine coatings, of course, but that's one of the interesting and an important part. In addition to that, there are more local regulations, such as the EU emission trade system, which forces ship owners, I think, from 2026 and onwards to pay a fee for excessive CO2 emissions. There's also a design index measures and there's also operational efficiency indexes that are classifying a ship's efficiency level year-by-year. But those are put in place as of 2023. It will take a few years, obviously, to see the big effects of this, but it's already a quite substantial change in how the industry is looking on efficiency technologies. So this is a key element in the growth of I-Tech moving forward. And through that, including the strong attributes of the products, all the 9 customers who are dominating this industry completely are working with the technology. 6 of them are on markets. All of them are on the new-building segment market, which is new building of ships. And 3 of them are also moving into the drydocking markets, one have been there quite some time. And that is where the volumes are, if you cam compare rough numbers, it's about 1,000 to 1,500 new building projects -- or sorry, deliveries per year, while the drydocking market is maybe tenfold, right, 15,000 drydocking opportunities on the larger segment of the global fleet. And we are seeing development activities moving or transitioning into commercial interesting opportunities. We are looking forward to, within the year, have new products from new customers on the markets. One of them, we signed a license agreement not too long ago, and one progressed, but also the other one to hopefully see commercial products come into the public domain, but in not too long time frame. So we're quite confident in the development of new things around our technology. And as I mentioned, the different drivers for the industries to make them or make it more efficient combined now with enormous impact from coatings and also other attributes such as invasive species. It's fueling the transition of medium grade or what you call standard grade to premium-grade antifouling products. And one paint maker has put forth some figures that indicates that they have moved from 40% to 55%-ish of increased premium products as a share of the portfolio within the past 5 years. We can see the picture is a ship taken from a new build yard in Korea, where the clear message says, it's possible to miss out from, right, All The Way to Zero, the focus is clear. It's a container vessel, they use the best possible coating. They use the best possible technologies all over the place. This is super important. I think this illustrates how strong the trend is to shift from medium or economy-grade products to the premium range and that's where Selektope belongs. So into the figures, it, of course, show that it's bear figures for the quarter. We lost a bit of sales, having strong deliveries in quarter 3 as one of the reasons, maybe building up a bit of excessive inventory that they wanted to keep low over the shift from -- at year-end. We also see some costs here coming in from one-off costs associated with regulatory affairs and investments in production efficiency projects and other actually personnel-driven costs. So the total difference from the last year was 2.7 versus 0.7. So that has an impact in addition to the loss -- the reduced sales in that specific quarter. We don't see any effects from currency between the quarters here. Apart from that, highlighting again that new customers are moving forward. One is now official, it's International Paints, although their launch is not official in time. They signed a license agreement, which is more of a design win as we'll see here during the year how that falls. Overall figures remain strong, right, maintaining a good gross margin. We're seeing very strong cash balance, which we have addressed through the news today that we are embarking on a dividend policy. Looking at the full year, the growth is very convincing, moving from SEK 83.6 million to SEK 120.9 million between 2022 and 2023. That is a very strong growth to have one quarter that is a bit slower and the scheme of this is not surprising. We also see a very strong performance here on the earning side with the net result and EBIT margins coming up to a nice level. So the EBIT margin itself is 19% and the EBITDA respective with 26%. The interesting thing, which I highlighted also in the initial slide is that with a 45% growth in revenue from net sales, the profit increases by 95%. So the case is defined as a highly scalable case. Just pitted up for this quarter, we were hampered by some lower sales and higher costs. We also have a strong cash balance fueled by strong cash flow over the year. For the year itself, it's a step change in demand, right? We've been up at SEK 30 million from the prior quarter in revenue. We dipped a bit in the quarter -- in the fourth quarter, but still that's still a strong shift compared to where we were before. Sales are mainly into one main customer, we've talked about earlier, 81% is to the leading customer Chugoku Marine Paints, while 16% is for the second largest customer. Our priority is obviously to balance this as we move forward, but we do see a strong growth potential within both of these in addition to what we talked about in the past slide, where new customers are coming in -- we do believe that one of those will not only be a new building, but also drydocking that will help to bill forward more revenues to the top line and the good results. It's also saw that we are in this regulatory process, which I will define in a few slides from now, a bit clear on what's going on, but that is the cost on the consultancy side, external costs that we have to bring forward now to make sure we prepare everything we can for the important meetings that are scheduled for the year 2024. Some highlights here on how the -- how the sales are distributed. You can see that's a dominance here by Korea, Japan and 40% respectively and 30%; and then Singapore, China and then Europe 8%, it's not too dissimilar from any other supplier or activity within marine shipping. That is a variation-focused industry when it comes to repair and the new build and maintenance and all that stuff. And we also see the products are launched, most of those are actually available specifically for that geographical areas, Southeast Asia or Asia in general, while Europe, a lot less products are available because of the very long registration types that are applied also for the end products. So to bring a product forward and get registered in Europe is a multiyear task from the paint maker, which limits their interest to focus on that, given that Asia is much simpler, knowing that the ingredients they are using are exactly the same on the 2 markets and they are approved in the 2 markets. So there's a barrier here in registering final products in Europe that is not existing in Asia, which partially drives this industry even further eastbound into the Asian continents. Growth over the 6 last years is impressive, 40% CAGR, which is probably better than what we could assume back in 2017, 2018, of