LiqTech International, Inc. (LIQT) Earnings Call Transcript & Summary

Hello, everyone, and welcome to LiqTech's 2021 Analyst and Investor Meeting. As you can see, today's event is being held virtually. My name is Robert Blum, Managing Partner of Lytham Partners. I will act as your moderator for today's event. We'll conduct today's event in 2 sections. The first will be a series of presentations by management, which Sune will provide a detailed overview on each of these shortly. Second, we will conduct a question-and-answer section immediately following the management presentations. [Operator Instructions] You should also note that a replay of this event will be available following the conclusion of the live event accessible on the Investor Relations section of the company's website. I'd like to remind you that the presentation today includes forward-looking statements. Although the forward-looking statements reflect the good faith and judgment of management, forward-looking statements are inherently subject to known and unknown risks and uncertainties that may cause actual results to be materially different from those discussed during the presentation. The company therefore urges all viewers to carefully review and consider the various disclosures made in the reports filed with the Securities and Exchange Commission, including risks that attempt to advise interested parties or the risks that may affect the company's business, financial condition and sales of operations and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, the company's actual results may vary materially from those expected or projected. The company therefore urges all listeners not to place undue reliance on these forward-looking statements, which speak only as of this date. The company assumes no obligation to update any forward-looking statements in order to reflect any events or circumstances that may arise after this date. With that, I'd like to turn the presentation over to Sune Mathiesen, Chief Executive Officer of LiqTech International. Sune, please proceed.

Thank you very much, Robert. And a little bit strange here today, Robert joining us from Phoenix. And as you can see, we are here in our manufacturing site in Hobro, where we do the systems manufacturing. Sorry that we couldn't meet in person for this investor meeting. I really, really hope that we would be able to do so. We are looking forward to meeting with all of you, investors, very soon again. But unfortunately, we have to do it in the format. And I think where we are situated today is the right place to be. It's in the engine room of the company and where we do the systems manufacturing. I think we have an exciting day lined up for you guys. We -- I've been looking forward to speaking with all of you. And I'm very pleased to be joined by my team here today. And the team today is, besides myself, Casper Hadsbjerg, our Group Chief Commercial Officer, who recently joined the company back in December last year. So he has not been with us for a very long time. Casper joins us from a big Danish company held at Haldor Topsoe where he has extensive experience in working with emissions control, both in land-based solutions, but also in marine and automotive. So very excited to have him on the team. We also have Haris, our Head of Innovation. He has been with the company for some time now and heading our R&D efforts in our ceramics business. So excited to have Haris speaking with all of you today and explaining you about the development that we are undergoing in our ceramics company. And then finally, I'm joined by Kenneth as well, our Strategic Alliance Director, who has also been with the company for some time. He presented on our last Analyst Day back in January 2020. But today, he will update you on our progress in oil and gas. And that takes us to the agenda. We'll do a business update, that will be me. We'll talk about market trends and outlook in the Marine Scrubber market, which will also be me. Then we will turn the word over to Casper who is also unfortunately joining us from back home. He has been in close contact over the weekend with a person diagnosed with COVID. He is perfectly fine, but we are following our protocol, and he's self-quarantined, so he will be speaking with you from a webcam in his house. Casper will talk about the marine industry in general, the environmental footprint that we see from the marine industry. He will talk about current and future mandates that we're expecting. He will talk about the addressable market opportunities, both now but also in the future. And then he will talk about the LiqTech solutions, both the ones we are providing now and the ones that we're looking to provide in the future. He will turn the word over to Kenneth who will give you an update on our oil and gas business the environmental and technical challenges in the business. He will talk about our experience, the addressable market opportunities that we're working on both now, but also what we see happening out in the future, and then finally, what is the solution we're providing, why does it make sense to choose LiqTech if you're an oil and gas company. And then we'll have a presentation from Haris, talking about our silicon carbide technology the advantages and the applications that we are addressing, that we have been addressing and the ones we think we'll be addressing in the future, but also about the development process that we're undergoing. As all of you remember, we started our silicon carbide technology development in 2006, and we spent 8 years developing that technology. And we're just getting to the stage where we're commercializing it. Now we have the next new generation membranes, the hybrid membranes technology, that we have been developing only for 2 years, it's already ready for market. So as you can see, we are speeding up our process when developing new technologies. He will also talk about future developments, what are we looking at now, what's the next step for our ceramic technology. So very excited to see that presentation. And then finally, I will be back with you talking about current market opportunities that I think that LiqTech has come to an inflection point. I'll explain what I mean. I think we are right now in the most interesting part of the history of the company. We have gotten to a point where we see real commercialization of our technology, and I'll explain why I think that, and also, what's the outlook for this year, but also for future years. And then finally, I'll be back -- I will talk about focus markets, the ones we're focusing on now, the ones we'll be focusing on in the future. And then also touch on an exciting point that we announced this morning, a further expansion of our ceramic manufacturing capacity. As you all remember, we quite doubled our capacity last year in 2020. We installed 4 new high-temperature furnaces, taking our capacity to $150 million to $200 million for systems manufacturing. We now see enough quality in our pipeline, enough visibility to make the decision to further expand that capacity, but I'll come back to that later. But very exciting news, I think. If we look to the business update. Well, 2020 proved to be a terrible year for LiqTech. We realized revenues of $22.6 million, which was a decrease of approximately 31% compared to fiscal year 2019, where we had revenues of $32.6 million. All of that was related to COVID-19, unfortunately. There was a complete stop in the scrubber business. The shipyards were shut down. Our customers were shut down. And there was a big uncertainty about oil prices which caused new orders to be canceled -- or not canceled but delayed, and the orders we already had to be delayed further. What we are pleased to see is that fourth quarter revenues last year again increased. So we realized -- or we expect revenues of $4.1 million in the fourth quarter last year compared to $3.5 million in the third quarter. That is approximately a 16% improvement quarter-on-quarter. So hopefully, it looks like there's a trend upwards now. We think so. I'll dig into that a little bit later. Some of the highlights from last year. We successfully installed new furnaces and expanded our manufacturing capacity. We signed a joint venture agreement in the Middle East for oil and gas projects. And we completed the development of a patented ceramic hybrid membrane, the one that Haris will be talking about later on. We also completed the development of a new black carbon reduction product for the marine industry, which is the product where we see a lot of potential for this in the years to come. And we'll dig into details on that later on in the presentation. And finally, I think it's worth mentioning that the company is in great shape. Despite of a terrible 2020, we have a cash balance of $14.5 million. And again, we have 0 debt, so we are in very, very good shape. Coming back to the revenue, I think there's a clear trend here. So we had 2018 before the real breakthrough in the marine scrubber market, and then, clearly, we see in 2019, a big, big ramp. And that was the commercialization of our marine scrubber product really of our technology. And we had a small hiccup in the fourth quarter, which was due to manufacturing issues on 2 of the old furnaces that we now scrapped. But as you can see, we are back on track in the first quarter 2020, starting the year with a record quarter. And in all honesty, when we started 2020, we all thought that this would be a great year for LiqTech. We had a healthy pipeline. We had a healthy order backlog. And everything was looking bright. And then COVID hit in the first quarter of 2020. We actually already