Nexam Chemical Holding AB (publ) (NEXAM) Earnings Call Transcript & Summary

Cleantech company Nexam Chemical whose executives are joining us in the studio to present their year-end report for 2025. Joining us in the studio is also Lara Mohtadi equity analysts by ABG Sundal Collier, who will be starting the Q&A session today. So by that, I welcome CEO, Ronnie Tornqvist. Welcome.

Thank you, Mattias.

How would you describe 2025 in brief?

It was a year that combined a lot of challenges in a slow market with some real changes to what we achieve out there.

Okay. Thank you so much, and we're looking forward to your presentation. Please go ahead.

All right. Thank you, Mattias. Okay. A short introduction, Nexam Chemical. We work with additives to make plastics more sustainable and make plastics better. This quarter has been challenging for us on certain end markets, certain of the existing end markets. But the major highlight is that our technologies under the umbrella Reactive Recycling have grown a lot with an all-time high in quarter 4 and represented almost 20% of sales, which is a huge difference if you compare it to a year ago. As I said, we are producers, developers, producers and sell additives to plastic materials to make them better and more sustainable. Since 2.5 years, we have worked on a sharpened strategy with a much stronger commercial focus. And the most important base stones for this strategy is that we focus product-wise and market-wise, on performance-enhancing additives, and with a special direction towards more circular use of plastics. We have built -- we have built and implemented strategy to lower our cost and improve our prerequisites to do profitable growth. And we have defined a clear target to reach from today's approximately SEK 200 million per year to SEK 300 million as quick as possible and, of course, beyond that. And we have developed very strong market orientation throughout the company, involving everybody in our organization. We have our 4 defined market segments where we sell our additives. One area is recycling where we are starting to see a significant pipeline that we want to build up. Our contribution here is that we make additives that can be added to recycled plastics and bring their properties up to make them more suitable for more advanced applications or to enable use of lower quality recycled materials and make them usable for other type of applications. The other area is high temperatures, where we work with extreme applications for polymer materials. It's composite materials for the aircraft industry and components close to the engine where metal alloys can be replaced by composite materials by an increased temperature resistance. And it's also included in surface treatments for electronics that can also allow for a higher use temperature of those circuits. Third area, aesthetics is oriented to improve the looks of plastic materials by custom-tailored colors and other additives that are necessary in order to make the plastics more durable. You apply that to recycled materials to bioplastics and to virgin plastics. And then we have an area called lightweighting, where we have, since 10 years, developed additive packages in order to be able to produce really light and strong foam materials that are using structural composites as a center layer, so-called sandwich constructions. And a big area of application here is wind energy and the -- in particular, the blades in wind energy. The business split between these segments, if we look at the full year of 2025 is approximately 55% aesthetics that is colors for plastics. This provides us with a stable base production and stable cash flow, and it gives us a very strong market presence, especially in the Nordic countries and Eastern Europe where we have our factories. The second part, Lightweight is approximately 20% of the sales. It's a global niche market. Few potential customers in the range of, you could say, 5 big ones and equally many smaller ones, where we are very present with every customer. And then we have the high temperature segment, which is the origins of Nexam Chemical, which is about 13% of the sales of the full year. It's a specialty product. The lead times are long in these industries. And the high technical level requires a very you could say, advanced handling of both the chemistry but also of supply chains and quality assurance, et cetera. And then we have recycling, which is now 12% on the full year and almost 20% in the fourth quarter, which is an internal scale-up company you can say. It is somewhere where we can really see that we have a tremendous growth potential. I come back to that, of course. But I will focus a little bit on the recycling basics. So we have a portfolio of tailored additives -- most of them are patented or quite advanced on the technical level to suit specific applications and quite a broad range of such applications. You see a couple of product examples on the picture here with blown bottles or food containers, et cetera. In general, when we manage to find a business together with our customer base, it is driven by cost efficiency, using lower-grade recycled materials and produce advanced applications. There is very seldom a premium price to introduce recycled material instead of using virgin plastics. But there is, of course, a green advantage to it. And the combination of economics and ecology is a good one. So the cases are either that you can make more advanced applications with recycled plastics or that you can use a lower cost, lower spec grade and produce the same thing at a lower cost. In the world of today, we use approximately 450 million tonnes of plastics. OECD is projecting a strong growth of the plastics industry. It's, of course, not good from many aspects. Plastics is a very difficult material for our world, you could say, with the contamination, pollution, et cetera. And one of the tools to reduce this negative impact of plastic is obviously to use much more recycled plastics. So there is a huge end consumer pressure from normal people that buy products that the use of virgin plastic is reduced. So it's a strong driver for brand owners. There is also a lot of, let's say, pressure from normal people and politicians and from politicians and society to increase the -- or decrease the negative influence of plastics and pushing recycling. So there's a lot of state and regional initiatives to increase the amount of recycled plastics. The red line here is maybe a little bit optimistic, but it is a strong trend in the world today that the amount of plastic that is recycled is increasing and increasing. Our role in this industry, if you look at the value chain from bringing in, so to say, garbage and make it into a material and landing in end products looks like this, that you have raw material producers that are recycled -- recyclers, and if it's virgin plastics, it's a chemical plant converting natural gas or oil into plastics. But this recycled portions then come in, sorted, washed and shred it down to smaller size particles, and they go as a raw material to a compounder that make a specific plastic compound. And then these -- plus the compounds go to compound manufacturers that make parts, some pictures here of various plastic parts. It can also be something like film for the building industry or pipes, for example, or other