Earnings call transcript: I-Tech Q1 2025 sees strong gains amid market uncertainty

I-Tech, a marine technology company with an "EXCELLENT" financial health rating according to InvestingPro, reported robust financial results for Q1 2025, highlighted by a notable increase in net sales and EBITDA, which contributed to a 6.29% rise in its stock price. With a market capitalization of $120.45 million and impressive revenue growth of 48.48% over the last twelve months, the company’s innovative marine coating technology, SelectTope, continues to drive growth and market confidence.

Key Takeaways

• I-Tech’s Q1 2025 net sales rose 50% year-over-year.
• EBITDA surged 76%, achieving a record margin of 35%.
• Stock price increased by 6.29% following the earnings report.
• SelectTope technology remains a key growth driver, used by major industry players.

Company Performance

I-Tech demonstrated significant growth in Q1 2025, with net sales reaching 57 million SEK, a 50% increase compared to the same quarter last year. The company’s asset-light model and supply chain optimizations have bolstered its financial performance, reflected in its strong gross margin of 53.06% and return on equity of 27%. According to InvestingPro, the company maintains excellent liquidity with a current ratio of 9.41, allowing it to capitalize on its innovative SelectTope technology, which is gaining traction in the global marine coating market.

Financial Highlights

• Revenue: 57 million SEK, up nearly 50% from the previous year.
• EBITDA: Close to 20 million SEK, a 76% increase year-over-year.
• EBITDA margin: 35%, a new record for the company.
• Cash balance: 126 million SEK.

Market Reaction

Following the earnings announcement, I-Tech’s stock price rose by 6.29%, reflecting strong investor confidence in the company’s performance and future prospects. Trading at a P/E ratio of 29.63, the stock is currently near its 52-week high, signaling positive sentiment despite broader market uncertainties. For a comprehensive analysis of I-Tech’s valuation and growth potential, investors can access detailed financial metrics and expert insights through InvestingPro, which offers 15+ additional ProTips and a detailed Pro Research Report.

Outlook & Guidance

I-Tech faces increased market uncertainty and potential currency headwinds, particularly with the depreciation of the US dollar. However, the company remains optimistic about its growth prospects, with plans for new product launches and market expansion. The ongoing regulatory approval process in the European Union and high external costs remain challenges to address.

Executive Commentary

CEO Markus Janusson highlighted the industry’s current volatility, stating, "We see increased uncertainty and market turbulence that is affecting the sentiment in the industry." He emphasized the importance of I-Tech’s technology, noting, "Having a clean hull is increasingly important with an aging ship fleet and desire to transition to more green fuels."

Risks and Challenges

• Supply chain issues could impact production efficiency.
• Regulatory hurdles in the European Union may delay market expansion.
• Currency fluctuations pose a risk to financial performance.
• Market saturation in the marine coating sector could limit growth.
• Macro-economic pressures from slowing global trade may affect demand.

Q&A

During the earnings call, analysts focused on I-Tech’s expansion plans and market strategy. Questions centered on the company’s approach to the dry docking market and its strategy for managing currency fluctuations, given the absence of a specific hedging strategy. The company’s strong cash position was also a topic of interest, with InvestingPro data confirming that I-Tech holds more cash than debt on its balance sheet and maintains sufficient cash flows to cover interest payments, highlighting its potential for future business development.

Full transcript - I-Tech (ITECH) Q1 2025:

Moderator: Welcome to this presentation where Aitek walks us through the interim report from the first quarter twenty twenty five. With us today is Markus Janusson, CEO of Aitek.

Markus Janusson, CEO, Aitek: So welcome to this webcast that is being broadcasted from from Mendel today, where we are gonna present the q one report for iTech. And I will dive straight into our development and showing you the rolling twelve month results, which continue to look very good. So the positive momentum that we saw on the business throughout 2024 has continued into q one this year. So we come to that in the next slide here where you can see more regarding the strong start. So net sales then were up nearly 50% and closely trailing the record quarter q four twenty twenty four.

So and it amounted to approximately 57,000,000 SEK. And then the quarter last year was 38. So a really solid growth there. We also see that that we have a healthy increase in the gross margin, and this was according to the predictions that we were giving also, I think, during q four or the later part of 2024, which has to do then with our sort of optimization of our supply chain. EBITDA landed close to 20,000,000 SEK, which is almost doubling then or up 76% at least over last year.

So very good results there. And the same with the EBIT, which was 7,700,000. Cash flow plus 26 and then puts us at a cash balance of a hundred and 20 6 million. So continuously very strong finances there. So EBITDA margin landed on at 35%, which was also, I think, a new record in that sense.

However, we are seeing then that we have increasing headwind in terms of currency, and that’s linked to our operational currency, the US dollar, and sort of the depreciating value of the dollar versus Swedish krauts. Right? And that we see we have negative short medium, but also then longer term effects on the business if this continues. Right? So that is something we will see increasingly throughout the year.

But overall then, we would say a very, very good and strong solid opening to to 2025. If we look at the the geographical spread of sales then during q one, you can see that Asia even increased a little bit over the full year 2024. So now it’s 99% of the sales to Asia and only around 1%, I think 1.3, one point four to Europe. And you can see that also the split between the countries in Asia has actually changed in q one compared to the full year 2024. So during the full year 2024, approximately half of the sales was to the Korean market.

And then we have seen now a shift here in Q1 that actually Korea represents a third, Japan approximately a third, a little bit more, and then China then growing strongly in Q1, so almost one third from China. So that is a recent development, right? But you can see that Asia is really it’s cementing, it’s dominating as a region for us, right, and for sales. And now we come to sort of what is changing then. And and definitely, I think it has been a turbulent start to the year, I would say, the new administration in The US and and sort of all the executive orders, etcetera, coming out of there.

