I-Tech AB ($ITECH)

It is early afternoon and we continue to dive deeper into today's reports release. Now we shift our focus towards I-Tech, who during this morning published their report for the first quarter of 2026. And standing next to me is Markus Jönsson, who is the company's CEO. Welcome.

Thank you very much, Mike. It's great to be back.

It is good to have you back. So you will give us a short presentation and then I'll return to ask a few questions.

Indeed. So firstly, then for those of you who are sort of experiencing or meeting I-Tech for the first time, just a brief introduction before we jump into the numbers and sort of the outlook going forward then. So the space that I-Tech is operating in is today marine transport. So our sort of innovation space, you could say, is this statement here. What if 1/3 of the global fleet of 110 (sic) [ 110,000 ] commercial vessels were using 36% more fuel than needed even just for 1 day. What would that actually mean for operating costs and emissions? And the fact of the matter is it is this bad, right? This is actually our data when indocking ships coming in after 5 years of service. They are using too much fuel. And it's the effect really of biofouling on the ship's health. So essentially, when a ship is submerged under water, organisms start to grow on the ship hull. And in the beginning, it's typically slime. Later on, there could be weed and also then different hard fouling species like barnacles, for instance. And this significantly increases ship's fuel consumption. And of course, that is impacting, you could say, operating costs, but also then elevating sort of the emissions of CO2 and GHG gases. So really having good biofouling control is an important topic. And that's then where I-Tech and our product, Selektope comes in, right? We help the ship owners and ship operators to reduce their emissions to air. We help to predict marine ecosystems because biofouling on ship's hull is actually seen today or viewed as the #1 source for transfer of invasive aquatic species and we need to protect our sensitive coastal environment. And lastly, what is also important is that we want to reduce the emissions to the sea, to the oceans. And here also Selektope presents a very sort of great innovation in terms of how much chemicals are actually emitted to the ocean. So briefly on I-Tech today then. We believe we have a very scalable business with plenty of additional potential. So we have a unique technology and we possess sort of intellectual property in terms of patents, but also, you could say, know-how in terms of formulations and coating developments, et cetera. We are an asset-light company, so our production is outsourced. So the company today mainly focuses on sales and marketing and innovation. In terms of market penetration, then we estimate that Selektope is today present on around 3,500 ships out of the global fleet and of around 110,000 commercial vessels, as we said in the beginning. So plenty of room for continuous growth. And this is the development that I-Tech has had since the IPO back in 2018. So a really solid growth journey and we see that also is continuing for now, right? So without further ado, then let's dive into the Q1 results. And hereby, I will hand over to our CFO and Head of Operations, Magnus Henell.

Hello, everyone. Yes, it's nice to be here again, and it's also nice to be here presenting a good result. And before Markus continues to discuss the outlook further on, I will dig in a little bit through the numbers. As you -- as Markus said before, we have had quite interesting growth from IPO until 2025 with a small hiccup during 2025 with some lower volumes. And as you can see on this graph up here, 3 out of 4 quarters during 2025 was actually significantly lower or at par with the previous quarters, the year before. So it's really good now to see that we can come back with actually a growth, both in terms of volume and in terms of currency adjusted revenues. We are losing 7% on the top line in Swedish krona, but that is mainly the exchange rate. Well, it's, in fact, only exchange rate. And the growth and the base that we are working on with our customers, it is solid. Amongst our largest customers, we have a very solid base and we have significant growth with the smaller ones. And as we discussed last year, we had 1 customer that took significantly lower volumes than the year before. They are now back on a more normal level for this quarter, which then means, as I said before, on the top line, we lose 7%, but we gain equally much in Swedish krona on the gross margin because that is also significantly improved. And that is -- the main effect of the gross margin is the continuous work with our producers, but also the customer mix. It's a little bit more of the more higher revenue customers for this quarter than for the previous ones, which then coming back -- coming down to the sort of the more main profit, EBITDA and EBIT, we are strengthening them a little bit, SEK 1 million up on the EBIT level, significantly on the margin level, we are going from 35% to 39% for this quarter. So a very good quarter financially. What we can point out is actually what you see in front of you as well that the operating cash flow is significantly lower than last year. One main effect is that now when we use all our tax benefits, we're actually starting to pay the taxes. So the main effect here is that we had almost SEK 10 million in tax payment effect from previous year coming into this year. So it's a little bit more normalized cash flow. But on the other hand, also we had quite much more revenue coming from Korea, which I will talk about the next slide, where we have a little bit longer payment terms with our distributor there than we have in the rest of the world. So that is also one effect for the cash flow this quarter. And coming into the geographical spread, you can see that Korea's share has increased quite significantly. It's both due to the second largest customer, but also to our main customer, CMP who has also higher growth -- higher sales in Korea than previous quarter last year. The other regions are a little bit lower in terms of volume, but I would say that, that's mainly a distribution in time effect over the year. It's been a positive development also for these regions. But I think Korea is really sticking out on this quarter. And now we also look into the small highlights, if you say so from the financial part, of course, the growth being back on a growth path again is really wonderful to stand here and present for you. The diversification amongst our customers is also very interesting that we are continuing to diversify the customer base and with the strong sales in Korea and of course, our margins. We should have high margins. We're having high margins. And hopefully, we can continue to have high margins. On the gross margin, Markus will come back to some issues that might soften that a little bit in the coming periods. But in general, it's been a very nice development for the quarter. So then I'm leaving over for Markus again to take on the outlook.