type of materials and then they land in an end product and a brand owner. Our place in this value chain is to sell additives that are added in a small percentage, mainly to the component manufacturers and sometimes to the compounders. So we're coming in from the side in this value chain here. The plastics that we work with in terms of improving them when they're recycled are the group called polyolefins and the PETs. Polyolefins contribute almost 50% of all the plastics in the world. It's polypropylene and polyethylenes. They used in -- a lot in food packaging, for example, but also toys, interior car components and so on are made from these materials. And then the PET is well known from the PET bottle that we drink water from and a lot of other food packaging applications, but also technical applications such as the structural foams, for example, that I mentioned in the beginning. About 10% in the world of the total plastics are recycled and almost everything is done by mechanical recycling, meaning shredding down into smaller fragments, cleaning them, remelting and producing new parts. There is also certain initiatives around the world to do chemical recycling, meaning that you take these plastics and you break them down into the molecules and rebuild the plastics new again or bio-based plastics to produce plastics, but based on biomaterials instead, for example, corn or rejects from the wood industry and so on. But those are very, very small in volume. We focus on mechanical recycling of polyolefins and PET, and that's the largest material streams in the world. So we handle solutions that apply to 50% of the recycling happening in the world. How our product works? It's quite technical and chemical. So in overview, you can say, that plastic consists of very long molecular chains -- and that are very, very thing and very long, and they are then mixed into this material and consistent construction material. When you process. And when you use the material, when it's exposed to sunlight, temperature time, these polymer chains becomes shorter and shorter. And that's why a very old plastic part can become brittle or jello or look poor. And that's the basic problem with recycling that you cannot recycle them unlimited times and still make a good product. Our Reactive Recycling ingredients are added in a small amount. It's represented here by the blue and red dots that actually connects the molecule back together again so that you get back to a material which has more of the properties of the new material. It's added in ordinary process equipment, and the picture there is really broken down recycled plastic material from film application when you try to make a new film from it, the left-hand picture, it doesn't really work. But by adding just a couple of percent of our additive, you link material back together again, and it becomes possible to make new field. That's more or less how it works technically. The business case, this is important to our customers is how can we use this in a profitable way? This example here is from food packaging trays. If you want to produce 90% recycled material tray, you usually go by the route to take 10% virgin material that is needed for the food contact on the absolute outer layer, and then you can add recycled bottles, which is a very high quality grade to a very high extent, maybe 80%. And then you can add 10% of recycled trays, which is a lower grade recycled material. What we do together with our customer is to work with our additives in combination with the material streams that are available and find that by introducing just a small amount, 2% of our additives, they can increase the amount of the lower cost -- lower value material and less of the more expensive material and thereby make a saving on the material cost. This is, in every case, different, of course, but this is the type of business case that our customers are seeing. And it's generic for almost all our recycling projects. Picture from the practical world, we collaborate with a local company here in Sweden called Kullaplast in Höganäs. They are using our materials, when they have recycled materials that do not allow them to make the product according to specification unless they mix it up with very much virgin material. But by adding the additive, they can use poor versions of the recycled material and still maintain the product specification and quality, thereby saving cost and still make a good product. It is nice commentary from Fredrik Zackow, their production manager who said that it's like night and day. When you add this 2%, it's unbelievable, the difference that you see in the process and on the product. The thing is that there are thousands of Kullaplast out there in the world. And we collaborate on a daily basis with production, with a few of them, but there are very -- many more out there in the world that we can approach and that can have the same business case as Kullaplast is having. So we see this as a huge potential. It's not moving. Yes. Now it's moving. So business update about the fourth quarter. So it was weak on the top line. We had a slow end of the year. A lot of our customers were reducing stock for the end of the year. Combined with one particular customer that usually or always, since many years, are buying every quarter for high number that did not put an order to the fourth quarter. On the other hand -- so that was a slow quarter. But on the other hand, we had this huge leap again in recycling, which compensated to some extent in that. And the gross margins were, you could say, the new ordinary level and a slight EBITDA. Cash flow was quite positive. Things that happened during the quarter that could be worth to mention. We have announced a fully guaranteed rights issue. which will deliver us a little bit over SEK 50 million before the cost, so a little bit below after the cost, which is intended to use to accelerate the recycling initiatives. We had an all-time high in recycling, as I mentioned, it was SEK 8.2 million in the quarter, which is more than we sold for the -- all of 2024. We started the collaboration with the Dutch customer called Verdofoam to use our additives in order to enable bio-based plastics foams. We also got our first real production order from Germany in PET-based materials and we've been trying to develop our market in Germany for very actively since a bit more than a year, and we're happy that it's starting to pay off. We had this negative effect of a onetime loss, so to say, of SEK 4.5 million in the high-temperature segment, but that customer is back with orders for the full year of 2026. We have also announced a distribution agreement with a partner in North America called Palmer Holland, which is really big for us because they have an excellent network in the plastics industry all over North America. And there is a huge need for their customers to enable the use of recycled plastics if nothing else just to take care of the residues from their own production and so on. So we and Palmer Holland are seeing great potential to develop the North American market more actively than we have done before. So with this update, I leave to Marcus to go a little bit more into detail into that, but also to talk a little bit about how we look in front of the future. Marcus Nyberg is CFO in Nexam Chemical, by the way. And please, Marcus.

