Nexam Chemical Holding AB (publ) ($NEXAM)

Welcome to this Q1 presentation by Cleantech company, Nexam Chemical. Presenting is CEO, Ronnie Tornqvist, and the presentation will be followed by a Q&A with equity analysts. And viewers and investors can ask your questions in the live chat. Please welcome, Ronnie.

Thank you, Mattias.

Please go ahead with your presentation, and I will be back for the Q&A.

All right. Thank you so much. So quarter 1 presentation of Nexam Chemical. Nexam Chemical is a company working to improve plastics materials and make them more sustainable through additives. This first quarter had a fairly low sales volume in the sum. But on the other hand, we also are seeing a clearly shift of the fundamentals and strong movement going forward. The changes in the economy right now are boosting the recycling market, and we'll come back to that point. First of all, an introduction of what we do at Nexam Chemical. As I mentioned, we do additives for plastics that make them better and more sustainable. We have a strategy to grow this company and to develop our markets. Our mid-range target is to go from approximately SEK 200 million per year to SEK 300 million and then beyond, of course. We have -- over the last 3 years that I've been active in the company, developed our, let's say, go-to-market strategy and the attitude within the whole company to become much more market-oriented and we focus on our 4 -- or like this starting from a fairly narrow set of chemicals and other additives that we're using to create these additives for plastics, we are using that into 4 different market areas. One is recycling, which I will talk about a lot today, which is all about taking recycled plastic materials and by adding additives make them better. This is the fastest-growing part of our business and provides really much interest for the future. Another area is high temperature. This is kind of the legacy technology for Nexam where we make additives that you add to varnishes or composite materials in order to make them ultra temperature-resistant it's used mainly in jet engines and microelectronics where very high temperature isolating materials are required. Aesthetics is our base business with the highest sales where we do colors for plastic industry. And it's color concentrates that are then added to a plastic carrier in order to get the right color, looks and longevity of the products. And then we have the area of lightweighting, where we make additives that enable production of let's say, strong foams that are used in composite materials, for example, in wind blades and other demanding industry applications. So those are the 4 areas. If we look at the sales number, rolling 12 months, business split. Approximately 57% of the sales are into Aesthetics. That is the whole plastic industry where we're located mainly in Eastern Europe and the Nordic countries, where we provide broad industries with color concentrates. This is a fairly stable business that provides stability in cash flow. We are really strong in that field and our close partner are all our customers and with very fast turnover times and very close relations to our customers. The Lightweight segment is approximately 20% of the sales, this is the structural foam. It's another type of market. The customers are located all over the world. It's a very niche market with quite -- not a high number of customers, but the ones that we have are very technically advanced, and we are at the forefront, together with our customers in this field of structural foams. High-temperature business is also a niche market with customers worldwide, mainly in Asia and North America. It contributes approximately 11% of the sales then on rolling 12. This market is characterized by quite long development times and long serial production runs, sometimes 5 to 10 years development time. Recycling, which is our fastest-growing segment, we are at 14% of the sales number. This is really a scale-up company internally. It has grown a lot over the last couple of years, and we've been working on it for much longer than that. And this is the area which I will focus on today where we see a lot of short-term and long-term growth potential. So if you look at what we do in Recycling, Plastic Recycling, when you recycle plastics, they become degraded and worn out in various ways. And it's often difficult to find good applications and a good usage of recycled materials, and our additives can move the technical possibilities with the recycled plastic materials, and that is what we do there. In every case, almost, you could say, that we sell our additives to customers that use recycled material, it is to save cost to get a better business case than you had without the additive. So either you enable the customer to use a certain recycled materials and produce more advanced products with it or that they continue to use recycled plastics and can make the same product but at a lower cost with lower grade recycled materials. In the world, plastic consumption is increasing quite rapidly. 450 million tonnes per year right now of plastics. A lot of it is food packaging, but also high-tech applications and other let's say, commodity applications of various kinds and it's bound to increase in the coming years, mainly driven by food packaging requirements to preserve food better and longer time also in developing countries. On the same time, there is a strong action to try to increase the recycling rates. It's really strong here in Northwestern Europe, but equally all over Europe, you see a strong drive to continue to develop the portion of plastics that are recycled. And we see strong initiatives all over the world for this. The current recycling rate is approximately 10% in the world and maybe 20%, 25% here in Europe, but it's bound to increase. And there is a lot of regulation that is behind this as well. Our role in the circular plastic value chain is located as an additive manufacturer and additive supply then to either compounders or component manufacturers. But so to say, food chain starts with someone collecting and sorting recycled materials, producing, you could say, shredded, cleaned, recycled plastics. That goes into a compounder that makes a raw material with a given specification that is then used by component manufacturer to make parts on the picture here, some injection model components, but you can also think about plastic bags, toys, packaging material, everything that you make out of plastic. And then these components are then introduced into some kind of brand OEM product. And our position in the food chain here, so to say, is that we add 1.5% to 5% usually 2%, 