experienced the impacts from COVID back in February when it hit in Asia. Asia is our largest market for the marine scrubber products. And immediately, the phone stopped ringing, orders were pushed back, and we're trying to find out what was happening. And after a few weeks, we learned that there was this new disease around, and that was the reason for the slowdown. And we clearly see it, a slowdown to the second quarter. Second quarter was not -- it was a big decrease, but we still worked through some of the orders. Some of the shipyards in Europe was still open, so we actually still make deliveries. But we saw a big, big drop in the third quarter, which was the real effects from COVID. What I'm really pleased to see and what is worth noticing is that, fourth quarter, now, we are trending upwards again. And that is a trend for the future. We are expecting sequential growth throughout the year. We are still reiterating our expectations for 2021, even though the start of the year will still be affected by COVID-19, but we should see sequential growth in 2021 and beyond. If we look at the Marine Scrubber market, the current trends, the outlook in the market. Well, let's go back and look at the orders through 2020. So LiqTech was one of the early players in the closed-loop Marine Scrubber market. And that enabled us to build a very strong market position, be one of the key players in the industry. We have a proven solution that is compliant with current and future legislation. So not only do we comply with the discharge limits of today, we also comply with the discharge limits of tomorrow when we know that more and more harmful particles will be banned. Today, IMO 2020 is focusing on sulfur reduction. But in the emissions from a small stack on a ship, you have a lot other particles, harmful particles that are they being discharged into the sea, amongst those are heavy metals, PAH and many, many others. And we also removed that today. So the solution we provide is also compliant with the regulations that we'll see one year from now, 5 years from now. We work with some of the largest shipowners and scrubber manufacturers in the world. And we grew our market share in the closed-loop market from about 20% to about 50% From 2015 through 2020. So if we look at the total scrubber market here, well, then we know there are about 4,500 scrubber orders placed from 2015 through 2020, and we captured about 6% of those, and other open-loop was about 4%. So in other words, 90% of the market approximately has been open-loop scrubbers, 10% close-loop, and we captured more than half of those orders. If we look at the current trends, what's going on in marine. Well, it was a slow 2020. Many projects were delayed due to COVID-19, and we saw very low order activity. What is encouraging is that we now see improving market activity. We see an increasing number of new projects. We see an increasing number of new orders. And why is that? Well, it's because the fuel spread is biting in. The oil prices were hit tremendously hard by COVID-19, and it came down very significantly. The fuel spread between low-sulfur fuel, the alternative to a scrubber and the bunker fuel was actually a negative at some point and obviously not supporting a business case to install a scrubber. But we see the fuel spread is widening again. I have a slide after this that's showing where we are today. The market is also moving away from open-loop to close-loop scrubbers, and that's very important for us, because remember, on the last slide, we saw that 90% of the orders from 2015 through 2020 were actually open-loop. But now the market is moving towards close-loop scrubbers, and there are good reasons for that. One of the reasons is that 120 ports worldwide have banned open-loop discharge by now. One of the reasons is also that in November 2020, so just a few months ago, the European Parliament voted to out-phase and eventually ban open-loop scrubbers. So this has caused a big movement in the marine scrubber industry, and we see that about 50% of the new RFQs are now for close-loop, which is enormously important for us. If we look at the fuel spread, so coming back to the development in the fuel spreads. Well, to be IMO 2020-compliant, you basically have 3 alternatives. One, you can use alternative fuels, LNG or any other alternative fuel; two, you can use low-sulfur fuel; or 3, you can install a marine scrubber and continue to use the bunker fuel that they have been using before IMO 2020. And obviously, the business case between these 2 depends very much on the fuel spread between low sulfur and bunker fuel because that is really what is allowing to repay for the scrubber investment. And if we look to what is the needed. Well, to install a scrubber and have a healthy business case, you need about $70 to $80 price spread between the 2. Going back a year, we can go back to the end of 2019, then we see that the price spread was around $100 between the 2 per metric ton. And that really supports scrubber installations. This is where we need to be to have a healthy and viable business case, and this is where we were by the end of 2019. Then we see a big increase. Now the market is preparing for IMO 2020. And prices for low-sulfur fuel is coming up because there's more demand than there is supply. And we see a big, big peak here. And it comes up to about $270 on the top. And then here, COVID hits, exactly here. And we see a tremendous drop in the prices for low-sulfur fuel, and hence, the spread between low sulfur and bunker fuel. It even came down to a negative, which doesn't make any sense because bunker fuel is basically what is in the bottom of the barrel and low-sulfur fuel is a highly refined product. So that made no sense at all. It recovered. And then we kind of had a steady state throughout the year at a low level. And to explain why we had this, it's important to understand the impacts from COVID. COVID has meant that a lot of people are working from home. A lot of people are not taking their cars to work. They are not going on vacation, taking their car. They're not using a lot of fuel. So there's been an overcapacity in the refineries around the world to produce refined diesel. And low-sulfur marine diesel is one of those products. So it means that the price for refined products has been artificially low due to low consumption, not only in shipping, but also in the normal transportation business, so trucks, buses, passenger cars, everything. We are now seeing that the world is starting to normalize a little bit. We see that we are getting back to work here. We actually come into the office. They do that in a lot of other countries around the world. And it means that the consumption of diesel is coming back up. And this is what we see is happening now with fuel prices again increasing. And today, we actually have a spread of approximately $100 between the 2, which is supporting the installation of a scrubber. So that's why we now see a pickup in the activity in the marine scrubber business. So very important for us. If we try and size that marine scrubber opportunity, we try to kind of summarize everything here. So important thing. Market is moving from open-loop to close-loop scrubber systems. There are more than 120 ports around the world that have now banned open-loop discharge. In November 2020, the European Parliament voted to also ban and out-phase open-loop scrubbers. There is an anticipation of a near-term global open-loop discharge ban. And that means that all -- it means that all already installed open-loop scrubbers will have to be converted into close-loop. We also see a clear trend that end users are now requesting the most environmentally favorable solutions. So it means that big companies, international companies, they are requesting the shipowners to use the most sustainable equipment on their ships. And as I said before, we now see the 50% -- more than 50% of the new RFQs are close-loop. So if we look back to what is the world we knew before this year? Well, through 2020, there was about 4,500 scrubber orders. The closed-loop orders, they made up about 10% of that. So the addressable market opportunity for LiqTech, the total market was around $180 million. And remember, just in 2020 -- in 2019, we made $25 million just in that year out of that addressable market opportunity. I think that's pretty impressive. If we look at what is happening now, well, '21 through 2025, we think that there will be a total additional scrubbers expected to be installed about -- from 4,000 to 8,000. We also think that we'll see a close -- open-loop discharge ban, which means that there will be about 4,000 open-loop conversions. That takes our now potential addressable market to $3.2 billion to $4.8 billion, very big change from the $180 million we had just a year ago. So we believe that there is a potential in this industry of up to $4.8 billion for LiqTech in the next 4 years. And obviously, there's no way that we can even [ think ] about servicing all that. We currently have more than 50% market share. There's no way we could do 50% of that, but it's a much bigger playground. And I think that we are well-positioned to take part of that. We're working with some of the larger scrubber manufacturers in the world. We are extremely well-positioned. We're extremely well-known, so I think that we'll capture a fair amount of this. Today, we have more than 250 systems installed, which definitely makes us the biggest player in the closed-loop marine scrubber market. And having said all of this, I'm going to turn the word over to Casper, who is, as I explained before, joining us from back home. But Casper, please proceed.