Thanks, Ronnie. Just to add something into this business update. For recycling, we actually had 55% in the margin and we can expect margin in recycling north of 50% even going forward. I will come back to the margin, so that is interesting to highlight. To give some more details about the figures, as Ronnie mentioned, about the top line was a bit weak. We are still having a positive EBITDA. So even if we -- our top line is struggling this quarter, we still actually have a positive EBITDA and also positive cash flow from operations. We have really been working with cash flow from operations for the past 2, 3 years, and it's really paying off, to be honest. And we can see it in the numbers as well. Going forward to the margin and the development of the margin, this is rolling 12 months. We have 47%. What is driving our margin to 50% and maybe actually more than 50% is Recycling. Recycling is our business area. We have really put in lots of investments in developing products, and we really now are in launching the products, and it starts to pay off, both in terms of sales but also in terms of margin. And that is also what we expect going forward. This is EBIT the split and how it changed over the years. Note that this is for the full year, for '25, we had 12% for the full year, but actually for the fourth quarter, we had 19% of our business is related to Recycling. And what we also have mentioned before, and we really want to highlight this as well, we are really a company that can scale up. From this point, in sales, 1/3 of the sales that we're adding will actually have a positive impact on EBITDA and all the way down. And we can actually double our sales without adding more machinery, more equipments. And that is -- so we are really at the point where we are scalable and we're also -- we are ready for more sales to be honest. So of course, we are focusing on increasing sales. And that was also the reason for our capital raise to get more resources to add and continue to focus on recycling but with more resources. Yes. And actually -- and this is how this can look in numbers going forward from SEK 200 million to SEK 300 million in sales. What you can see here is -- and this is actually bit conservative maybe in terms of margin for recycling, but this is how it will look when we go from SEK 200 million to SEK 300 million. So that's our main focus, full focus is to come to the SEK 300 million, of course. And now I'm actually -- yes, this is a little bit how the outcome is for recycling on a quarterly basis. And as you can see, which has really been taking off this year. We started a bit slow, but after that, it has been taking off. And we continue to see that trend going forward. So this is really our future as we see it. And I'll hand back to you again, Ronnie to...