course, it's a bit spoiled a bit in the last few quarters that this will just continue to rock on, and I think it will over the years to come, we have a positive outlook moving forward. And that is symbolized by the fact that the company -- the Board decided to give the dividends and embark on the dividend schedule policy. So if you compare to what we talked about last year at this time, we gave you guidance in terms of strong positive outlook, meaning we are looking at double-digit profitable growth and earnings in our core business, the core businesses that I'm a we're talking about here, the Selektope business. And that with some firm mind we believe that this will grow many, many years in that magnitude. And so we did conclude also 2023. And then the policy is now put in place for SEK 0.75 per share as ordinary dividend, making 44% of the earnings. And as per a capitalized in general, we now -- the Board has decided for an extra SEK 0.75 per share. So a total of SEK 1.5 that will be on the dividend for the AGM to decide about. But in addition to that, we are also doing investments that will put us in an even better place moving forward. We're increase --investing in ways to increase profitability, meaning more efficient production processes and a risk -- possible restructuring of the supply base. Either way, we would see a positive effect on the gross margin somewhere down the line, not saying this quarter or next quarter, but maybe at the end of the year and certainly into 2025. It takes time to implement these things, but they are find interesting opportunities that we are not focusing more. And that is to enhance the investigation in alternative and complementary growth opportunities as we still have a good cash position, we're still confident in our growth moving forward, and we are fully aware that our product as a niche product, though a very good work. There are interesting options potentially to broaden the business, to make it even more impactful to our customers. So we'll come back to that over the course of the year, I would assume. Looking at our opportunities for the market it summarizes the call and the slides so far. Onboarding new customers, obviously, will help not only justify the need and clarify the very strong attributes of the products that are being used of more and more paint makers and now they go commercial. Hopefully, also into the drydocking market already from start. We do look deeply into these process improvements that we think can help us bring forward more value to the shareholders and to the company. And then we have a strong growth opportunity within the existing leading customers. So they are not selling anything else that is just, how to say, a plateau effect of a magnitude firmly the one with the strategies. And of course, there will be ups and downs, but there is an intensified opportunity within both of them. On the challenge side, it's needless to say, the EU/BPR process is overarching a lot of things and also unfortunately, bringing on pricing costs moving forward as well. It's a bumpy ride, and we continue to be bump until final decision falls, 2024 and 2025 is important years, and I will soon show you how the different milestones are outlined as far as we know today. We also see positive and meaningful activity in the terms of searching for an alternative or a broader strategy focused on what we have today. And that obviously requires resource that would come in and do some dimension add and enlightens the opportunities for us. Obviously, some costs will be associated with that moving forward. But we think this is a good time to do so. And although not impactful for the business, even not if we put on hold the time frame now looking into the next few years. The US/EPA where we were aiming and are aiming still, obviously, for the leisure market and the domestic fleet as such. We hope to get through that process earlier, meaning we finalized maybe 2025. It's just obvious that the process of being delayed. Now we know why it's a shift of people. The whole case, and many others has also just been put on a shelf somewhere and new staff coming in and not prioritizing this. So we're at least 3 years to date compared to where we were hoping to be when we first launched this news. We'll have to come back later over this is, but a bit unfortunate in the term of a significant change of staff at EPA. So final slide, which I think many of you have been asking and wondering about is what's happening in the process at ECA. ECA is European Chemical Agency. And as you can see, we are in April, March, looking forward to a first round of discussion after the initial statements that they made or not that they made, but the Norwegian authorities. We are a responsible for hosting our technology on the regulatory level in terms of the European focus. When they made their statements in May 2023, now in May -- March, April 2024 is the first time we actually can engage in those discussions and be part of the -- be around the table and be part of the commenting and discussion. So we're looking forward to that, and that explains some of the cost back in quarter 4 as we have to prepare a lot for this. We're also preparing for other steps in this process. Before we reach those, we can just inform that May, June, there will be -- well, before the working group committee meeting that would then conclude ECHA's opinion on approval or not. And then the official opinion would be addressed in the -- what is called BPC opinion meeting, which is done in June, July time frame, 2024. At that time frame, there can be 2 outcomes, approved or not approved. And if it's approved, things go directly to the EU Commission, where decisions may be taken at the end of the year. If non-approval is recommended, the whole case goes into socio-economic analysis, meaning taking into account all the aspects other than the pure scientific aspects. And then that committee will look again on this opinion or recommendation from ECHA and possibly send it back to ECHA for revaluation or make a different opinion or stand firm with the opinion. The whole thing is then dealt with what you call socio-economical analysis committee, probably gathering somewhere first half 2025 where a revised opinion, may be given or they will just stay with what it is. But that's an important part because that drives a lot of cost at the moment to prepare for this as consultants seem to be on Board to build the dossiers in the case for the socio-economic analysis. So here is the route. So if it goes a non-approval route, there's a lot more stakeholders to be involved, as you can understand. And then any final decision will be -- final -- finding from a commission perspective might be then quarter 2 to quarter 3, 2025. And after that, if it falls negative, there's still this option of drawing legal actions, which is quite common in the chemical industry. All this is subject to a lot of uncertainty. So there's a disclaimer here. We know that some molecules have been in this loop for 10 years. I'm not saying this will take 10 years, but who knows. This is what we know as of today, at least. And by that, I finalize and welcome questions.