3% of our additive goes in together with the compound when you make a component where it goes in together with the recycled material into the compound at a small percentage rate. So we are, you could say, on the side of the food chain and making it better. The total volume of plastic is 450 metric tons. Approximately half of this constitute of polypropylene, polyethylene and PET. So that's a bit over 200 million tonnes per year. As I mentioned before, approximately 10% are recycled. Almost all recycling is mechanical, meaning that you collect your material, sort it, grind it down and clean it and then it is remelted and reused again. This is mechanical recycling. There's also a method called Chemical Recycling, when you chemically decompose and recompose the polymer molecules. And then there is also bio-based plastics. We use bio source materials in order to produce new plastic, but both of those methods are fairly low in the numbers. So we focus mainly on mechanical recycling and on the big material grades, PP, PE and PET. How it works? Our additives, this is 1 of the basic ideas that we're using here is called the chain extension. You introduced additive together with the recycled material into your processing equipment, the plastic is molten. And when it's molten, our heat-activated chemistry links the molecule back together again. Which is then a process that heals the material, you can say. And this is done without any byproducts because all our products that we put inside the reactive chemicals actually react and are bonded into the main chain. So the plastic that you get out is equally recyclable and unpoisonous or poisonous to -- as the material that you put inside from the beginning. But there are no special process requirements for our customers to use our products. This is, of course, the core of the specialty then this is complemented with other additive products in order to improve the plastic. So what does it mean for the customer? As I mentioned before, most customers use it because they save money. So typical business case is a customer that is using maybe 80% of an expensive, very good recycled material. In this case, for PET, it usually comes from bottle recycling, and then they can use maybe 10% of their own production scrap and then need to add about 10% of new plastic material as well in order to provide a thin inner layer of new plastic. And when we collaborate with these packaging manufacturers, they can add our additive and thereby increase their ability to use more of the lower-cost material. So by adding our additive, you can reduce the amount of the expensive recycled material, and more of the lower-cost recycled material, and then you need to add our additive of course. And usually, before all the Hormuz Strait difficulties came into the world affecting material and oil prices, this was the calculation that typically producer of PET trace as they called, material that you put the cherry tomatoes in, for example, a producer of those kind of products could save 25% of the material cost with our material. But it's changing now. Over the last few weeks, price increases have been enormous in the plastic industry as a direct result of shortage and increased prices of oil. So if you look at polyethylene, which is a very commonly used material, the most commonly used material in the plastic industry, it has been costing for the last year about EUR 1.25 per kilo, current prices are towards EUR 230 per kilo. So there is a sharp price in material cost and this, of course, has to do with the oil price and availability of this material. We see the same on all other materials like PET, polypropylene, everything that we work with, the prices are up more or less doubled compared to how they were in average '25. So the business case to use more recycled material has just suddenly become so much more tempting, and we see that in interest from customers the recyclers that we work together with are reporting an enormous interest from customers. So there is something happening in this industry where we are so active right now. And what's happening is then that you add in addition to regulation and environmental concern also add a much stronger vector of raw material economics. Since the materials are going up around 100% and further increases are indicated, and you combine that with the forces such as regulatory demands for increased use of recycled plastics. There is a much stronger return on investment to do recycling projects because it's usually quite a complex technical project to start to use recycled materials and it's a higher incentive then to use more of these recycled material streams and try to, let's say, screw the content to higher numbers of recycled material. And this, in the end, improves the demand for our solutions of reactive recycling. So we see that the good business case that we had before is actually reinforced quite a lot about what's happening right now. And as they say, the oil price goes up quickly, but it falls down very, very slowly. So we believe that this will remain in place for at least another couple of years and help run the transition that is needed anyway in order to assure more local sourcing in the various countries and the, let's say, enlighten the environmental footprint of the product. So that was a bit about the recycling story and what we are active with there and how that changes just recently. If we go now back to the figures, business update. As I mentioned, the sales volume this first quarter was not so great, [ SEK 44 million ] compared to SEK 49 million last year. This first quarter was characterized by a lot of insecurities on the market. people were worried that they could be a war in the Middle East and so on, and that eventually even happened. So there was a certain, you can say, slowliness in the whole industry during the first quarter. We did continue to grow in Recycling. It was 90% up compared to the same quarter last year. It was a little bit below the fourth quarter of last year, but the trend is definitely there, and we have promised ourselves and everybody else that we will do everything we can to double recycling sales this year compared to last year, and we're very well on track for that. The low end customer markets were particularly strong in the Lightweighting segment and the High Temperature segment. However, I can say now a few days into this quarter that is looking a little bit better for the second quarter. The gross margin was -- as always, we are very predictable here. It was the same as it was last year. We have said that we will be in that range, 48% EBITDA was slightly negative, of course, due to the