So today, we'll start out with a short introduction. I'll tell you a little bit about who I am, then I'll continue with the actual topics. I'll talk a little bit about the environmental impacts of marine diesel engines, I'll dig a bit deeper into China, then I continue on to some of the solutions that we and LiqTech offer to some of the problems the world is facing with the marine exhaust gases. And then I'll finish everything up talking a little bit about the market potential, especially in China, but I'll also be looking out a bit more globally. Exhaust gas is some solids from engines. So whenever you burn something or whenever you burn anything in an engine, you will end up with a number of constituents coming from that combustion. So in the ideal world of complete combustion, you only have CO2 and you'll only have water. In the real world, you have an incomplete combustion, and that incomplete combustion of hydrocarbons will end up as Black Carbon, as organic matter, which is general particles and some amount of carbon monoxide the engine fuel and lubricant oils will also have additives. These additives will end up as sulfur, SOx, SO2 and SO3s and various other forms of metal [ particulates ]. The last part here on this slide is nitrogen. So of course, you use atmospheric air as part of the combustion, and nitrogen, that air, ends up as NOx in the exhaust gases. So why is this a problem? I mean talking about global warming and talking about the impact that all of our shipping industries have on the world climate. So black carbon basically absorbs light, so that increases global warming, so we're keeping in more the sun's energy. PM, or particle matters, in general can reflect light, which, in general, reduces global warming. PM, so particle matters, in general, increases cloud lifetime and the effectiveness of cloud, so there's also an effect there on the global warming scale. These exhaust products are not only harmful to the environment. They are also harmful to human beings. Starting out and looking at the black carbon and then particle matters, they're harmful to the human respiratory and cardiovascular system. Oxides of nitrogen, or NOx, is also harmful to human health. It's cancerogenic, it causes acidification, and it cause also inflammation. Sulfur, again, harmful to human health, respiratory and cardiovascular systems and causes acid rain. From a marine environmental impact perspective, if you look at this, one single large cruise ship will have the same carbon, CO2, footprint as nearly 84,000 passenger cars. In terms of NOx, it'll have the same impact as more than 420,000 cars; black carbon, the equivalent of over 1 million cars; and sulfur, a total of 6 -- 376 million cars. So there's a huge impact coming even from a single cruise ship. If you look at this from a regulations perspective -- if you look at that regulations perspective in China, China has been taking the lead on -- in reducing black carbon emissions on their land-based units and on their factories and on their power production. So they have this National Action Plan on Air Pollution, and actually reduced the PM 2.5 levels in China by 34% -- to 34% since 2013. As a result, China is no longer one of the top 10 countries in the world for particle matter pollution and exposure in the air. And we believe that China, to further reduce these PM2.5 emissions, China will go out and be one of the first countries in the world to enforce regulation on marine vessels. This huge environmental impact from our marine vessels have mandated governments across the globe to impose ever more stringent environmental regulations for ships. The European Union recently voted to ban open-loop discharge. Near term, we expect that this would broaden, and in the end, become a worldwide ban. In China, more than 120 ports have already now banned open-loop discharge. Same thing goes for most of the Chinese inland rivers and waterways. Further ships entering coastal and inland environmental control areas must carry 0.5% or 0.1% sulfur fuels, respectively, or employ -- or be equipped with an equivalent system of removing enough sulfur from the exhaust gas to bring it down to equivalent levels. Starting on January 1, 2022, ships entering these regulated waters of the Hennai Island will also drop down to 0.1 sulfur fuel or an equivalent to exhaust gas cleaning system. Black carbon. China is really taking the lead on Black carbon emissions these days. Through their National Action Plan on Air Pollution Prevention, China has significantly reduced its PM2.5 levels by 34% compared to 2013 levels. And by now, by 2020, China is no longer a top 10 country when it comes to PM2.5 pollution. China is extremely ambitious about their black carbon and PM levels and environment. So we firmly believe that China in the future will enforce ever more stringent regulations on particulate manner, and marine vessels are really next in line to be hit by these types of regulations. NOx regulations. So the NOx, China already imposes the MARPOL Tier 2 NOx regulations, which mandates that new ships with an engine capacity of 37 kilowatt hours and ships with in service with a capacity of 500 gigawatt will be limited to 7.7 to 14.4 grams of NOx per kilowatt hour depending on engine RPM. We expect that China will move to Tier 3 very soon. And then these numbers will drop to between 2.2 and 3.4 grams per kilowatt with the newbuild ships. On a longer perspective, if you look at the time line in the international mandates of the marine industry, so everything's basically started back in 1978 with Bilge water. In the 2000s, Ballast water came in, SOx and NOx came in MARPOL Tier 2. In China, MARPOL Tier 2 came in 2010s. And the increased black carbon focus in general in China was also in the 2010s. By 2020, that was when EU voted for the open-loop discharge ban scrubbers. 2020 was also the year that China adopts the same regulations for SOx on their coastal and inland waters as MARPOL Tier 3. We expect within the next 5 years that China will go to MARPOL Tier 3 for NOx. We strongly suspect that there will be a black carbon mandate to further reduce the particulate matter pollution in China, where we really believe that the shipping industry, especially because of China's large inland fleet, would be next. We also expect that black carbon will be regulated very soon in the active region, and it wouldn't be farfetched to expect that black carbon will be regulated worldwide before 2025. It's basically an industry moving towards 0 emissions. Looking at the Marine Solutions. So LiqTech history. LiqTech started back in 1999 with a lot of fundamental research in SiC, silicon carbide. Through that research and through that effort, we managed to develop, first, our diesel particulate filters. Using this technology, we also branched into being able to make SiC membranes, further developing into SiC systems in 2014. And really in 2018, we had a huge commercial breakthrough in water treatment systems and especially for the treatment of wastewater from open-loop scrubbers. As I said, we've been at it for a few years when we look at the new water treatment systems. The very first model was out back in 2014. And today, in 2021, we are marketing our seventh-generation wastewater treatment system. So marine scrubber and wastewater in a LiqTech perspective. We've installed more than 250 systems worldwide. We go in and we can guarantee compliance with IMO discharge regulations. We have a very consistent quality of the water that we treat and unmatched operational experience. It's a modular system, it's flexible, and it really is future-proof. And we have served additional post-treatment options that we can add to already installed systems. Application-wise, as I said, at LiqTech, we have very, very long-term knowledge of building and operating these systems. We have contracts with marine scrubber manufacturers . We have sold systems to shipowners. We've sold system to shipyards, and we have a very, very strong and very proven market solution. And as mentioned earlier, we have 250 marine scrubber wastewater system installations worldwide, and we are by far the biggest in this industry. With these 250 marine scrubber systems installed and with in-house capabilities, we're also now looking into converting open-loop scrubbers into closed-loop scrubber or hybrid systems. This is a market where we expect at least 4,000 installations to be in need of retrofit within the next 2 to 5 years. Our DPF systems. This is something that we have over 20 years of experience in doing. We have retrofitted more than 2 million passenger [indiscernible]. With respect to our ceramic filters, or SiC, diesel particulate filters, this is something that we have more than 20 years of experience in doing. We have retrofitted more than 2 million vehicles worldwide using this technology. It's an extremely robust solution. It's the second hardest material in the world next after diamonds. And we have millions and millions of hours of operation in these systems. It's a full one-stop system. There's really no after-treatment needed. This one, the DPF system catches all the particles. We can even make them catalytic, so it will catch NOx as a 2-in-1 double system. LiqTech in China. We have an extremely strong presence in China especially in the marine after-treatment segment. We have connections, and we have proven track records with shipowners, design institutes, shipyards and agents, and extremely strong reference list, both for scrubbers and for engine solutions. If we look at the opportunities that we see in this market, so there are these 120 ports that have banned open-loop discharge. We got this ban coming in. And as Sune also mentioned in his presentation, we see significant market opportunities within open-loop scrubbers. Basically, to sum up, an addressable market at USD 400,000 per system off of USD 180 million through 2020. 2020 through 2025, we're talking billions. So with all the systems that we expect to be installed, we see a market potential of USD 3.2 billion to USD 4.8 billion. Black carbon and NOx as an opportunity in China. So as I mentioned earlier, China is taking the lead on reducing black carbon emissions, and it's doing across all industry segments. The focus until very recently has been on land applications, on power plants and on vehicles. This is also -- this is something that's coming, and it's coming to the marine industry, and it's coming fast. So we expect Chinese regulations on marine by 2022. And if we look at that, with the amount of vessels -- amount of Chinese vessels currently in operation, China has around 10,000 ocean-going vessels. That's an expected addressable market of about USD 600 million. Chinese in-land vessels, there's a huge amounts of ships and vessels sailing up and down the China inland waterways, a total of 180,000 vessels. Of course, not all of these vessels will be equipped with a NOx or black carbon system. But even if only half of those systems will give one of those systems, we're talking a potential market of USD 26 billion. On top of that comes the growth of Chinese ships. So the number of ships in China is growing 8.5% per year, coming on top of all those existing vehicles and vessels that will need retrofitting. The markets for diesel particulate filters within the next 5 years. So there will be a significant retrofit markets. Our main goal will be to retrofit trucks and lorries and all these vehicles that are not on the road today. Historically, we've been extremely strong in that segment. And more and more regulation is coming in this segment. And with more than 5 million filters supplied over the years, we have an extremely strong foothold in this business to further grow. Furthermore, we also -- we're starting to get into an OES supplier, a market that has previously been closed for us, but with building strength in numbers, we are now able to address this market. Furthermore, as this market matures, a lot of the filters that have been sold early on or our competitors have sold early on are now ready for replacement. So there's a huge market opportunity as well in replacing old filters. Looking at the roadmap for our opportunities. Scrubber wastewater is now, then there's a whole open-loop scrubber conversion market, which is also, in fact, starting now. Particles, we already see a drive, and our customers are already asking us to partly fulfill this. For the marine industry, the market is now, but it will really be growing in the future. As MARPOL Tier 3 comes into place for NOx regulations, we'll have a very strong offering in our 2-in-1 solution for NOx and particle matter. What's going to happen in LiqTech? And our strategy for attacking these markets is that we want to grow our scrubber business, and we will be growing our scrubber business, talking to all of our existing customers within this segment, but also branching out to new customers. We'll be using our extremely strong foothold in the automotive black carbon business as a stepping stone into the marine market. We will also be using our existing contracts with scrubbers to leverage our black carbon removal technology. Once we're in there, step 3 will be to launch a catalytic plus black carbon dual action solution into the marketplace. To sum up very briefly. Regulations are here and further regulations are coming. LiqTech as a company, we have the technology that will solve this world's problems today and the problems of this world in the future. LiqTech is present in all the right places and all the places we'll need to be to grow our business within now and for the next 10 to 20 years. The market is there, the opportunity is there, and LiqTech has the technology, the presence to go in and be a major player in this market today and the next 10 to 20 years. Thank you very much. I will hand the floor over to our next presenter.