Thank you so much for that, Philip. And we will now turn over to the Q&A section of this webcast. And the first question, let's see here. Can you motivate why sales dropped quarter-on-quarter?

Yes. Sales drops in the fourth quarter for 2 reasons we've been in. One is that we've had a large delivery schedule, a significant such in quarter 3. So not material was delivered. They received that at the end of the quarter into quarter 4. So they probably built some inventory there and therefore, were reluctant to put new orders on the same level they did before in the fourth quarter, also moving into a new year, you probably want to optimize their financial statements. There's no single issue that we are aware of that has caused ahead and a shift in the overall aspect. This is a quarterly effect that are related to the factors we just mentioned.

Will sales continue to be volatile going forward? Or do you expect a recovery in Q1?

I mean we look long term, right? So comparing to 2023, we believe we will grow beyond what we delivered in 2023, how each quarter plays out is a bit difficult, depends on how things moving. As you saw from the past year, it was very strong in 3 quarters and suddenly one became lower. We're confident that the year will yield strong performance as such. And let's see where quarter 1 and quarter 2 moves, but we have no reason to not be optimistic.

Next question. Can you specify how much the bonus has affected the cost and how much -- and how these bonuses are determined?

Right. So if you start with the second part of that question, so bonuses, as I think are highly skewed towards sales growth and earnings growth. So those are the most fundamental aspects when the bonuses are defined. So strong we grow sales and how strong we grow earnings comparing to what we actually performed in the year before, not comparing to budget or anything else, right? So it's a pure correlation to -- or comparison to what we did the year before and the year was extremely good therefore, the bonus levels came high, and that impacted the fourth quarter by around SEK 1 million comparing to the year before. Understanding that we are leaving 2023 in a very good shape, meaning strong growth and high numbers, obviously, it's going to be a more difficult year but to get the higher returns on this bonus as we have to grow quite significantly between the years to reach the levels we reached this year 2023.

Can you tell us a little bit more about the regulatory process in the EU? What is the status at the moment?