Thank you very much, Magnus. Very great numbers indeed, and happy to be able to present that today. So a little bit on the market outlook then. Our sort of familiar viewers, you have seen this slide a number of times, right? But it's just to explain the market potential as we see it, right? So every year, approximately 2,000 new vessels are being built. But at the same time, then this fleet of 110,000 commercial vessels, they need servicing, right? And they have to do that at least every fifth year. That means that there is roughly 20,000 dry docking events happening each year. So the dry docking, the maintenance segment is the big segment for I-Tech to focus on going forward as well. The opportunity for sort of sustainable antifouling solutions, we estimate to be roughly in the range of USD 300 million to USD 500 million as a gross potential. The graphs in the bottom just showing you the split between the different markets. In terms of new build, China is dominating with more than 60% and actually have increased, you could say, the share of new orders also now in the first quarter of 2026. So they're really dominating then followed by Japan and Korea. And probably that order has been reversed this year as well in terms of new orders anyway. Also for the dry docking for the maintenance segment, China is dominating. And here, you can see that it's other Asia, including Japan, but also Turkey and to some extent, still Europe has a role to play in the maintenance segment. So that is sort of the gross market potential as we're looking into and a little bit of explanation. If we look at the outlook for shipping as such, we talk about -- you could say both about the earnings for the ship owners and the ship operators, but also then on the activity in terms of new building. And there, of course, we are specifically tracking new orders, sort of new ship orders that are being placed because it's important to see then in the future, what would the market be like. So if we start with the ClarkSea Index, which is sort of a measure to see how well paid are the shipowners for their shipping goods. And here, we can say it's up tremendously in the first quarter this year. And that sort of solely comes as a consequence of the uncertainties and sort of in the Middle East. So it's the tanker segment and crude tanker segment specifically that have seen really increased charter rates, right? So the price of shipping oil has increased tremendously. The other charter rates are more stable. So you can say that, that has not moved so much in Q1. If we look at the newbuilding and the contracting of new vessels, we can see that, that has also actually hit a 17-year high as the activity or new contracting activity rose 40% year-on-year. And this has been driven, you could say, by a tripling of new tanker orders. So at the same time, as charter rates have increased, also the number of orders for new tanker vessels have increased. And also there has been a rebound in the LNG contracting, LNG tankers. So Chinese shipyards, they continue to advance their positions. They really got the lion's part of the new contract. So 70% of these new orders actually landed in Chinese shipyards. Korean yards captured another 20%. So they also had a strong start to the year. And if we look sort of going forward for this year, it's the geopolitical issues overall, you could say that remain one of our major risks to the growth momentum. And we'll come back to that in this slide that is [ Asia ] here. So essentially, what is happening now that we are in a tightening supply situation when it comes to crude oil, but also all the derivatives of crude oil. So essentially, all the chemical raw materials that is needed, you could say, on one hand to build ships, but also then to produce the antifouling coating that ends up on the ship. And this has been covered now as well, right? We see, especially in Asia, really a crunch in terms of the availability of raw materials. For I-Tech, it's not so much an issue of availability since we are producing quite low volume. But on the other hand, we are hit by tremendous price increases on raw materials. And that's what you can see in the graph to the right here. So you can say -- you see that raw materials have steeply increased, indexed, you could say, at 140 compared to 2023. And coming back then to what Magnus was saying, so we have been able to negotiate, you could say, better production fees. But of course, this is impacting our total production costs as well going forward. So measures will have to be taken then from our end going forward. So we come to the reregistration process of Selektope in the EU. And this is also a long runner here. And what has actually been news, and we released that this week is that the standing committee on biocides has actually made a written procedure, a so-called voting in writing to extend the current approval of Selektope to the end of the year, so December 31, 2026. It was actually set to expire now in the end of June, but we can see then a proposal for nonrenewal has not been discussed in the committee, and they haven't initiated the final stages of the process, which is inter-consular services and the WTO TBT process, which has not started. So it's mentioned then as a way to be -- you could say, to have the time necessary to conclude on the case. We, of course, view this as very positive because that gives us a sort of an extended time line, of course, to influence the outcome. And of course, the standing committee on biocidal products, they will have more time to review all the input and the data that have been put forward. And also I-Tech, we are commissioning a new and an additional safety study to try to iron out and solve some of the unsolved issues on the science part, right? So the data available for the assessment of the safety of Selektope. So that is very positive. If we come to the business development pipeline, it's also been something we talked about throughout the last year and which has continued to advance in this year. We are looking into complementing technologies such as additional active ingredients, so additional biocides that could be complementary or synergistic with Selektope, but also other additives like -- and also like binder materials that represent also a significant part of the formulation cost of our customers. We announced in December a new collaboration with Havey and those discussions have advanced very favorably and in a positive direction. So we hope to be able to talk more about that during this year. We are also exploring, you could say, additional market segments like aquaculture and the yacht market going forward and also looking into new and more innovative business models. So all in all, we hope to be able to share more information about this during the course of this year. So wrapping up and then coming to the business outlook. So we definitely foresee the need for price adjustments as a response, you could say, to the escalating raw material price situations. So that will be a theme for this year. As I already said in terms of new strategic partnerships regarding technology and business development, we definitely aim to have more news here throughout the year. And of course, a continuous strong focus then on advocacy linked to regulations, not only in the EU, but sort of we have a number of ongoing cases also in the U.S. and New Zealand and other places. So more work being done here. And also, we have been welcoming new team members in I-Tech. So we are growing the team, and that's essentially to be able to grapple with all the new activities that are ongoing at the same time. So that was in short, you could say the presentation. Now we really look forward to the questions, Mike.