Hi. I'm Kenneth Johansen. I've been with LiqTech since 2007 and on the commercial side since 2010. Today, I'm going to present our status, our experience and outlook within the oil and gas industry. During this presentation, I'll go through the opportunities that we see in upstream oil and gas. I'll introduce you to our technology and our experience in produced water treatment. And as I said, finish off the presentation by status and looking forward. So in oil and gas, there are plenty of wastewater to treat. We have decided to focus on the largest stream of all of them, being produced water treatment. And to those of you who don't know what produced water is, it's a wastewater produced when you explore for oil and gas. You inject a lot of water, let you fall through the oil reservoirs in order to squeeze oil through the formations and to bring it to the surface. So you spend a lot of water doing that. And all this water resurfaces, and you have to deal with this wastewater stream. As of today, a rule of thumb is for every barrel of oil being produced, you have approximately 5.5 barrels of water produced. So this is a huge stream, and I'll give you some more numbers on that in a moment. Produced water is a hazardous wastewater stream. It contains hydrocarbons. It contains a lot of salts. So you need to deal with it before you send it to the environment. To give you an idea about what we are treating, there's a photo here on the slide showing representative feedwater sample on the left and the clear permeate after the water has been treated in one of our ceramic membrane systems. Furthermore, I would like to add that what you see here on the left is showing both conventional waterflooding, but also introducing the polymer flood at produced water. You add polymers as an enhanced oil recovery technique in order to squeeze more oil through your reservoir. As you can see on the graphs on this slide, the global oil production is about to be more or less stable over the next 10 years. However, the global produced water amount will increase by more than 50%. What you see on the slide is conventional onshore oil and gas production, and that's where we see LiqTech as our primary market. And you can see there is a continuous ramp from 2020 to 2030, sorry. The reason why we see this increase of water is that the oil reservoirs, they produce more water as they mature. So the ratio between oil produced and water goes in the direction of much more water. You can treat this produced water in conventional setups with primary treatment and secondary treatment consisting of de-sanders, separators, hydrocyclones, flotation units. However, there is a demand for more efficient cleaning of the produced water. So a tertiary treatment step is added. And this is where we see the LiqTech ceramic technology being applied. The reason why we want to offer this tertiary treatment is due to new environmental regulations. It's due to geological restrictions in the reservoirs. And it's because there's a local water scarcity. So there's a clear drive to have more the wastewater treated and reuse it in these reservoirs. So this, combined with the environmental regulations, local restrictions for water, the excess amount of water increasing over the next 10 years, that's a clear opportunity for LiqTech to engage with. So why is that we have an opportunity with our technology? Basically, it is because we offer mechanical filtration of the produced water compared to the conventional treatment technologies out there. We are applying a membrane or a filter with a very well-defined pore size so that we can remove much finer particles, much smaller oil droplets than what conventional technologies they can do today. And this is exactly what the industry is needing, because with the conventional technologies, they are limited in the opportunity to continue to discharge the produced water into the environment. They are limited in reusing the produced water to reinject it into the reservoirs. And they really cannot reuse this produced water coming from the conventional treatment setups today. So with the ceramic membrane from LiqTech, we are able to remove total suspended solids to less than 1 milligram per liter. The same for oil and water concentration, it's typically less than 1 milligram per liter. And that's more or less 10x better than what you can do with conventional technologies out there. Another clear benefit for our technology is, again, 100% that passes through the filtration system will be treated. That's not a guarantee if you apply conventional treatment systems that rely on filtration principles or density-different-based separation. So within the application produced water treatment, you see surface discharge. You need to overcome a certain criteria to meet environmental legislations; the reinjection part to facilitate reuse of the produced water to reinject it and other purposes like desalination of the produced water to use it for cooling systems, agriculture or other purposes. And I've also added in brackets enhanced oil recovery, polymer flooded produced water, because that's something that we see more and more coming up. And that's clearly an opportunity for a ceramic membrane where conventional systems, they are even further challenged. So these objectives, they are possible to meet with a ceramic membrane from LiqTech. And then you could ask, is it possible to use other membranes to achieve the same performance? And we would say actually not, because for this application, you need a very robust material. Silicon carbide benefits some material from the fact that we have complete corrosion resistance over the complete pH scale. We have temperature resistance. We have a very abrasive resistant product. Silicon carbide is also known as carborundum used for abrasive tools. So that again helps to ensure a long lifetime of the membrane product, keeping down the total cost of ownership. And in addition to these mechanical robustness characteristics, silicon carbide also offers the highest permeability of any membrane material on the market, which, again, means we're able to have the highest throughput, the highest capacity of a system with silicon carbide membranes compared to a conventional membrane system. The higher capacity means that we are able to reduce footprint of the system and/or to reduce the energy consumption of the system. This is significant because the volumes there are quite large, and energy consumption is also a factor in the comparison here. The last good reason to use the silicon carbide membrane is the fact that the material is extremely hydrophilic. It means that oil is being repelled from the membrane surface. Again, that leads to less fouling of the silicon carbide membrane. It gets less dirty. That means, again, we can maintain a higher production capacity. We spent less chemicals to clean the membrane, and that's clear good reasons for the operators. The LiqTech experience in produced water treatment dates back to 2009 when we were invited to participate in the pilot study by Shell in the North Sea. They had a challenge to meet the OSPAR discharge regulations to meet the oil and water concentration of the overboard water. So they challenged 16 different technologies, from conventional to membrane technologies. They actually had 3 membrane suppliers participating in the project. And at the end, the LiqTech membrane was selected out of the 16 to be integrated in a full-scale system, which happened some years later. That's the system shown on the slide here, delivered by Danish company, Semco Maritime. So the good experience in 2009 and the offshore pilot led us to really focus more on the oil and gas industry. And over the years, we have been quite active doing pilots all around the world, all with successful results. We always met the treatment targets for quality, for solid removal, for oil and water removal. We had a period of some years during the oil price drop where we focused our efforts in other industries like the marine market. But recently, over the last year or 1.5, we definitely see the interest picking up from the oil companies and from the equipment manufacturers who are asking for a ceramic membrane technology today. So more than 20 pilots all around the world in these years. And a lot of experience gathered on how to deal with this produced water. So you could argue, we have a lot of sampling bottles. We have a lot of pilots, but only a handful of references. And how is that, that we have not been able to commercialize this product even further? We believe a lot of things has changed in the, first, favor of LiqTech. What was the interest back then more or less nice to have is today what we see need to have. So that's a clear difference. Over the years, the environmental pressure has increased dramatically. The operators, they are running out of disposal opportunities, so they cannot dump this wastewater in reservoirs. Several places have experienced contamination of their freshwater sources with produced water. And again, groundwater in many of these areas where our customers they operate is a scarce resource. It needs to be protected. So that's why more and more oil companies, they're looking into tertiary treatment of the produced water in order to reuse it and protect these water sources. To give you an example, one of the largest oil production areas in the world in Saudi Arabia, they take 52 million barrels of freshwater every year. So it's a huge amount of water that you need to acquire, and in the same way, dispose. As I said, while the wells are maturing, the water cut increases. So the installation that you have installed -- the equipment that you have installed today will not be sufficient to meet the capacity that you have tomorrow because of this increase of water. And with LiqTech ceramic membrane installed as tertiary treatment, you're actually able to increase the hydraulic load on your existing installations to meet this increased amount of water. And you can do that because you will then have a ceramic membrane at the end to polish the water coming from the conventional systems and still meet the overall treatment objectives. And of course, with the LiqTech system, you have the opportunity to have this very high-quality of water that you would be able to reinject in reservoirs instead of using freshwater. Over the years, we have continuously developed and improved the ceramic membrane products. We have gained more in-house experience in how to apply the membrane, how to design equipment around it. And all that piled together, we think we have the best possible opportunity today to offer this solution to this market. So the outlook as we see it today is quite positive. We have a lot of customers asking for the technology to meet discharge limits, to meet reinjection water quality criteria. We have a lot of customers asking for a technology in place to increase capacity on their existing systems. And the way that we can do that, I've used a table here where we compare the silicon carbide membrane and the filtration efficiency. You see we have a 0.2 micron selectivity on the membrane product, where our competitor technologies out there, the walnut shell filters, the coalescing filters, they are about 5 to 10 micron in best case. And this difference of a factor of 10 to 20 is a game-changer to the industry. So these are the numbers that we are seeing in the market today, the performance of our competitors and the performance of our membrane. And when our customers and operators, they see this, they all agree it's remarkable results that they have not come across before and they see the clear benefits of adopting the technology. So recently, as I said, the year, 1.5 years, we have seen now a strong increase of interest from both oil companies, from equipment solution manufacturers. And we are speaking with most of the biggest players on both the operator side, but also on the technology providers. And they have definitely recognized the need now to have a ceramic membrane product in their technology offerings. And we are discussing some specific projects right now primarily in the Middle East. When we look at the markets, we see today, in 2020, total addressable market of USD 110 billion. Of that, we believe, approximately USD 7.5 billion is addressable for LiqTech with our technology. We see that from projects that we are discussing with our customers and what we know is being discussed in the market. Since we see an increased water cut in produced water over the next 10 years, this market will increase approximately 50% in terms of volume generated and equally increase the business opportunity for LiqTech to what we believe as addressable market for us should be around USD 55 billion. So a lot of good projects and good opportunities for us in oil and gas, and that requires good membranes from LiqTech. And I will pass on the word now to my colleague, Mr. Haris Kadrispahic, our R&D Head, and he will explain to you more about our ceramic membrane technology.