So as I highlighted in the slide here, I think that's basically answered your question. We are preparing all these different things. We're preparing the scientific discussions, which are kicking off March, April and then moving on until June, July with ourselves and all the different experts we have engaged. That is on track. That is ongoing. The other one is preparing socio-economical analysis report, which is a massive document that is prepared by external consultants. And we are also then step-by-step preparing if and only if needed, a legal action and strategy with lawyers involved. So as you understand, costs will come in, in the quarters here related to this. But this is what everybody does. We're not the only one in this process, not even within the or industry where now there are others with similar experiences. So this is part of the game in a highly regulated industry like the one we're in.

You have announced that you will step down as CEO after the Annual General Meeting has the recruitment to find a new CEO began?

Yes. The recruitment has begun. It will take some time. It's a complex role. We believe we will try to -- we obviously do it carefully and with full respect for the team that is here and doing the job very well today. We will come back with updates on this later on, of course. But let's say, it would be an interesting endeavor to search and find the right candidates.

How big market share has Selektope in Japan or Korea for new building at the moment? Is it possible to double it in a few years' time?

Yes, it's possible to double it. No problem at all, I would say. The shares are not exactly defined, but it is far from significant -- I mean, it's our main markets. It's not that it's not significant in that sense, but there's a lot of room to grow as you have understood from the presentations, we're basically into 2 main companies driving sales, right? One of them is Japanese. They happen to be quite big in Japan, around 60%, I believe, they came themselves, and we can grow within them and we can grow with other paint makers in Japan. So that, yes, that can grow our business considerably in that market. If you go to Korea, there are 2 main players are driving our volume in Korea, which are also the 2 largest customers we have. And there are another 5 quite big customers who are another 4 at least that are quite big in that industry. So yes, there is opportunities both -- but then as we have and the ones that we hope will more embark or start to grow from where they are.

Next question is, could you give some color to this quotation, increased temporary costs were incurred for pilot projects aimed at verifying the efficiency potential of the manufacturing process?

What we are doing is tuning in the processes. I mean we produce chemicals through chemical processes. It's about increasing the yield and finding ways to reduce costs, simply speaking and also cooperating with what is to us then maybe novel and interesting suppliers that could help us gain further efficiency in the supply chain or in the manufacturing landscape. That's worth investing in with a very attractive return on capital if all these things fall into place that we're now seeing possible.

Can you talk more about the volatility in quarterly sales?

Difficult to say. We will have up and downs, as everybody else. The industry will continue to grow. We are looking fairly positive full year. There will be obviously up and downs. We can't really control see how -- we should not control how that goes, but we can't really see already from start where it will go. We are often a good start so far this year. But if that how that quarter -- this quarter will end -- we cannot say at this moment. What we do know, and that's known for everyone is that the comparative numbers to last year are going to be quite tough whilst 3 very strong quarters. So if you compare with those, there will be bumps and that will be a positives as well. Overall, seeing the yearly trends, we are firmly positive about the continued growth, both in earnings and in revenue.

You mentioned inventory buildup as a reason for lower sales. Can you elaborate?

Well, it basically comes from the fact of having 3 really strong quarters. Of course, we were stressed to deliver most of those orders because there was an immediate need. But at some point, they also accumulate something and quarter 3 was exceptional in delivery. So it's not really big differences between -- I mean quarter 4 was down 16%, yes, but that was SEK 25 million comparing to SEK 30 million or comparing to SEK 31 million and SEK 32 million in the quarter of SEK 7 million down, maybe right? But that can happen, right? And for us coming on the wrong side of the month from a quarterly comparison perspective, this can happen. So we think we deliver out a lot in Q3 that made the inventory efficient in a large degree to what we saw before, meaning orders still coming on the diverse go out as much in quarter 4. That's the only reason.

Will you be able to provide us with data points on the underlying growth in adaptation of Selektope such as the number of ships paid per quarter, for example?

We don't know what goes into inventory and what goes into the pink bucket for ship application at yards. We -- it's impossible for us to see that. So we can continue to disclose our sales and we can try to estimate how many ships that will correspond to. But we have no visibility really on what happens once it's delivered to the customer. The important thing at the company is mainly not that is to see how customers grow and new customers adapt to technology as step by step that will capture more ships. And also that will help grow in the future.