Stay on that slide. I think just to fill in on Marcus here, it's taking off really this year in 2025, and we expect actually to double '26 compared to '25, that's a target we have set for ourselves and hopefully more than that. But this journey didn't start in the beginning of '23. I mean it is much more than 5 years ago that some innovative and smart people in our organization started to push this and had the vision that this will be something big and it's rewarding to see that their endurance and never giving up is actually paying off here and something that really grows. So then the question is how far can it grow? And then -- I'm sorry. We looked at the addressable markets. If you say that our additives are used in all the plastics where we have our core knowledge to recycle all of it, then it will be fantastically huge numbers of billions of euros. But you need to take into consideration that only a portion of the material is recycled. As I said before, approximately 10% it's predicted to increase by a couple of percent until 2030. And then some of the materials that you do recycled do not require additive in order to fill the specifications of the product. So we will not be everywhere. But if we make a conservative estimation that we can reach approximately 5% of market share in what is already recycled in Europe and that we can achieve 2% in the rest of the world. Then there, we see a potential of estimated EUR 70 million in this field. And as we mentioned before, the sales in the past year have been EUR 2.2 million or something like that. So there is, for us, unlimited market development potential here. It's not being capped by anything. And it's, of course, achievable with higher market shares than 2% and 5%. So we sense that this is a big difference compared to the -- all the past initiatives that were taken in Nexam Chemicals history, something where there is a market that is without an end in our perspective. But it takes time, takes effort. It takes, in particular, customer collaboration in order to reach new business, of course. So first of all, we need to get to know people and then they must see that this is a business case that is relevant for them and then make evaluations, test it technically, take it up to an industrial scale and test the statistics of the product properties and so on, go into proof of concept and then scale up the industrialization and then finally, launch and going into commercial serial production. The customers that we do have typically behave like they do also in our color segment or high-temperature segment that this is used in a serial production with a specified recipe, so it's recurring sales all the time. within the area of recycling on the sales level we are today, we have 26 running customers right now. We have quite a number that are somewhere between industrialization and launch, so around 16 in that phase. And then we have well over 100 customers that are somewhere from asking for the first samples and more information and taking it through their process, developing into new potential launches and commercial applications. So we have a well-filled pipeline. But as Marcus mentioned, the purpose of our issuing of shares at this moment is to fill it faster with more customers and also accelerate the speed through this funnel by working on our processes and the prerequisites in the customer collaboration. So summary then, good outlook for 2026. We're coming back to growth in some key segments. We hope that the end markets will improve, but we cannot be sure of that. It has to do with other people than us. We know that we can increase the profitability and continue to work steadily and slowly on our profit margins, and we can work on reaching a broader customer base. So that's what we focus on the things that we can affect. Within the recycling, of course, we're scaling up. Multiple customers are now transitioning into industrial production. So therefore, we know that the growth in that segment will continue, but we'll do much more in order to fill the pipeline there. We have this cost saving programs and so on behind us. It was actually finalized by mid-'22, which enables us then to start to really earn money and it enables us to continue with the balanced cash flow. Also here, it can be worthwhile to mention that we're doing this issuing of shares, but we intend by 100% to remain very stringent in both our cash flow and cost handling. So -- we see that some of the other markets towards PET foam and high temperature and also color, we're behaving well there. We have a very good collaboration with our customers and high product quality and good delivery performance, which is an important basis. We have this new distributor in North America, which is providing fast track, I believe, into more projects there. And then as a last point, we feel that this issuing of shares will provide us with what we need to really aggressively scale the recycling business over the coming years. So why should we invest in Nexam Chemical now? Well, we have put up a clear path how to reach first SEK 300 million and then go beyond that. And we had the means to do it now. We have an accelerated -- and we'll do this acceleration by application development, market awareness, more sales, more collaboration with customers and giving them, let's say, more relevant application data and so on there. We continue then to focus our commercial strategy and pipeline in a field where there is a key global trend to increase the volumes, which is mainly recycling then, but also lightweighting by our high-temperature segment and lightweighting segments and so on. And there is a huge untapped potential in recycling. I mean, the growth over -- in the year '25, at 26 customers, it's a clear proof that this actually works and the early adopters have started and the ones we happen to have worked with for a while, but there are thousands of customers out there that we can grow with. And we continue with that sustainability profile. It's maybe not so popular with sustainability in all circles today, but it's still hugely important for you, Manati to continue to work on that field, and we feel that we can contribute to it. And the fact that our products improve the business case for our customer makes it more easy to get through. And we have actually done minimal investments in the growth of the pipeline in recycling, just with own generated cash flow. And now we have the opportunity then to do more investments in that direction. We have a strong IP portfolio and really good technical advancement compared to competitors in most of our fields. So we -- and then we have the nice situation that we have a functioning factor, good quality, delivery, performance, productivity and so on and really skilled people combined with, you could say, an enormous market potential. So we feel that Nexam is a nice place to work at, and we feel that it's a good investment. And then as we go along, there will probably be a lot of interesting merger and acquisition opportunities coming up in our field. So that's what I had today. Looking forward to your questions, Lara, if there are any one from the Internet as well that put some questions.