lower net sales. We have done a rights issue during the end of last year, beginning of this year, which gave the company SEK 52 million, before the issuing costs and our financial position is obviously the much stronger. Cash in bank is SEK 38 million and an unused credit facility of SEK 25 million, which is then a total other situation than we had before, which enables us to put more energy, more dynamics into our sales development. Of course, the largest recycling customer that we currently serve just announced also during the quarter that they will double their volumes of usage of our materials in the second quarter because they are putting it into more products. So expanding the product lines. What we also have done in the first quarter as an indirect result, you can say, of this rights issue is to stuck a little bit of raw materials at low prices at a little bit higher purchases volumes. So that has resulted in a little bit negative cash flow in the quarter. And then we have, of course, the big trouble in the world, which is the war in the Middle East that has had significant implications on the industry, both the confidence in security, what is happening out there. And it has also led to these extreme raw material cost surges that I talked about before. after the quarter end, we were above 100% price increases for most of the significant materials. And of course, for us and our customers and our supply -- this needs to be compensated by price adjustments. So we are adjusting our prices and our suppliers and our customers are. But that's a process that involves kind of a lot of stress in the whole supply chain. So that is more or less the situation right now and we're looking forward into something a little bit better in terms of top line. Financial update, more of the details here. As I mentioned, the sales numbers SEK 44 million. Operating expenses and, let's say, cost levels are exactly as expected, you could say. We are becoming very stable on that front. And more to mention here is that -- yes, I will jump into the next slide. Margin development, we had 48% this quarter. We have a rolling 12 average of 47%. We are in that range. And we are aiming, as we have said before, to come towards 50% or even above 50%. It is possible to do, but what is more significant is maybe that the range between, let's say, 45% to 50%, we will be able to stay in that range of a very long time going forward. If you look at the development of business portions, we see that there is an effect that we have this year reduced -- this quarter, we had reduced sales into the Lightweight segment, only 11% of the sales. Historically, it's been up to 1/3 of our sales values. And that business is not going so well right now, you can say. And that has to do with the end markets outside of China, which is our market, we do not sell into China, any significant numbers. The expansion of wind energy is going quite slow and that's a driver for this market. We see that the sales in the High Temperature segment has been 13%, 14%, 15%, it was a little bit lower in this quarter. That is I don't see that as a problem. It is a little bit of stock correction at 1 or 2 customers. We are confident that we'll regain these levels of 12% to 15% in the coming quarters, end of this year, beginning of next. And then the Recycling, which is then continuing to grow and grow and grow. What is interesting with us is our scalability. We have through savings programs and other things brought down our breakeven for EBITDA from SEK 55 million per quarter to SEK 47 million per quarter, more or less where we are now. We're slightly below that in quarter 1 this year, and that's why we had a negative number. But the past year has shown that we have an organization that can really generate much more sales, new customers and one that are -- have then compensated for losses into some other areas. And it may be important to say when you compare us to other types of businesses that more or less, everything we sell is recurring business to serial production. So when we get a project, it becomes a serial business, and it just keeps on rolling for a long time. And then sometimes, some of these products are also at the end of their life and then they disappeared, so to say, but it's several year projects that we work on. Another interesting fact is that we can double our sales volume without really changing too much in our organization. We do not see the need to do major equipment investments or change overhead structure of the company in order to sell much more. So you could say up to somewhere up to SEK 370 million. We have more or less the same type of cost structure and the same type of percentages. So there is a big and positive scale effect when we manage to sell more. Contribution margin is expected to remain stable and the breakeven point for the top line is that -- or like this, if we were to add another SEK 10 million in sales on top of the SEK 47 million, which is our breakeven, then about 35% of that will be on the bottom line. So it's fairly easy to calculate how our earnings will develop if we increase or decrease our sales volume. So we want to increase the sales volume, and that's our target, and that's what we're working on every day. We did this capital injection into the company recently, and we are using it to accelerate our commercial scaling. So commercial acceleration, I'd say this year compared to last year, we have always been quite active on the market. But I mean, we have 50%, at least more visibility in trade fair in the industry event and various sites all over the world. We have increased our customer engagement across Europe, North America, India, and are much more active on the market using more both internal and external market resources and also myself and the rest of the team here in the management are much more active now into the sales process and let's say, the technical processes behind getting the business rolling approvals, et cetera. We're also taking big steps on the digital side. We're launching a recycling com focused web page to focus on the recycling area. And we're also working a lot with, let's say, application-driven customer language data and problem solving and finding the let's say, the pain points of various customer segments and also providing data, how we solve those in order to become more interesting for more of the customers that don't know us yet. And we're using extensively AI-supported lead generation and market intelligence, both to follow material flows in the world where we can be relevant. But also in order to find the right people, you could say to talk to in order to have much more