Can you elaborate on the developments in price versus volume?

So is that price to customers, I assume? If so, we -- I think we're in a more quite attractive price range. I mean we're still a significant part of cost of goods. In terms of volume, of course, customers have a volume benefit of engagement with Selektope. And that has -- that's why the gross margin has been moving up and down between what we are now, 52%, I think, right, 56%. I think we have had at the top level. And that depends on customer mix, depending on how much volume comes in from those with low volumes compared to those with higher volumes. So some points, this will leave it out, of course, but there's still a mix in customer portfolio that would have a differentiated contributions to the top line.

What's the expectation for growth in 2024?

We don't put forward official statements on the exact growth, right? We have to find before where we said that -- we're quite confident that there will be at least a double-digit growth figure on revenue and earnings comparing year-by-year, and that's what we stand by. We see positively on the start of the year. We see positively on the adoption of new customers, and we see clearly that our main customers are focusing on Selektope and continuing their efforts in promoting their products that are really, really good, that then contains Selektope.

Now that 2/3 of Q1 has passed, would you say that the slowdown in growth for Q4 2023 is confirmed to be from inventory optimization among your customers?

No, we so far, I mean, we're into the quarter, yes, we don't see -- or I don't see that effect as continuing into the quarter. Again, let's see what happens when we approach the shift between quarter 1 and quarter 2 or what comes in this quarter and goes over to the next. But so far, we're happy with what we see as demands on the technology, on the products.

Were there any onetime effects in personnel costs? Or is this a new normal? Do you see any new need for hires?

So as outlined and asked by previous questions, the main difference in the personnel cost was this bonus payment, right, that was then linked to the performance of 2022. That performance, of course, we hope as a company, as owners of the company, of course, we will continue to grow by 45%, 55%, 60% per year. And if that happens, of course, the bonus schedule will result in something more important. But again, comparison numbers are tougher and tougher, meaning that, that would probably be less likely to see that effect in the same time next year. We have hired, however, to have one person in R&D that has been transitioning from what you call that covering up from maternity leave and then now being employed to add one resource when the person on maternity leave comes back. So that's in R&D. That was a significant change for us, but it's from a cost perspective, a significant in terms of team, of course. But that's it in terms of new hires, the new CEO will come in at some point. And let's see if that brings forward needs for some other changes. But we don't see a huge shift here. What has been said before also is that we're running very, very lean, right? There's not as much for redundancy. So at some point when we start marking a new strategy endeavors to one we make have some extra resources on that as we don't have much time ourselves to work on other ideas or the pathway so -- those are the areas maybe that can come in on the personnel side, looking over the year.

On your production, have you added a third production location? Or has there been movement in the previous setup?

Not yet. We are assessing a new supplier. We are engaged in discussions with existing ones. And the year will tell where it goes. And that's the whole thing that we begin with optimizing processes. So we've been working with the new processes. We're talking to suppliers. We've found a new supplier, potential new supplier I should say, this will help find the optimal setup for the manufacturing, I would say, will take 2024 to set it all down, and you will see the effects of that end of the year or 2025, but it's quite interesting what we're seeing.

China and Korea continue to take market share in new builds. We know that you're strong in Korea, but what about China? What is your market reach in China? And how has it changed over time?

It's shown on the pie chart, we have, we are quite strong in Korea, right? Korea, Japan. Both of those are also big new building countries next to China. The difference in Korea and Japan compared to China is that most of the ARs, almost all of them are exposed to oceanic environment, meaning ocean -- coastal but ocean-exposed locations. So a lot of fresh ocean water creating a lot of fouling pressure. In China, many of these yards are upstream rivers, right, with more or less brackish water with a completely different set of problems, not related to fouling. So the driver is there not the same for the paint makers offer, special upgrade to protect it over this new building period as an example, right, which has been part of it. But of course, many ships are build want to be possible of fouling and then the express fiber Selektope coating independently on where they are built. And that is what we see when we sell into China. It's not to right to this, what you call, static exposure or outfitting or a new building period. As the product is picking up in popularity, we will have more sales in China as they also dominate the dry docking industry, which is on the maintenance part of it.