Yes, very much. So thank you very much, Markus Jonsson and also Magnus Henell and there's a lot of activity in the chat, and I'll try to balance both questions here. But first of all, you're delivering a record quarter for I-Tech relative to your volumes sold, but despite this net sales dropped 7%. You mentioned that this was due to currency effects. But is it solely due to currency effects? There's no sales per volume metric that also been affected?

No. I would say it's only the currency effect for this time. And if you look to it, we have a 13% degradation of the U.S. dollars compared to Q1 last year. So it's been quite stable for Q1 this year, but still when you compare the quarters between them, you have this 13% degradation and that comes directly into the effect on the top line, unfortunately.

And moving further down a little bit in your P&L, you reported good margins as well. Gross margin increased to 60% operating margin, 35%. Magnus during the presentation, I believe you heard -- I heard something about margins maybe softening in the future. What would cause that?

Yes. But as Markus explained, we are now looking into a quite turbulent world market on crude oil and all the derivatives from the crude oil. And we anticipate that we will have higher production costs moving forward. We're also anticipating to take some of the effects of that from the customers, I would say, and increase prices towards them. But I'm not looking for a huge amount of percentage, but some small percentages dropped, it could be for the coming quarters. It's not written is still, but we need to bring it up. But compared to previous year, there should not be any major effects.

And Oskar also asked the increased production costs, that's something that you're already noticing? Or is that ahead of time?

That is ahead of time. All the production, and you can also see that on the gross margin because we haven't been able to increase the prices towards the customers for the first quarter. And of course, you see that we have a very good gross margin. So that is ahead of us. Yes.

And in talks of also raising potential prices to clients, what is the price -- how would you describe the price elasticity?

Yes. So I would say, in normal circumstances, price increases are quite challenging, right? Because, of course, we are talking about long-term contracts, new ship orders have been placed, et cetera, right? Maintenance market is more fluid and it's maybe easier there in general. And then, of course, we have commitments, you could say, to our customers. However, the situations right now are quite extraordinary as a consequence really. And we see that sort of also from our customers, right and downstream of us, people are implementing price adjustments simply to be able to cope with the situation, right, to be able to have material to offer to the customers and to be able to complete the projects, right? So I would say there is also a general understanding that price increases will have to happen throughout the value chain as a consequence of the uncertainty. And even if we have sort of some sort of a conclusion to the existing situation, right, we have created a backlog of issues, right? This will take months to sort out in any case, right? So even if we take sort of a very positive development from now onwards, right, we're talking months of turbulence still in the market before this has settled, right? And we are sort of back to more normal levels.

Do you see any significant risk that driving prices up will decrease volume?