qualified lead and opportunities. And then the technical proof and faster conversion is, of course, really important step for us that we now finally have the means to work much more focused on. So it's generating application data in the various plastic processes and plastic applications that we work inside. We do targeted investment in both internal and external lab scale application-oriented development work. And we're developing, you could say, technical proof packages that makes it easier for the various customers to understand their advantages of working together with us. And yes, so we're doing a lot more on this side now in order to continue to grow this curve. This is the sales within the area of recycling over the last many quarters. And as you see here, first, in beginning of '24, we started to see real life into the Recycling customers, and it has continued to grow well. And I can say with confidence that it's continuing to grow according to the red line for the coming months also. It was [ SEK 6.8 million ] in the past quarter. It was even above [ SEK 8 million ] in the quarter before that, both -- well, close to or well above 100% year-on-year. We have several new major customers that are ramping up in full-scale production, and there's multiple trials ongoing, come back to that. And the largest customer that we have in this field just announced that they will double their use of our material starting now in Q2 when we already have those orders in our production. How far can we go then? If you look at all the plastic recycling in the world and you reduce it down to the plastics where we actually have technical solution and where it's reasonable to -- all the reasonable recycling rates that are targeted in the coming years and that we estimate that we can have a market penetration level of 2% in the world and 5% in Europe, we can reach EUR 70 million in this segment. And I think we can reach more than that. So with today's run rate of around EUR 3 million, we still have a long way to go and a lot of new customers to convince. So there is a lot of opportunity in this field. This project pipeline overview, we have been showing that for a couple of years now. provided that we're working differently in our sales, marketing and technical application processes. We have redesigned this a little bit compared to what we have shown before in order to better reflect the actual project stages that we see in our Recycling projects. So it starts with new prospect search. There are no specific numbers for that. But then when we start to come into the development stage, meaning that we send samples of our material to customers and they make some testing with it. And then proof of concept going into more advanced sampling and sample studies. We have actually 130 customers who were working with this, 14 new ones during the past quarter that have come into this. So the number that you see there, 130 million is the number of customers, plus 14 is then what has been added the last quarter. And then when we go more into scaling up industrialization projects and so on, we have 22 of those ongoing, have added 3 coming then from proof-of-concept stage during this quarter. One of them have also moved on into technical approval. So there we have 12. And then we have 27 currently purchasing commercial cereal producing customers, where one is new for this quarter. So, it has been changed a little bit compared to before, but this is something that we use in order to follow the dynamics of our market development. And our target is to bring down the lead time from new prospects to commercially purchasing customers by doing these kind of investments in both relations and in particular, technical background information for the customers. So where are we now? We're returning to growth, especially in the recycling. With that, we also -- and the other 3 business areas are also rolling on quite well as we see it right now. And we're continuing to broaden our customer base. So with every cent above SEK 47 million per quarter, we do add EBITDA and so on. Recycling is really scaling up. We're working very hard and to cover all these ongoing projects and industrial implementations and so on. And so far, in a professional way, customers are happy. We have this cost-saving program behind us that enables us to earn money when we grow. And we continue to work really good together with the existing customers in the Foam business, but also in the high-temperature business and so on. And our new distributor in North America, we talked about it in the last quarterly report as well, but that is quite significant for us we see. We see a lot of things happening in North America that are very, very promising for the coming future. And then we did this rights issue, SEK 51.8 million, which then secures the aggressiveness that we need in order to develop the recycling business even faster. So why invest in us now? Well, we have a clear path how we're going to do and where we are going to, first of all, to reach the first level for us, which is sales volume of SEK 300 million, and that's fully fundable with the proceeds from the rights issue, and we have the resources in place now to really execute on that plan. We are doing the right investments in order to support that growth, and we continue to have a disciplined balance between growth and cash generation. I mentioned that we did have a little bit of a negative cash flow in this quarter, but only for good reasons and with, let's say, decisions that we took deliberately in order to improve our numbers. We have a focused commercial strategy. It's in line with the key global trends and that have been recently unwillingly reinforced, you could say. And we have a huge untapped potential in recycling. It works. Customers are using it also bigger and smaller customers, and they see the benefits. And the more customers we get in here, the more the world will spread in the industry. And we have really invested minimal into accelerating this field of recycling, and now we can invest a little bit more. So we have that innovation capacity and the strong IP portfolio also for the future. We are a very development-oriented company. We will continue to come with innovation regardless of what happens in the world. And we have the prerequisite now for profitable growth and a scalable organization. And on top of that, we're starting to look around how we could grow our market opportunities by , for example, acquisitions. So that was my presentation of this quarter. Thank you for your patience and listening to this. And thank you, Mattias, and I'm curious to hear any questions from you or Lara.