On capital allocation, should one expect that excessive cash will be distributed to investors rather than invested in new technologies?

Right. So we are doing a little bit of everything in that respect. We have proposed a dividend schedule here as informed. We are investing in ways to make the company even more profitable. Hopefully, we are investing in ways to look at 5, 10 years ahead and see what broader strategic opportunities we may have. And I think that encompasses a lot of interesting things that confirms that we -- first of all, confirmed with the growth we don't give dividends if we don't trust that there is continuity in that. We do see that cash is needed to invest in the supply chain somehow right? And we do see that we need to make ourselves ready with some cash and potential strategic movements.

We are at 33% into Q1. How do you see the revenue developing going forward? Do you have any indications about the product intake going forward?

Similar to the question we just had. So we're looking positively for the year. We have seen -- we're not disappointed at all with the start of this year. What happens in the quarter will depend on how things end up, but a shift between quarters, something rather than anything else. We're not concerned on an overall level.

What does the dividend policy look like?

So this time was 44% of revenue -- sorry, earnings that was proposed as a standard dividend. And I think the company will take appropriate measures every year to balance that between what I also presented was strategic efforts as well as investments that can provide higher value to the company by operational needs. So it will be -- I mean around the number you have seen that would be expected. We were not -- were told through. So this is a level that around that, we would expect to see it coming forward.

Could you shed some light on the next strategic phase of development that was announced?

Yes. Selektope is a very unique molecule, right? And as a unique business model, that's very difficult to mimic, of course. But we also understand how good and how strong the product and then the selling points that comes with it are every product at some point have some sort of lifecycle peak, right? And although this industry is super sticky, and it takes a long time to see that, we also need to acknowledge that any other effort will also be quite long term. So that's why we're looking into marine coatings in general, on exploratory level, I should say, it's not pinpointing specific opportunities at the moment. But we do see our capability as I-Tech being quite well known. We're good in scaling interesting technologies that sometimes end up on our desk anyway because we are associated with scaling up interesting technologies into this marine coating industry where we know the customer, we have the coating experience from our lease side on the regulatory side, and we know how to build brands and how to bring things forward in a very lean way, which is maybe not possible in a larger context or in a start off, right? I'm not saying that we're going to go into unnatural things. But I think we are in a position here and we're exploring a bit further. And if that is validated to be interesting, we will start to make some activity in that direction. For now, it's in the assumption, and we're looking deeper into it in the next 2 quarters here.

Could you give us some color on the shipping industry's profitability at the moment?

I cannot give much more than what we spoken really self out there. It is a challenging industry. Some segments are doing very strong, some are falling behind. This is always in shipping very rare you see all different ship types or cargo types doing really well at the same time. We are now the prices with rerouting around Africa as opposed to other quicker routes for geopolitical issues. That is obviously putting pressure on the whole system, I would have a logistical super challenge all around the world for the industry as such. And what we've seen before that comes with the hiccups in the earnings and the pricing and the cost of operating a ship and all that. So let's see, as far as a good global GDP growth, shipping growth as long as we maintain a global view on trade, shipping will grow. And I believe that's what we have to do. But yes, there will be quite some ups and downs with what's going on in the world right now.

The last question, is the regulatory situation in Korea stable?

The regulatory situation in Korea depends on where you are, but yes, stable. They -- I think this question relates to the 1% indication or proposal that Korean authorities have put forward 1% means that no buy side in the paint can be those at higher concentrations than 1% by weight. Every buy side it's Selektope is dosed at much higher than 1% by April weeks. So in that sense, it is putting a lot of pressure on the coating industry. And so far, regulators standing firm for what I understand around this proposal, I think there will be great periods. I think 2026 will maybe be a great period for 5, 6 years until the final solution is put in place. But I don't see any -- I haven't heard any shifts in that direction, although a lot of lobbying is going on. Then on the other side of entering the K-REACH or K-BPR implementation as we speak and for marine and towing substances of niche character that's something that would come into play in 2029. That has been known for quite some time. So that's a re-registration phase in Korea 2029. That's the total things that needs to be known about regulations in Korea.

Then I want to thank you, Philip, for your presentation today. And I want to thank you all that tuned in today's presentation. With that said, thanks, and bye.

Thank you. Bye-bye.