Thank you. So Q&A time coming up. And first off, Lara Mohtadi, Equity Analyst at ABG Sundal Collier.

So I thought I'd start off this Q&A with a couple of questions from my end. I want to focus a little on the recycling segment as it's very important to Nexam right now. You have -- you mentioned the growth target of doubling sales in 2026, but you grew 250% year-on-year in Q4 and you almost tripled sales this year. Do you think this target is a bit conservative? I know we're coming from a lower base, but what should we expect?

Yes. I think -- the target is obviously built on the projects that we see in our pipeline and the probability that we'll manage them and the time lines that we have with our customers. So we feel it is absolutely feasible. There is a risk that we will not reach all the way there, and there is a big likelihood that we will shoot over it as well. So we feel that it is a balanced target, and it's quite likely that we'll reach it. But if we -- it's all about luck. We try to be -- put ourselves in this position to be able to have luck, you could say, but it could become better than that, too.

Of course. And are there any bottlenecks to reaching this target?

Absolutely. But a lot of the bottlenecks cannot be controlled by ourselves. It's a lot on the customer side. And that is why we intend to change how we work, which we wanted to do for some time, but did not quite have the means to. But now with this mission of shares, we do have the possibility to spend some investments on reducing some of the bottlenecks by, let's say, moving the bottleneck from the customer to ourselves and provide better support in how to solve various technical challenges and so on, but also, of course, to approach more customers.

Okay. Very clear. And our gross margin, as you mentioned, at group level, you were at 47%, very impressive despite having low sales. And the large contributor was the recycling segment, which you reported 55% gross margin. Do you think as you come to a more industrial scale, are these margins sustainable? Or what should we expect in the long term?

If you look on a couple of years forward, I feel that it's likely that we will be able to -- we do everything we can to push our total margin above 50%. It will take some time, obviously, but it's absolutely doable. I think that the gross margin in the Recycling segment, we can definitely be at least north of 50%, as Marcus said. That's the feeling we have.