Thank you so much, Ronnie. Really exciting to listen to your presentation. And I'll let Lara Mohtadi, Equity Analyst at ABG Sundal Collier start the Q&A off and I'll be back shortly.

Okay. Thank you.

Yes. Thank you, Ronnie, for a very good presentation. Just a couple of questions from my end. I actually went through a lot of them, but just to elaborate a little bit on some things. I'm wondering we start with Recycling. It's been a hot topic, of course. What can we say about the -- we've talked about this several times, but what can you say about the long-term prospects in Recycling? It's 14% of sales today, what can we say about sales maybe in 5 years? What's the vision here?

Yes. Okay. If we look at it on longer term, we have said that we will try to double this year or we will do everything we can to double this year, which would be SEK 46 million. And then if we do that again, it's SEK 90 million and then we continue. And it's kind of multiplying because the word spreads on the market, so you get more and more leads. I don't think it's unreasonable to think that it's a couple of hundred million Swedish sales in Recycling with the product portfolio as we have it today. But since we are active in that field and work with customers that are using recycled materials, and we're working together with the recycling companies and learning more about the technical challenges in this field. It's not unlikely that we could add by either on innovation or through mergers and acquisitions kind of ideas, other means to develop that even more. But if you look at the organic part of it, a couple of hundred million would be within reach in the 5-year scale, definitely.

You talked about the sort of product portfolio you have today. Are there any holes in the product portfolio that you can see that you might be working on in the near term?

Because we work a lot with restoring the plastic molecules. And there are other problems also with recycled material. One of them are the mechanical properties of the recycled plastics. And we've seen a lot of interest in improving, for example, impact properties. So that reduced the risk that the recycled plastic material component will crack in cold weather and so on. So to make it more tougher material. We have started to develop a few of those grades, but we see that here, for example, we could do more and another area we like to work in, and we do work in it since a couple of years, is to also support customers of combining, let's say, material property restoration with also finding the right colors and longevity of the material. So those are areas where we are active in right now. But then there are more of those kind of technical challenges. So I'm sure we will find more ideas. And we are in we're not in all material classes, so we could develop solutions for other material classes as well. That would be also of interest in the future.