Hi. My name is Haris. I'm heading the R&D department at LiqTech Ceramics. Today, I'm going to talk about our main product, which is ceramic membrane technology. We'll talk about our everyday life and how membranes affect our daily life and how we are developing our membranes for the future, in the future of our kids. When we finish -- when I finish this presentation, I'll be talking about everyday life such as coffee, such as water, such as beer, and I'll be comparing coffee to Mt. Everest. I'll be talking about Eiffel Tower. I'll be also talking about sports. Also I'll talk about why do we need our non-negotiables, what they are and how we utilize them in our R&D department, and we'll talk about why unknown is competitive advantage. I'll start to talk about bits about our main product, which is pure silicon carbide membrane, development of the pure silicon carbide membrane, known challenges, where we are today with our new HTM membrane, and where we are going to be tomorrow with the nanofiltration membranes and catalytic membranes. But to start with, what's the world's most famous membrane? This is without any doubt, the world's most famous membrane. It's a coffee filter, something that most of us know about. Now coffee filter is very effective to what it does. It filtrates only what we need to filtrate in order for us to drink coffee the way we want it. But pores in these membranes are enormous compared to what we are working with on our daily basis. This filter filters coffee. Our filters, especially in the future, will filter molecules, CO2, salts, environmental damages that we have done, micropollutants. If we compare micropollutants, salts and CO2, the bacteria and coffee filter and coffee grounds, it will be the same comparisons to humans, to Eiffel Tower and Mt. Everest. Now in nature, in the world, not everything is the same. So we have some humans that are taller than some other humans. What we want to do is create a perfect ceramic membrane that can separate your all-star center from your all-star point guard. Sometimes, you want them both in your team, sometimes, you only want one. How do we do this? Well, first of all, let's set the scene, let's set the stage. There are some non-negotiables. There are some parts of our company that we cannot compromise with. It's chemical resistance. It's mechanical resistance. It's the highest flux of all the membranes. These are non-negotiables. What are they used for, this non-negotiables out in the market? Well, let's talk about ceramic membranes. They are virtually indestructible, no downtime. You can aim for 24/7 operation. You can expect lower OpEx as you're running the lower pressure. And recently, what I heard from the market is that our end users have peace of mind when they use our products. Let's talk about our background. How do we got here? In 1999, this is where our journey started. For us in R&D department, 2006 is very famous milestone. This is the point where we started coating our membrane layer on top of our substrate. Now what happened ever since? We have gotten huge interest from academia. If you look at screen, and looking at the number of publications that happened since then, picture is very clear. So where are we today? Well, today, we have second-generation of silicon carbide membranes. They are called HTM membranes. And the next couple of years, we will have catalytic membranes and nanofiltration membranes. What we've done in the period 2006 to 2014, we've been working with our known knowns. So these are your oily wastewaters, these are your industrial sites, mining industry, and of course, marine scrubber. What happened is that we have been able to capture this early-mover advantages because we know our market and we know what we have to do in order to capture this market to end up where we are today. This is also what we are still working on. So what we are working on today will be selling in the near and not very far future. At this part, I would like to call known unknowns. So that's out there in the market right now. And how does this affect us? Well, I have a market. This is the market for membrane systems. If we look at where we are today, we are at oil and gas, power generations, mining. But there is one very important market for us that we would be part of from now on. This is market for food and beverage. Why is this market important? Water scarcity, need for clean water is everywhere, but especially relevant in this market. Membrane technology is up to 100x more efficient as other types of conventional technologies. And we are, of course, helping our clients with the sustainable efforts to grow sustainably. If you look with our partners from some of the projects -- development projects we are working this year, Carlsberg Breweries in general, close to 0 waste; we have your Unilevers, and of course, part of mining industries, part of marine industry. What we have here is a goal for breweries. Now numbers say that 75% of everything that comes into the brewery in terms of freshwater ends up as a wastewater. Now the goal for some of our partners is 50% reduction by 2030 and 25% reduction by 2025. Now what does this mean? This machine here in the picture is machine that cleans bottles, beer bottles. So today, for each bottle of beer -- 1 liter of beer uses 0.5 liter of pure water. When we are finished with this project, they'll use not this bottle, but this bottle. This will help our customer reach sustainable goals for sustainable living. And how do we do this? We do this with our hybrid technology membrane, which is second-generation of silicon carbide membranes. Why do we introduce at all this type of membrane? Well, we introduce it because we want to separate our Michael Jordans from our Yao Mings. We want to be able to go after pore sizes that are 60-nanometer or 80-nanometer or 100-nanometer. This is something that pure silicon carbide membrane will not let you do. But combination of zirconia and silicon carbide will let us do this. This is crucial for us in order to enter food and beverage industry. The other very important thing is that this is food-grade material. That means legislations out there are easier to get. A bit about our HTM membranes. They are still high on flux, non-negotiable, corrosion-resistant, again, non-negotiable, and pore size and selectivity is much improved to our previous product. Our development team has evolved quite a bit since my early days in LiqTech Ceramics. Back in the days, we had one development engineer with PhD. Now we have 4. In 2014, '15, 16, we were completely dependent on outside facilities. We are completely dependent of partnerships. And we are completely dependent that our partners would take our development from one direction in the other. Today, we are doing something completely different. We are looking at catalytics. We are looking at [ nano filtrations ]. And we are, of course, looking still to improve on our HTM membrane. We have high-end laboratory equipment. We have a couple of PhD students with postdocs. We have 5 development engineers. So what's next? What's for tomorrow for the future generation membranes? We have, of course, still got the treatment membranes, but they will be somewhat different to what we have today. We have membranes for ultrapure water and, we have membranes that are used in completely different setups like petrochemical industry and by catalytic membranes. Well, this is our standard of living. So throughout the years, they'll be using our plastics, our retardants, our soaps, our pharmaceuticals. Now it's in the groundwater, and we need to remove it. And in the future, especially here in Europe, you'll see legislations moving towards this goal, that's cleaning water. Future of ceramic membrane markets can also include this. This is membrane reactor, which is used for hydrogen production. These are 2 of our latest projects, late-stage European projects, and we expect to have prototype of the product very soon. What about our current offering? We still have our microfiltration, ultrafiltration in HTM membranes, and of course, our DPF filters. Next year or so, we'll come up with prototype of our first catalytic membranes. From 2021, we'll be looking at water gas shift membranes, the project I just mentioned. And in a couple of years' time, we are expecting that our HTM membrane will become nanofiltration membrane. So membranes of the future will have better selectivity. And our pure silicon carbide membrane will have range of HTM membranes, will have catalytic membranes and will have smart membranes, because every now and then, I'm asked about digitalization in our world, in membrane world. It's not only on the systems. We are talking about digitalizations inside of membrane. That's what we are working on. That's the next step. To conclude. Having brought LiqTech technology into ultrafiltration range, it opens new perspectives, such as reducing pore sizes even further. We will be looking at nanofiltration. And just what I thought a couple of days ago in an interview, this is not a science fiction. This is on our drawing board and this is in our laboratories. Thank you very much. And now I'll leave the stage for Sune. Sune, please?