Sounds promising. And could you just talk a little bit about the customer concentration you said you had around 20 paying customers right now? You're speaking to 100 customers, but how much of sales is coming from your maybe top 3 customers versus the rest of it?

Yes, it's the -- I don't know, Marcus, fill in if I'm wrong, but it's something like the 20-80 rule, now like 20% of the customer consists 80% of the sales number. It applies in almost all our segments and is similar here.

Yes, it's very much -- for color masterbatch or for color, that's a bit different. That we don't really have 80-20 rule. But otherwise, it's exactly like you're saying.

And you present a very -- well, you presented a service -- or obtainable market of EUR 70 million, and that's quite a lot of money. And could you maybe elaborate on maybe the competition in this field because you said that you had some conservative estimates on how much you could take. But what should we expect in terms of competition?

Yes, you could see. The alternative for a company that produces some plastic product and could potentially work with our additives is obviously to buy a really good recycled material. They're often quite expensive, but that's always a route that you have. So -- and then you don't -- maybe you do not need the additives in order to achieve what you want to do. So that's, you could say, competition. And there are also for some technical applications and areas, there are machinery that can kind of solve these problems. So then you also do not need our additives. But the direct competition using additives into mechanical recycling, doing chain extension, as we call it, when we put these polymer chains together, there, we are oftentimes alone with the solution. In some cases, we do have 1 or 2 or 3 competitors, but it's very limited, I would say, competition in that field.

And if we turn to the high temperature segment because you stated that the weakest Q4 sales was mostly due to a temporary inventory buildup and was our largest customer in high temperature. But you also wrote that the customers already placed orders for 2026, and you expect a normalization in Q1. But should we expect a gradual normalization or a full normalization in Q1?

Well I think -- I don't have the exact numbers now, but the order sizes on that particular customer are much higher than Q4 because it was 0, a little bit lower than Q3 when it was a full order, so to say, so somewhere in between there. But yes, running on their production and utilization of our material has not changed significantly. It was just the stock levels came up to a high level and now they come back to a more normalized consumption.

And how should we think about the other business areas? You mentioned recycling, obviously, is going very well, high-temperature, temporary shift there. But what about PETs foam?

Yes, we have both let's say, like PET foam is really in a challenging situation on the end markets for our customers. And that has been a worry for us. And you saw on markets share of sales that it has reduced quite a lot over the years, and there have been some factory closures and other events happening in that field this year. It will not change in a week. It will continue to be difficulties in that segment for some time. On the other hand, they are continuing to build on the markets and taking new innovations where we participate in order to improve -- cost performance ratio of these firms to make them more interesting for more industries. So on the long term, we feel that it's a great industry to be inside and to collaborate with these customers. And with time, they will come back to strength. But right now, we're in a weak spot for sure. And it's difficult to say how that will fall out per quarter next year, most difficult part of the budget.

Of course. But we think take the long-term perspective, you said that it's still an interesting market. As recycling grows, do you think you'll become a bigger part of the business compared to PET foam? Or how should we think about the split in the long term?

Yes, you can. Yes, yes. We actually have we see it for this year. We -- it could actually be that recycling will be sized the masterbatch, I send it, we think and hope that recycling will be the biggest part of Performance Chemicals in this year. That's how we see it.

And are there any synergies between recycling and your other segments or...

Indeed from an internal and technical perspective, many of the, let's say, chemical basics are the same in all segments. And in particular, between lightweighting and recycling, there is a lot of similarities. So that we have been able to successfully develop a lot of solutions for recycling customers is a lot based on, you can say, 2 things. Technically, basing on the lightweighting segment and the aesthetic segment, I would say, and practically to reach out to customers, the Aesthetics segment is a very strong point because if you sell colors to the plastic industry, you know every plastic component manufacturer on that market. And we are strong additive -- or color additive supplier in all of the Nordics and big parts of Eastern Europe. So that helps with market reach for sure. Anything to add?