That could be a risk. I see more is a risk that we mentioned in the market outlook, right? Simply that our customers are unable to source the appropriate amount of raw materials because it's not available. So they're actually not able to produce the amount of antifouling coating needed to satisfy the customer, right? I see that as more of a risk, right? But of course, you're right, there is, to some extent, that risk as well.

We'll talk more about the raw materials soon. But before we do that, a viewer asks, please, could you explain why receivables increased so much? Are you extending credit terms to your customers? Or are customers taking longer to pay?

No, we're not extending payment terms, but we have longer payment terms with our Korean distributor. And since the share to Korea increased from a little bit more than 30% up to 45% for this quarter, that will, of course, have an effect also on the credit base.

Last time you were here presenting your Q4 report, you talked about your significant client that decreased their volume during the fourth quarter due to financial difficulties. How has that situation developed?

Well, I think as we mentioned, we saw a stabilization of the order patterns during Q4 already last year. And as Magnus alluded to here, we've seen quite a strong start in the beginning. So I mean, they are back to more normal levels now as we would have expected.

And Oskar asked, do you expect that the second customer's demand is now more normal or stable during the last month? And I assume that the second largest customer is the customer that is [indiscernible].

Yes.

All right. Good. And then continuing on to Oskar's question, he also asks this one. If you have to choose one, which market is the most important for you in the coming 2 to 3 years?

I mean all our markets are important to us, right? But we have obtained quite a strong position in both Korea and Japan, right? So we talked about it, I think, in earlier shows as well, right, that China is our #1 growth market, right? And penetrating, you could say, the maintenance segment. So if you say China and maintenance segment, these are the key growth areas for us, right, for Selektope going forward. So we, of course, value Korea and Japan, but we need to grow more in China definitely going forward.

So interpreting that then you're choosing growth over stability when choosing more money?

Yes. No. I mean, stability is the base for growth. So of course, like I said, right, our existing customers and the markets are really important to us, right? But in terms of unlocking additional growth, we will need to put additional resources and focus on specifically China and the maintenance segment going forward.

Let's talk about then the Middle Eastern conflict and its consequences. You described in the report that the conflict has affected tanker contracting during March. So far into Q2, how has that developed?

Well, it's difficult to say how it's impacting, you could say, new building contracting, right? There's typically a delay here. Like we say in the report, we saw a decrease of sort of new orders coming in throughout March, right? But we will have to see the April numbers are not really out yet to our knowledge, right? So I think if there was really a surge in new contract, you could say, in the beginning, right, for tankers. So I would expect them this to normalize a little bit throughout the year, right? Of course, it's an aging tanker fleet. It needs replacing. And of course, they need to meet up to renewable fuel criteria going forward. But also, I would expect sort of the levels to be more normal going forward in this year. But let's see.

And there are also concerns how oil availability and chemical raw materials will affect the shipping sector more long term in the aftermath here?

Yes, definitely. I mean, in terms of availability, right? I think short-term positive benefit for operators of tankers, right? They, of course, can charge more for transporting oil, et cetera, right? But as we talked about here, sort of the big crunch and the availability of raw materials is, of course, affecting the business negatively. I mean, if you talk LNG or liquefied natural gas, right, here, we know that there are ships sort of idling at the moment because they don't have business, right? The production I think has dropped so much that they do not have business. So there are many impacting sort of -- or yes, parts of the shipping business being impacted of the consequences in the Middle East. Of course, from our perspective, we are worrying more about the availability of raw materials and the ability of our customers to satisfy the shipyards need for antifouling coating because that will directly impact our business.

Maybe I should point out that it's not the availability of our production of the raw materials. It's mainly the binders and everything that you need to put into the paint where we see an effect of.

Precisely because the question a viewer did ask what specific raw material would be impacted? And can these raw materials also be sourced from other regions?

Well, typically, it's solvents, right? That's one that's been talked about, but also the raw material for binder production. So I mean, that's the problem. We live in a global world, right? And 20% of the available output has been sort of reduced significantly, right? So -- and it's not only the oil coming out of the Middle East, right? It's all the chemicals as well, right? And of course, you could say there is a possibility for chemical industries in other regions to fulfill the need. But if there is an overall lack for crude oil, of course, then there is a lack of crude oil, right? And it doesn't matter that you have free capacity to turn it into solvents if the oil is not available. So it is -- if this continues throughout the year, it could be quite severe consequences. And of course, not only for shipbuilding, but for all businesses actually right.

And to circle to the oil then, low availability and high prices, couldn't one make a case that, that would benefit you considering you're drawing down -- you're helping clients drawing down their oil consumption?