Thank you, Haris. Very exciting. I'm at least very excited about the development that the company is going through. Just imagine, we started out in 2006 developing a silicon carbide membrane. It took us 8 years to complete the development. It took us another 5 years to commercialize it. And now we have Haris talking about nanofiltration about a new hybrid membrane that we already completed in a very short time, by the way. He's talking about catalytic membranes. He's talking about water gas shift membranes for alternative fuel production. I think it's amazing that we've been able to accelerate the time we need to manufacture new products. And we're really beginning to understand our technology and what we can do with it and where we can take it. So a very nice presentation. I also want to thank Kenneth and Casper for their presentations. I think they were very good as well. So let's move on to the summary of today and focus on what is the next logical steps for our business. Well, we had long-term development. You have seen this time line for very -- for many times. We started our company back in 1999. We did the first membrane development in 2006. It was finally ready 2014 when we then transformed our business into a water treatment company. And then we had commercial breakthrough in 2018/2019 in the marine scrubber industry. And where are we now? Well, we have this long-term development behind us. We have successful large-scale installations behind us. We have the first conversation behind us. We are seeing an increased environmental focus in the world. We have regulatory tailwinds. And all of that have paved the way for an inflection point for our company. We are now looking at a commercial breakthrough in oil and gas. We are looking at a commercial breakthrough in marine emissions control. We are now focused on OEM membrane sales, licensing deals. Up until this point, we have basically been using all our membranes for our own systems. But in the future, and the future is now, we will be focusing on selling membranes to other water treatment OEMs. We have proven that it works. We have proven that it works in a large scale. And we now have completely different products available with smaller pore sizes that allows us and our partners to work with this technology in other applications. We now have ceramic membranes in pore sizes from 16 nanometers and up available, and that's today. In the next few years, we'll come down to 5 nanometers. We will have a continued focus on system sales in marine, in power plants, and in oil and gas applications. And we are continuing the development of the new nanofiltration and catalytic membranes. So I truly believe that the company has now come to an inflection point where the technology is ready and the market is ready. We have seen this great development in the environmental focus around the world. I think 5 years ago, sustainability was not a big topic on the agenda. Now everybody is talking about sustainability and what we can do to preserve and reuse water resources. And this is where we come into the picture. If we look at the markets where we're focused today, well, we are focused in oil and gas. We have been for a while. I think Kenneth did a great job of explaining what it is we do that we can work in areas with water scarcity, we can work in areas where they have manufacturing challenges due to the structure of the ground. We think that we will have a commercial breakthrough in oil and gas this year. We still think that it will be one of our largest revenue streams this year. We are in the automotive industry. We have been for 20 years. We have been focused on retrofits of truck and buses. Up until this point, we have retrofitted more than 2 million large vehicles with our technology, and again, reducing the impacts from transportation, which we're very proud of. We are in the marine scrubber industry. We have a very healthy market position in marine scrubber industry. We are taking a lead in reducing harmful discharge from marine scrubbers, and that's also something we're very proud of. We think the marine scrubber industry will continue to develop well for us, as we discussed earlier today. So very much one of our focus areas. And then one of the new ones that we've been discussing for some months now is the black carbon and NOx reduction product for the marine industry. Casper has been into detail about that, explained why we make a difference, why we think we'll see tightening legislation. And especially now in China, we see China taking a lead in reducing black carbon emission. Very, very exciting outlooks for that. If we look to the future, we see that we will also be focused in other areas. One thing that all of these industries where we're focused today have in common is that they are the traditional polluting industries of the world. They are all in some way linked to conventional fuels, to oil. And I know that there are many investors out there and many that I know out there that are saying, "Oh, but there's no future for oil-related business." And maybe there's not. But we all have to realize the world is not going electric tomorrow. For the next 10, 15, 20 years, we will still see a lot of oil consumption for automotive, for marine and for other purposes. Our purpose here is to help minimize the environmental impacts from these polluting industries. And we think they'll be around for the next 10, 15, 20 years. But we also think that there is this environmental focus around the world. And these industries, they will see more and more mandates that will require technologies like ours to help them meet new legislation and continue operation. So as we transition to cleaner fuels because we think we will, then there will be an enormous potential for technologies like ours that will help reduce environmental impacts from the old industries. If we look to the future, we are painfully aware that this is maybe for the next 20 years. In the future, we'll be focusing, in addition to these, on water reuse. We think that water is becoming a scarce resource in many areas of the world. There will be an increased focus on water reuse. We'll be focusing on drinking water, where we have the technology to use already polluted drinking water, turn it into healthy and safe drinking water. We'll be focused on the pharmaceutical industry. We'll be focused on food and beverage, which we think is a huge potential as well. And we'll be focused on membrane sales, OEM sales, which we also think will be a very important part of our business. If we look at then why do we think we have come to this inflection point? Well, if we look at 2019, then 75% of our revenue came from the marine scrubber industry, which was the first commercial breakthrough for our technology. We think that in 2025, only 10% will come from the marine scrubber industry. And this is not because we think that the marine scrubber industry will collapse or will disappear. We don't. But we just think that we'll see the other markets develop even more positively. If we look at the addressable market opportunity we had, let's say, until 2019 -- we're excluding 2020 because that was a special year with COVID. But if we look at the addressable opportunity we had, let's say, from 2015 up until now, then we have been working in the marine scrubber market, which we think was a total addressable opportunity of $180 million. We did about $25 million of revenue in that business in 2019, which we think was impressive. As earlier explained, what is happening in the marine scrubber industry now is that it's converting to closed-loop systems where we operate. And therefore, we think that the total addressable market opportunity for us is now growing to $4.8 billion, which is obviously a big difference. We have been working in the retrofit and OES DPF market. We think there was an addressable opportunity for us of about $200 million in that industry up until now. If we look at 2019, we did $6 million of revenue. And then we see -- oh, but now we think it's a $4 billion market. And why is that? Well, it's because we have been able to lower our manufacturing cost very significantly. I have a slide on that in a few minutes. But it explains why now a bigger proportion of that industry is available to us. If we look at SiC membranes, we have said, "Okay, we think that's a $100 million addressable market up until now, and that might even be way too high." We are just now getting market acceptance, and we are getting down in pore sizes where we can actually compete against other ceramic membranes. We did about $1 million of revenue in 2019 in that market. We think the opportunity is now around $1 billion. The total ceramic membrane market is about $6 billion. And we think our silicon carbide membranes, now that we have the small pore sizes are able to compete in about $1 billion part of that market. Then we have our hybrid membrane -- membranes or hybrid membranes, technology membranes. We had -- it was not available to us up until now because the product is just -- we just developed the product. We had 0 revenues in 2019, but it opens up the opportunity to play in a $5.5 billion industry, which is the ceramic membrane market today. Very interesting market opportunity and completely new applications for LiqTech. Oil and gas, we don't think it was available to us until this point. We've spent some time positioning ourselves. We did 0 revenue in 2019. As Kenneth explained, it's about $110 million industry -- right, $1 billion industry right now. We think about 7.5 billion of that is addressable to us now. That's the countries where they have tightened legislation, the areas where they have challenges in the manufacturing of the oil. And then one very exciting one is the marine emissions control, so black carbon reduction and NOx reduction. We haven't had a product for that. There's been no demand for it until now. So hence, 0 revenue. We think that the market is about $80 billion potential. And that's the potential we see in China and the potential we see in the rest of the world in the next few years. So all together, that comes to more than $100 billion of opportunity for LiqTech. And of course, we're not going to capture 5% or 10% of that. But I think that we have a very good chance of capturing a meaningful part of it and be a meaningful player. And what we have not even mentioned here is all the other industries that we've been talking about today, food and beverage, drinking water, pharmaceutical, water reuse and OEM sales of membranes that comes on top of all of this. So a lot of opportunities for our products and very exciting times ahead, I believe. All of these developments that we've been discussing today and the progress we're making in our main markets have caused us to reramp our headcount. This is basically when we had our record quarter in the first quarter of 2020. We were about 150 people all together. And then COVID hit, and we significantly reduced our staff. As you can see, we have started to reramp because we have enough visibility to see that we're going to be busy. We have made investments in sales. Investments in R&D, improvements in production efficiency means that we don't need as many blue collars as we did before, which is also important. And we are continuing to outsource more and more of our systems manufacturing. If we look at the ramp of our company, as you probably remember from the press release this morning, we announced that we are further ramping our manufacturing capacity. Well, in 2020, we did quite a big ramp. We installed 4 new high-temperature furnaces in our Ballerup facility. We installed the infrastructure to support 8, so 4 more than we actually installed. And by infrastructure, we mean electrical equipment cooling system, stuff like that, that is already in place for 8 furnaces. And it expanded our revenue capacity more than 4x by installing these furnaces. What is also important is that we achieved significant quality improvements due to better and more efficient manufacturing equipment. We also achieved quite a lot of manufacturing efficiencies, resulting in a 36% reduction in our DPF manufacturing cost. And that is what now allows us to play in a bigger part of that DPF market. We also reduced our manufacturing cost for the membranes by 21%, just by installing the furnaces. And we know that we will realize further reductions in the months to come by installing other manufacturing equipment for that as well. And now back to the planned expansion. So we have now decided to install an additional 4 high-temperature furnaces. And why we're doing it is to meet the expected demand from the marine scrubber market, from oil and gas, from black carbon reduction and membrane markets. And it's taking after the expansion, our revenue capacity to 96 to $480 million revenue capacity. And then you're all going to ask 96? What is he talking about? They've been telling us with 4 furnaces they installed last year, and they had a capacity of $150 million. And that's absolutely correct. So the trick here is how we utilize that capacity. So it actually means that 1 furnace, if we use it to manufacture DPF, it gives us a $12 million capacity per furnace. If we use it to manufacture systems or membranes for systems, it gives us about $60 million of revenue capacity, 1 furnace. And that's why we have that big range in the revenue capacity. What is different now compared to where we were last year is that now we have a good idea about how to allocate that capacity because we have good enough visibility on the markets we're working in, on how it will be utilized to make an assumption of what does that do to our revenue capacity. So if we look at today, we estimate that our revenue capacity is around $170 million with the current allocation for DPF, for membranes and for systems that we have. What you will note here is that we see a big increase in the expected capacity we need for DPF. And the DPF is for the black carbon reduction in the marine industry. So it actually also means that we will be converting some of the furnaces here to manufacture DPF to meet that. And it means that our revenue capacity goes down a little bit to about $135 million in February, in March. And then we are taking delivery of the next furnaces, and it comes back up. So all together, when we get to July, end of July this year, our revenue capacity would be back to about $220 million, but now allocated to DPF, a lot of it to DPF, some of it to membranes and a lot to membrane systems. So we are super excited about that. One, we're super about -- excited about having the visibility of how we're going to allocate this and obviously, super excited to install new capacity. Finally, I just want to remind everyone what we are about. We're about reducing the environmental footprint from some of the world's most polluting industries. We are supporting 3 of the 17 Sustainable Development Goals: number six, clean water and sanitation; number 13, climate action; number 14, life below water. We take this very seriously, both internally in the company, but also in the vision of the company, what we're doing and how we address the market. And as we prepare for the Q&A session, we will be taking another look at our corporate video that explains very well our vision about a sustainable development in the world. Thank you for listening in to the presentations. We will be preparing for the Q&A session now and be back momentarily. [Presentation]