Sounds interesting. And if we maybe move on to the other segments. You said Lightweight was 11% in the quarter, so a bit of a weaker quarter. Could you maybe split up that segment a bit for us? I don't know much about the segment. You have PET foam? Which parts are growing better than other products?

So the Lightweight segments, it's almost only PET-based forms, but it's also PLA, PBT and some polyolefins. But if you look at the volumes, it's mainly PET. Today, we see that there is a strong interest, for example, in the construction market to use more of this material. We have a customer that is making PLA foam and targeting the construction market to replace poisonous materials that have been used in all house constructions and to be able to replace that with something new and natural. So those kind of things are happening. But the majority of the PET foam sales are going into wind blade manufacturing. So if you look at it from a practical perspective here now today, that is the market where we have the most implications. And we continue to collaborate with the customers in that field to be relevant and help them to develop their grades. And we have customer-specific grades for the major PET foam manufacturers in the world, and we are helping them with things like increasing the amount of recycled plastic into their foams, helping them to reach even higher technical specifications and so on. So that continues to develop well, but the output outside of China from -- of that type of material is quite limited right now. And then it's quarter-to-quarter, it's difficult to say because the single orders, so to say, can be quite large. And if they happen to come in quarter 1 and quarter 2 will make a big difference on the quarter-to-quarter percentages.

Do you remain positive on the long-term prospective?

Yes, yes, absolutely. And they are all very dynamic companies running on innovation, looking for new application fields and are also developing such. So I remain long term, really confident in that business.

Okay. Interesting. And you actually presented a new slide here that I haven't seen before the raw material prices spiked recently. And obviously, for the long-term prospects, this is very good for Recycling. But can we talk a little bit about the near-term prospects, how this affects next maybe on raw material prices, maybe your cost of materials?

It is -- last time this happened, it was during Corona. We had a spike in raw material prices coming very rapidly and this time even more rapid. It becomes a practical problem. Of course, everybody is just first shocked and they need to survive the day and the week, us too. And -- but we have been fairly quick. I know many people in this industry. I think we've been very, very rapid in order to, first of all, secure material, find relatively good deals that have then enabled us to be customer-friendly in the necessary price increases that everybody needs to do in this situation. But on the other hand, we are not doing the price increases we have to, of course. And I think it is -- yes, we've handled it well this time, you can say, better than in the Corona times.

Promising to hear.

But it is a risk for the -- for next and all our customers and suppliers that there will be shortage in the market of a key polymers. But I don't see that risk for us, at least not in the coming quarter, maybe later if this ultra difficult supply situation through Hormuz Strait continues for a very long time.

Yes. So maybe if we could just jump into that, what would the long term say that this -- we don't know what's going to happen in the Middle East. But if we just say, the worst case scenario continues and oil prices go up and well -- of course, oil prices going up could be good for the Nexam in the long term, but about -- if we talk about investment appetite and those sorts of things, how is this impacting your business today?

Yes. Well, like everybody in the industrial food chain, we make our products land in very wide fields, as you know, narrow technology but very wide applications. And it will, of course, affect how how all this industry develops. So I think it will affect some customer segment, it will be positive, some of it will be negative. And we'll just have to live with the, let's say, global implications and try to be very quick to react to that. But in general, it's good for Recycling, yes, it's maybe not so good for some other segments.

Of course. And well, the North American customer, could you tell us a little bit about -- more about that you press released?

Yes. Yes. It's a customer that are using our material to make food packaging in PET, and they are just using more of our materials into a wider application range of their products. And I think that is one of the areas where we see a lot of activity to promote internal recycling of scrap material -- production scrap material and so on and to use that and create value of it and the motivation to do so just increased a lot. They would have done it anyway, this customer because it takes a few months in order to do the material approvals and so on. But I think more customers will follow suit. But I also think it's good example because it shows that within the recycling market also, when we start with the customer, there is much more growth to be reached within that customer and not only by additional number of customers. It's not a degree fill the glass from day 1. It's like gradually growing together with the customers.

And North America is obviously an exciting market. But are there any other markets that you're looking to expand ...

Yes. Everywhere. Europe, super interesting, very many ongoing projects in Europe. India, really interesting case in India. We do see a lot of interest from Asia as well. And yes, and you can say also recycling exports from Africa that we have taken care of in other parts of the world, which needs the improvement that it's also an interesting market for us. So we're not only North America.