Absolutely. And also, there are a lot of ships idling at the moment, right, being exposed to biofouling. So after this, a lot of ships would have significant fouling problems, right? So of course, the ones that have invested in good antifouling solutions would have lower operating costs, right? So definitely.

Let's talk about regulations then. The EU has extended their approvals to Selektope to take further time to finish their ongoing process. Date is now the 31st of December. How do you view this decision?

Well, as I alluded to there in the presentation, it's quite positive, right? I mean, although you could say that the extension is sort of expected due to the process, right? They do not have enough time, you could say, to complete the necessary steps of the process, right? So they had to extend it in any case. However, the positive side of that is, of course, there is more time, you could say, to consider the input that has come into the process. And there is more time, of course, and to generate support for, you could say, a more thorough evaluation of the product segments of antifouling, right, when it comes to all our products, not only our product, right, but the others in this product category. So we view it as quite positive, right? It gives more time to influence the process.

Possibly a very difficult question, but the decision to push up the final decision date, has that changed your expectations regarding the final decision?

I think it's too soon to say. I mean, it's still a lot of uncertainty around that, right? I would say it's not negative. Let's say that at least, right? So slightly leaning towards the positive, of course.

That was all my questions, but we have many more viewer questions. We take them one by one. First of all, can you share any information about new products that are being developed?

Not really at this point, right? We will come back to that throughout the course of this year.

Next question is, what is the estimated market share of I-Tech breakdown to new build and dry bulk?

Yes. So we look a little bit at our market then. So if you take Korea, for instance, our sales to Korea, this is predominantly new build, right? So all that volume tends to go into new build. In Japan, it's more of an even split. And the same, you could say, goes for our sales to China. So we typically say around 60-40, so 60% new build, 40% maintenance. Of course, with a rising trend, you could say, on the maintenance side, right? But that is simply it's a 10x bigger market. So it takes a longer period of time to grow that share significantly.

Next question is, can you elaborate a little bit on EOGRT that you're conducting? What is the timing on this? And how long will the study take?

Yes. This is, you could say, a complex and long-term study, right, because you essentially study the effects of the chemical onto test species, right, over generations. So you simply -- you look at sort of the offspring of that and what happens to that offspring, et cetera. So it's multi-generations. I think we are counting on approximately 2 years to complete the study as such, right? And long time, complex study, of course, quite costly to do as well, right? But we are happy to do it as well, right? And sort of it's mainly for other regions that we are doing it, but of course, it's useful in the EU context as well. We hope that, that sort of can really shine some light on the remaining uncertainties, right, of the effect of Selektope. Is there an endocrine effect or not, right? And of course, we are arguing this is -- there is not a detrimental or a negative effect on the endocrine system. But to be found out with the study.

About to read up the last question from Laura. But as I do, I would like to also remind the viewers that if you have any more questions and please post them in the chat. So of the 9 major paint companies, 2 are still in development stage. Is there any update on commercialization timing for those?

Not really in terms of timing, but the customer #7 is sort of approaching slowly, we would say, to be more of a steady and regular commercial customer. But we are still not changed the classification. So we're still saying it's regular business to 6 out of 9 with an option of #7 and coming and joining soon.

One of the viewers also clarified, it was same you asked a question about the market share. How much do you estimate the market share of I-Tech in the maintenance out of the entire TAM, same for new build?

In general, we estimate around 3% to 4% of the total market share. And as Markus said, approximately the maintenance market is 10x the -- so I would say 0.3% to 0.4% of the maintenance. And well, I don't do the math that fast now, but a little bit higher on the new build side.

New question from Laura. You mentioned some hires during the quarter. How many additions should we expect over the course of the year? And how should we think about the operating expenses trajectory for the rest of the year?

Yes. So we are bringing on 3 new full-time employees, you could say. That's the plan for this year. And of course, that situation can be updated throughout the course of the year. But currently, there is no firm plan. So that is the added effect that we see now. And maybe you want to talk.

Yes. But if you talk in general on the operating cost, of course, we have the entire EU situation, which have driven a little bit more cost during Q1 than Q4. So -- but it's actually a matter of how much that will drive, I would say, how much effort we need. And of course, we're coming into the study to this endocrine disruption study. that will take significant effort. And we have spoken about it before that it's a SEK 10 million study over 2 years. So we said it before, so I can say it now as well that we take half of this year, roughly.

That was all the questions I had and from the chat. But Markus Jonsson and Magnus Henell, thank you very much for being here presenting and answering our questions.

Thank you very much.

Thank you very much.