So welcome back, and we are now ready for the Q&A session. And this is going to be super interesting because due to the corona-safe setup, we will be Haris, Kenneth and myself here. We will have Robert back in Phoenix, who will read the questions from you guys, and you guys will have to type in your questions on the website. And unfortunately, Casper cannot be here to answer any questions. He joined us from back home on his -- on a connection, so he will not be here, unfortunately. But feel free to fire away, and look forward to some interesting questions.

All right. Sune, I'm going to start with the perhaps the most asked question. First off, can you hear me?

Which is a very good question. But yes, I can hear you perfectly, Robert.

All right. Great. So let's do this. I'm going to try to take the questions and put them into different categories here, and we'll start off with marine scrubber. With the widening of the spreads, RFQs have increased. Have you sort of -- have you seen a measurable increase in orders?

We have seen more orders available in the market. It's all quite new developments. We saw the spread come up in the last few months. We have seen some of the big shipowners now out with new RFQs. Some of them already decided, and a lot of them will be decided in the next coming months. But yes, there's a trend upwards, and it definitely looks like that trend will continue.

With 120-plus ports having banned open-loop discharge, how many still allow it? And what percent of global trade do those ports represent?

They represent quite a lot of global trade. We have all China that have banned overlook discharge. We have several ports in Europe, important ports in the Middle East. So they represent quite a big part of the world's commercial ports. I think what is worth mentioning here as well is the vote in the European Parliament to out phase and ban new scrubbers. The European Union is a big, big area with a lot of commercial ports. And they are now putting pressure on the IMO to implement a worldwide ban. So on top of those countries that already decide to do that, you have all of the European Union putting pressure on the IMO here. And they represent quite a lot of the votes in the IMO.

When you look at your current scrubber order book and you break it down between retrofits, new systems and shipbuilders versus scrubber manufacturers, can you put some context to what the order book looks like?

Yes. So in terms of newbuilds, we have not seen many newbuilds ordered in the last year. So it's been very quiet due to COVID-19. So the vast majority of the orders we see, they are still retrofits, so meaning ships, existing vessels that are now fitting scrubbers. The trend we see more and more will be the conversion of open-loop scrubbers into close loop. We're beginning to see a demand for that now. We recently put out a standardized product, if you want, to do that conversion, and we're getting a lot of interest for that.

Okay. Let's transition a bit here to oil and gas. Can you sort of give us a sense of when you might be able to provide some more specifics about the oil and gas opportunities in the Middle East such as contract wins, revenue recognition, so forth?

Yes. So we've -- as you all know, we have been working on contracts in the Middle East for quite some time now. And we're not going to lie to you, it's been delayed somewhat by the second wave of COVID we saw, let's say, late last year and in the beginning of this year. It is, however, still alive, it's ongoing, and we think that we are likely to see contracts in the near future. And I would like to [ empathize ] that we still believe that oil and gas will be a significant part of what we do in 2021, but also onwards, of course.

And you just sort of touched on this, but to the extent you feel like elaborating, if you have the outlook for contribution in 2021 and 2022. And with LiqTech as a partner in the JV, how do you see that recognized as revenue? Is it revenue? Is it JV interest? Talk sort of through how that looks on the income statement.

Yes. So the JV is structured in that way that the JV is set up to do -- build own and operate projects for the end user. Our part of the JV is supplying systems to the JV who will then do that operation for the oil and gas company. So in other words, we'll be recognizing revenue as we deliver the systems. Some of the systems are kind of smallish, They maybe 1 container, 2 containers, 3 containers. And in those cases, we'll be recognizing revenue as we deliver the systems. Some of the other projects are larger projects and on those projects -- and they might be multiyear projects. On those projects, we'll be working on a percent of completion, so recognizing revenue in portions as we go.

You touched on COVID being a gating factor in the oil and gas. Has there been anything else that has been a gating factor, whether it be maintenance issues, costs, things of that nature?

No. I would say the gating factor here has definitely been COVID. I think we all know everything has been delayed by COVID. Not only the scrubber orders that have been pushed out, it has always been -- also been oil and gas projects that is taking longer than we anticipated because people were working from their homes. But also in other parts of our business, things have taken longer because of COVID. But that is really or has been the gating factor in this industry.

To the extent that you're able to -- can you talk about who your partners are, both local and sort of international as it relates to the JV? And does the JV extend beyond the Middle East?

The JV itself is with a local EPC contractor. He is active in the Middle East region. He has very good contacts with end users in the region. He has a long experience working with the oil and gas companies in the region, which is exactly why we have set up this JV. As mentioned before, it's somebody we have known for quite some time. It's a strong relationship that Kenneth had built over several years. And we're very confident about this partner because we have this long history with the company. For some of the projects in the Middle East, we will be teaming up with global partners. So the JV partner is local sort of Middle East. But the other partners that we're inviting into several projects, they are global companies working in oil and gas and water treatment, in general, worldwide. What we are hoping to see, obviously, is by teaming up with these partners, we hope to see them invite us into opportunities in the rest of the world, where we are not as well positioned as we are in the Middle East. So in other words, you can say by using our unique contracts in the Middle East regions, working together with these global companies on that, we hope that they will like our products, like the cooperation and invite us into other projects in other parts of the world.

As it relates to the JV and the oil and gas that we're referring to here, what are some of the risks that you're taking versus perhaps the JV partner in terms of cost overruns, liabilities, things of that nature?

And that's what we really like about the setup because we are not taking those risks. We are offering a system that we will be delivering to the joint venture company. And then the joint venture company will have the risk of the operation in the country or in the Middle East. So in other words, we'll be recognizing the revenue when we deliver systems on normal terms, normal margins. So we'll be taking home their profit. Then there's the operation locally, so selling the water to the oil operator. And there's obviously an execution risk in doing that, but that's not something that we are doing. We are part of the JV. We are 49% owner. So it means if and hopefully when profit comes out of that operation, we'll be taking that home. But initially, our focus is to deliver systems on normal terms, normal margins, and that's the initial interest for us. And then everything else that comes out of it, some margin generated from the water sales in the region, that's going to be icing on the cake.

And perhaps last question here in the oil and gas section, are you working on any potential projects outside of the Middle East?

I think Kenneth go on for that for a long time. We -- yes, we've been working on projects in -- outside of the Middle East. We've been working in China for some time. We've been working in North America on several occasions. But right now, we are trying to stay laser-focused in the Middle East, and the reason for that is that this is where we see the largest opportunities. This is where they have the most water scarcity. This is where they have the most manufacturing challenges that we can help them solve. And having said that, we actually recently took an order, membrane order for an oil and gas project that was outside of the Middle East, I believe. But that's a different story.

Okay. Let's transition here to black carbon. You mentioned black carbon regulations in China. Are these finalized? And if not, when do you expect these to be enacted?

So we have to divide the opportunities a little bit. We have the opportunity for oceangoing vessels, which is government-owned vessels. And that's, let's say, some -- an upgrade they decided to do on their own. So that's not a specific mandate, but a specific project they're doing. So that's kind of finalized. Then we have the inland vessels where we'll see new regulations coming online in 2022. And the work we are doing now is all in preparation for that. I can update you and tell you that we actually recently received further pilot orders for the inland vessels. So obviously super excited about that. Actually, a little bit ahead of time because we expect to get those orders in February, but we received them here in January. So it seems like the mandate and the preparation for that mandate for the inland vessels is very much on schedule.

Are you working with the IMO in any regard as it relates to some of your filtration systems here?

I'd wish to say that we were, but we are not. We try to stay active. We try and influence the debate as much as we can, but we're also realistic. We -- we're a small company out of Denmark and not in a position to do a lot of lobbyism to influence the IMO. But what we are doing is that we try to stay active here. We try to stay in contact with the local media and put as much pressure as we can on the Danish government, obviously, And then the Danish government will put pressure on the European Union, and then the European Union would put pressure on the IMO. And that's exactly what we've seen happening now with the European Parliament back in November last year, banning open-loop discharge and now putting pressure on the IMO to do the same. So I think that's kind of the reach we have, and we are trying to do as much as we possibly can on that.

When you look at this, the black carbon opportunity and you talk about the pipeline, is there any sort of specifics you can provide on your outlook for revenue in '21 and '22?