Yes. And you're ramping up on commercial activities. How long does it usually take for investments like this to actually show up in the order book?

Yes, takes a year. If you meet much more customers during this spring, it will be earliest in the beginning of '27 that they will buy. But this kind of process adjustments that we're doing now are also aimed at increasing the speed of the ongoing development projects we are pretty far. So we hope that we can use this in order to accelerate already to move projects that would have started in Q4 to maybe start in the end of Q2 instead and so on. So we're trying really to speed up our processes here also. So from that perspective, it has this year, also quite a strong effect. But it's -- yes, for the -- where you start from 0, there is more than a year.

And if we just move on a little bit to the financials. I mean the gross margin held up quite well despite lower volumes. What would you say is the reason behind that? And can we sort of if this is a softer quarter, can we maybe model in peeling higher gross margin going forward? And you mentioned 50% as a target.

Yes, when you look at the gross margin over a full quarter and try to do projections going forward, I think that it's likely that we can maintain or slightly improve the gross margin Yes. I don't see any reasons why it should not be possible. But then if the material cost increases continue and become broader overall raw materials and so on that might have some kind of diluting effect also. And it's very dependent on the individual quarters product mix. So -- but in general, I think we can be at this level also throughout this year, at least 48 or a little bit above maybe.

And your Poland business, it's still been from a very low level, but can you put this into perspective maybe sometimes?

A year ago, it was 2 people in the plant and now they are 4. And they have a huge number of new additional customers. We have been passive in the Polish market, you could say in accepting a very small position, but now we're trying to take on much more of it. And it's working really well, and we have some really talented people that have come on board and there is a great collaboration between the plants, so that both the Hungarians and the Swedish are supporting the Polish people in a good way. So I think we're growing there. We're also expanding our, let's say, sales network in the Eastern European countries between Poland and Hungary, like Romania, Czech Republic and so on, we're much more active now.

And well, as an equity analyst, I want to ask you about what you think going forward, of course. But you guided for a stronger Q2. And would you say, this is mainly your North American customer kicking in? Or do you see some recovery in other parts of the business too?

It's on recovery in the other parts of the business, too.

Yes. Very clear.

But -- and the North American customer that is increasing use. But alone, they cannot drive a huge change. And it's Yes, it's difficult to say today what the full quarter 2 will be by -- I'm fairly sure it will be better than quarter 1 already today.

And we're still on the same topic in High Temperature. What -- would you say the market dynamic is like there right now? Is it more in a wait-and-see mode?

I would say that our customers in High Temperature are not moving so fast. In that mindset of business that you're talking about there, they work on really long projects, long lead times until they start and long production lead times when they run and so on. And from that perspective, you could say, yes, it's going really well and it's increasing fast. But that means doesn't say anything for this or next quarter because it's means that in a couple of years, it will be more. But so the difference is we see, which have been quite violent between Q3, Q4 and Q1, that's just the effects of short-term stock adaptation to a quite a stable production usage. And yes. I have good hopes for that too, but it's -- you have to be aware that it's a business type with longer cycles.

And master batch. I mean the ...

Colour business, yes?

Yes. I mean it's Aesthetics as we call it. It's 47% of sales this quarter or something like that? It's still a large part of your business ...

Yes, it is.

And it was quite stable this year. We maybe shouldn't model this as the sort of growth engine in the business, but what should we think here in the long term?

I mean, Poland is actually aesthetics business and it's growing there. But we have, let's say -- so we are really strong. We move fast. We have high quality, good customer service, really great customer relations in both Eastern Europe and the Nordic countries but so does our competitors. They are quite strong also. And there is a balance there that is difficult to move, you could say, and that's why it's not growing so fast, even though we are so good. And in Poland, we were not in the equilibrium, and that's why we can grow, Yes.

Okay. Very interesting. That was all from my end. Thank you very much, Ronnie.

Yes. Thank you, Lara.

Thank you so much, Lara. And let's sum this presentation and Q&A up, Ronnie. And we have a question from a viewer, Nexam, would you've been talking about a lot about Nexam chemicals, of course, and not so much about the competition and the question from the viewer is what makes Nexam stand out to your competition?