Yes. I think there's good outlooks for revenue in 2021 and especially in 2022 for black carbon reduction. And I think what provided us with the confidence to now expand our manufacturing capacity even further is that we have quite good visibility on those opportunities. So yes, we expect revenue in '21, and we expect it to turn into real revenue in 2022. Not saying that it's not real revenue in '21 because it is from -- compared to where we are today. But we'll see the opportunity to grow even further in 2022 and onwards.

Let's transition a bit now to manufacturing. On the capacity side, can you discuss the visibility you have, which we've sort of talked about throughout this presentation and how you see that cadence sort of moving from '21 into '22. And the reason for doing this now?

Yes. I think that the reason is that when we expanded our capacity last year, we had a good feeling that we would need the capacity. Now that we are taking the decision to further expand it, we have much better visibility on where to use that capacity. So if we remember the slide I had on the capacity allocation, we actually have a pretty good idea about how many membranes we think we're going to need in the next 1 or 2 years, how many systems we are going to manufacture in the next 1 or 2 years, and how much DPF we need for that black carbon reduction opportunity in the next 1 or 2 years. So we are getting a much, much clearer picture, and that's why we are now moving ahead and making those investments in further expanding our manufacturing capacity.

When you look at your CapEx spend on the next 4 -- for instance, this year, can you talk through that a bit and when you expect them to be fully online?

It's a $4 million project. As I mentioned during the presentation, we already made significant investments last year in the infrastructure that's going to support those furnaces. So it means that we already invested in cooling plant, in the needed electricity we need for the furnaces and so forth. So all together, the new expansion is a $4 million additional CapEx.

If orders were to come online more quickly than expected, how much more can you increase capacity in 2021 beyond what you just mentioned is already planned?

That's it. So we looked into it. And we can do another 4 furnaces in 2021. We have obviously kind of looked into plan A and B and C. And we see some scenarios out there where we need more capacity. And should we need that, we have other plans that involves a different location and allows us to further ramp our capacity. But for now, the decision is to expand the capacity in Copenhagen. And then should we need more capacity, we have the plan ready for that. And we think that's something we could do in the next 12 to 18 months. So we need a little bit longer time for that next step.

Okay. Great. Maybe let's transition to competition a bit here. Obviously, understanding the advantages of silicon carbide has in filtering, why is LiqTech better than those from maybe some of the larger or smaller competitors out there, talking about maybe price premiums or discounts, things of that nature versus the competition?

In terms of pricing, I think I can answer that. And in terms of quality, I'll leave it to Kenneth to talk about that. In terms of pricing, we have done a tremendous job in lowering our overall cost. As I mentioned before, the new furnaces have really meant a significant cost reduction for membrane production. So our silicon carbide membrane is now competitive in applications where we were not competitive before. And further to that, our new hybrid technology membrane, which has a tighter pore size is also a lower cost. So that further allows us to compete against other ceramic materials in the market. So I think that's kind of where we stand now that the upgrades we did in manufacturing equipment, the technology -- the new technology we developed has a lower cost, enables us to compete in other industries is the answer to the cost side of it. And moving to the quality, well, I think Kenneth can explain why we have some advantages over the other available materials in market.

I can do that. Thank you, Sune. So first of all, we need to compare with what's conventional available out there technologies. And I think what's known now in the oil and gas industry is that they need something else than what they have installed for the last 20 years. If they were able to continue using that, fulfilling new environmental regulations, they would have done that, but they cannot really do that. So that's the first step of awareness. They need something else than what they used in the past. With that said, we believe the silicon carbide ceramic membrane technology is superior for the reasons that I mentioned during my presentation. So in oil and gas, it's all about robustness, robustness for your process. These operations, they simply cannot tolerate any downtime. It's millions of dollars every day in loss. So they are not really looking that much into the price per square meter installed membrane compared to our competitors. They're looking at what is providing us with the operational robustness that we require to sustain our business. And they're looking for what's best in the market. And that is silicon carbide. It's the most robust material. And in addition to that, it offers also the best performance in throughput and filtration quality over time. So I would say, yes, price-wise, we are competitive. At the end of the day, I would feel less about new companies entering this market, offering a lower-price membrane because again, that's not really desired if you compare a known technology like silicon carbide with the performance, the experience that we have shown with a less-known membrane technology that might be cheaper, but they don't want to take that risk from an operations point of view. So that's why we see this window of opportunities for LiqTech.

All right. Great. Maybe just expand there just a bit more, given the size of this market, and you've kind of alluded to this momentarily, about $100 billion plus that you've laid out here. When you -- what are your thoughts, I guess, on larger companies developing or expanding or entry into this silicon carbide membrane space or technology into the space?

So I -- one, I think they're going to need a lot of money and time to do it. We spent 8 years, let's say, to come up with our first-generation membranes and perfect that technology. And we spend more than $65 million in the process. So that's the first barrier that it takes a lot of time and it takes a lot of money. The next barrier is that the technology is patented. Our old silicon carbide membrane technology is patented, so is the new hybrid technology membrane. So that offers some protection as well. And then third, I'd like to mention, I don't think large companies start out to develop new technologies. They're not very good at it. To develop new technology often requires a small organization and to drive to do just that. And that's not often found in big companies. I think big companies, they much rather go out and identify when that new technology is ready to be commercialized, and then they will acquire it. So I think the logical move for one of the big guys in water treatment is not to develop something on their own, it's to go out and acquire that technology.

Okay. Great. I've got sort of, let's call it, some miscellaneous types of questions here now. When you -- what are the service or after-installation revenue opportunities in your various segments, maybe in terms of a percent of installation revenue after the product is installed?

That is a very good question. And it's actually an area where we are now building more and more revenue and seeing much more interest. We installed a lot of marine scrubber units over the last, especially 2 years and especially 1 year. And we are now seeing those systems being commissioned, and we are getting a lot of requests for spare parts and service and maintenance. We know that the service potential is approximately somewhere between 7% to 10% of the initial cost of the system on a yearly basis. So in other words, if you have an installed base of $1 billion, the service potential is somewhere between $70 million to $100 million on a yearly basis. So this is an extremely important part of what we do. It hasn't been big numbers so far. But as we see our systems are actually commissioned and online, we will see more and more demand for service. So in our strategy going forward, this is a high priority, and it's something that we have been building, especially in 2020, a good service and experienced service organization. And we are now seeing more and more revenue come out of that as well.

Okay. Great. And as you look at OpEx, you've talked about this reramping that's going to occur in 2021 versus 2020? Any guidance that you might be able to provide to us as it relates to the OpEx in 2021?

No, not really. We are trying to build it as we go, and I know that sounds a little bit unambitious, and we're trying to stay lean. So it means that what I mentioned also during my presentation is that we are trying to outsource as many things as we possibly can in the systems manufacturing, which is a trend that will continue. So it means we shouldn't be seeing a big ramp in our OpEx on that. What we are adding is salespeople because we now have products to actually sell. So we'll see those costs come up somewhat, and we're adding R&D and continuing to add R&D costs so we'll see that come up as well. But it's something that we're trying to watch extremely carefully so that the OpEx isn't getting away from us, not investing too much ahead of time. So it is something that we're monitoring and adding through as we grow revenues again.

As you look at your gross margins, so we've just talked about OpEx, let's talk about gross margins now. Are you still targeting 40%-plus in 2021? And what are some of the main drivers of improvement there, sort of your cadence? As a subset of that, are you seeing any supply chain issues to the point?

Yes. And I'll start from the back. So we are not seeing any supply chain issues. That's very much on track. I think the supply chain we are relying on is somebody we work with for many years, and that has proven to be a successful cooperations. We are still targeting plus 40% overall blended gross margins or contribution margins in 2021. And to answer the last section of it, what needs to happen to arrive to that, well, it's very much based on volume. We've made significant improvements and cost reductions to our systems. We are standing now in front of our latest system, which is a Mark 7 marine scrubber system. And I don't know if any of you remember how they look like before that, there was significantly more piping on our Mark 6 version, for example. So this is a much lower-cost-version of that, and that has increased our contribution margins. So what we need now to arrive to reasonable gross margins is the volume to come back. We think that we are seeing that. So once it comes back, we'll see the real effects from the cost reductions we made in the last 12 months or so.

Okay. Great, Sune. That's, I believe, all the questions that we have here. So I'll turn it back over to you for any closing remarks.

Sounds great. And just want to thank everyone for joining us today. For me, it's been very exciting. Thank you to the team for joining me today. It's been a great day, I think. A lot of, I think, good outlooks for LiqTech in the future and always great to have you investors join us for one of these days. I wish and I hope that the next time we do an Investor Day, which is likely to be in the summertime this year, I hope that we can do it in person in New York. But for now, thank you very much for joining us virtually today. Stay safe.