Okay. It's different in the different business segments because the alternative solutions and the alternative supplies are different. But if you look at the Aesthetics, what makes us stand out as I just mentioned to Lara. Really good delivery performance, close to the customer, fast reaction lead times, close relations and reliable relations over the years. That's what makes us stand out. But as also mentioned, some of the competitors are really strong in that field, too. And then if you look at the High Temperature segment, we stand out by providing really unique products. You could almost not make these type of products that they're making without Nexam. It would require a total different chemical strategy or other quality and regulatory kind of solutions. So in that sense, fairly protected or very, very high entry levels for competitors. If you look at this segment of Lightweight, we have both patents that cover part of what we do and, let's say, a technological forefront position there that makes us kind of unique and understand the customers' market and the customers customer and so on. So -- and then in the Recycling segment, it's much more the wild west. You can do many different solutions. There are different ways of utilizing the recycled materials. And there is more of a very unique situation, a lot or most of the solutions that we have are patented or quite advanced in comparison to what other people do, but you always have the competition of virgin materials or blending various recycling grades or finding other ways of avoiding an additive, yes? So it's very dispersed.

Okay. Thanks. You have been showing this prospect funnel for quite some time. It is growing with a number of prospects, each time we -- every quarter, you also told us that time spent in the funnel is decreasing.

We're doing everything we can to reduce the time in the funnel. We haven't measured the decrease yet.

Is the trend -- is this trend ongoing?

Yes. And it's also it will depend a lot on what you do. If you have done something at one customer and you do a similar solution to a similar customer with a similar challenge then we can really press down that lead time because we know more or less which hurdles we will hit. And when you become more fantasy reach and want to solve a new problem, it will have a longer lead time because you will hit early that you didn't know before. But we are trying to focus on the customers and the cases where we can work with standard products that we already have and use the experience and knowledge and so on. But we will not stay only there. We also need to provide innovation to that business and find novel solutions to also the existing customers and so on. So then we can have projects which have a little bit longer lead time. But what we do is try to formulate generic application areas or the kind of process, product similarities, solution and standardize these solutions and make that process more streamlined per solution.

Okay. And have you set any goals for the growth of the funnel? And any KPIs or so?

Yes we have. And the overriding KPI is to double the sales in recycling this year, whether with existing or new customer, it will be a combination. But you can say that -- it's difficult to set the KPI because it's kind of the number of prospects is not really the quality of the prospects is also a parameter and a number of them is a parameter and the likelihood for them to succeed and their strength of their business case. So there is too many vectors to set an exact target that we would like to have 150 customers in this stage or something like that. So we're more like in to thinking like KPIs, but in subgroups within the customers, you could say, becomes a little bit complex and difficult to show in a presentation like this one.

Okay. And I'm not sure if you mentioned this, so please excuse me if you did, but how much will the oil price increase that we can see now, how much will that support your Recycling business?

I think it's, of course, indirect. But the bigger the delta between virgin plastics and recycled plastics, the better our cases for our customers. We have seen -- when I've seen directly in customer meetings, several examples where they are seeing regulatory demands that are coming into place in 2030, where they're avoiding to putting in recycled materials just now because the virgin prices are lower -- were lower. If they now are -- and they are -- virgin prices are now much higher than the recycled cost, then they would, of course, accelerate this implication or utilization of recycled material earlier than they would have otherwise do with only the regulatory demand. So we see an increasing interest and much more dynamics in the recycling, let's say, recycling users.

One last question on financials. One change is your cash flow, it's negative. What is the driver to that?

Well, it's always and has always been quarter-to-quarter, it depends on if you get an invoice or get paid for an invoice around the quarter end or beginning. So there is a little bit of that in it, but there is also one portion where we decided to take on a bigger material position in order to get an extremely attractive price that we did this quarter. And we were lucky to do it before price increases hit.

So it was actually a good thing then?

Yes, yes. And it was -- we did it with [indiscernible] Because we saw that we can work on some customer segment that we would not have been able to do unless we would have taken that deal. So -- and now we could do it, so we did it, call it opportunistic and a onetimer.

Okay. Thank you so much, Ronnie. That was my last question. It will be very interesting to see how you perform in Q2. Looking forward to that. Thank you.

Thank you, Mattias. Looking forward to come back.