Right? And we definitely see this impacting sort of the outlook and and really impacting trade and and the ship shipbuilding industry. We do not see it yet impacting our business, and that’s, of course, what you see in the numbers. Right? But really, we do see rougher seas ahead here.

If we start with the shipping market overall, I mean, we are still in in positive territory, and we are sort of 17% over a ten year average. But we see now this is turning and and that, for instance, is seen in charter rates then. So what people have to pay essentially to get their goods onto ship and the charter rates are falling, and and that is sort of indication then that its demand is softening a little bit for trade. Right? There was a very strong growth during 2024.

Right? So the seaborne trade measured in ton miles, right, growing by nearly 6%, and that’s the fastest expansion in fourteen years. And the growth in volume was 2.1%. And, of course, you could say the trade miles or the ton miles growth to some extent is, of course, reflecting that ships had to divert and take a longer route, etcetera, during last year’s, etcetera. So there there has been a really positive momentum, and that is shifting.

We see that with the sort of the current policy landscape, then if you look at that North America will be heavily affected, and at least that’s the prediction from both Clarkson and from WTO that we have been sort of reading here in front before the report. So what we see then or the predictions from these institutions is that North America is expected to drop 12.6 in terms of exports and 9.6% in terms of imports during 2025. And The US represents about 12% of world trade. So in all in all, it it’s subtracting as 1.7 percentage points from the the trade growth. And turning then this the overall figure to zero or slightly negative depending on what source that you’re reading here.

So, essentially, from the prediction of an expansion, we are now moving into a sort of moving sideways or even going down. And I think also the signals for recession here can, of course, that means that this accelerates further. If we look at the deliveries of new vessels, which is important to us, and we will come back to that, I think, later on in the presentation as well, that has been a healthy growth. And the projection is still that this will continue to grow in 2025 because essentially the ships that were ordered a number of years ago, those are the ships that will be delivered this year. We saw that the contracting of new ships also grew very much during 2024, sort of up plus 42% in terms of deadweight tons.

Right? But that that has really slowed or even halted in the first months of 2024 2025, sorry, as a consequence of all the uncertainty that we see in the market. And of course, it has been uncertain times in terms of placing, making investment decisions and placing orders for new ships. There’s also been an array of executive orders, right, from the Oval Office and also then one concerning or relating to maritime shipping and U. S.

Trade and more specifically related to U. S. Shipbuilding. And sort of on penalizing, you could say, one hand, Chinese owned, Chinese operated and Chinese built ships with the potentials of paying port fees that are quite substantial going forward. And of course, the longer term idea with this is to stimulate shipbuilding in The U.

S. So U. S. Today has very, very little part of the global shipbuilding. So it’s mainly, you could say, naval vessels and sort of domestic vessels that are being built in U.

S. Today. But really, there is this is a play to stimulate it, and we see it more as a long term play. A potential consequence of these USTR measures could actually be or benefit the other North Asian shipping shipbuilding countries like Korea and Japan that essentially because there is a specific penalty on on Chinese built ships. Right?

So one way to avoid that then is, of course, to to place orders with the Korean or the Japanese shipyards in in sort of waiting for the opportunity to actually build ships in The US. But this is really a long term play. And I think, I mean, the estimates is it’s three to six times more expensive today to build a ship in The US than it is to build it in Asia. Right? So it is really a long term play and not something that we will see affecting shipbuilding short term.

Talking about sort of the the fundamentals then of the the global fleet, I mean, the age profile and sort of this fuel transition that we are in is really expected to drive significant fleet renewal over time, right? And we see today then if you look in deadweight ton again, that about 42% of the order book now is alternative fuel capable, meaning then that you could use more sustainable fuels, although the majority of those ships are LNG powered, so liquefied natural gas, which is, of course, not a green fuel in itself, but it has a lower CO2 emission profile than classic bunker fuels. Also, we we saw a landmark meeting happening here in in April in the IMO in this, what is called, the the m MEPC group, where they actually then made an agreement on emission regulations more globally and also then assigned the price to the the emissions of c o two, which is quite positive, you could say, for the long term energy transition. That’s something that is needed to call sort of level the playing field. Right?

Up until now, it has really been Europe taking the lead and going ahead and and implementing that, for instance, the EU ETS, but also the fuel EU maritime legislation that is coming into force this year, which is essentially mandating use of more renewable fuels going forward. Right? And this is a step in that direction also for the global fleet there. So what we see then is, I mean, significantly more volatile sort of conditions, hesitations for people to place orders and also then essentially some volatility and turmoil in terms of the established shipping routes and trade routes and also cargo being shipped. So essentially, it will definitely impact shipping going forward this year.

However, if we look at iTech then, we come back to the small world, we see that the foundation of our value proposition remains strong, right, if we bet them long term, especially with the last comment there on the progress in the IMO regarding sustainable fuels. So the maritime challenges, the key challenges they are facing, including really emission reductions. Right? But also then more and more, and we saw that also from from the results of this meeting, more and more regulations regarding the transfer of invasive species and thereby regulation for biofouling management. And, of course, also the emissions to water.

Right? So what type of coating solutions that you’re using and how that affects the marine life is increasingly in focus going forward. So this remains really strong. And sort of with an aging ship fleet and a desire to to transition to more green fuels, which are more expensive, definitely having a clean hull is increasingly important. And that has also been pointed out, I think, in this road map that we talked about previously as well from the IMO.

So where better biofouling management has the potential actually to to help improve the efficiency and and lower c o two emissions by up to 25% from the global shipping fleet today. And we see a number of initiatives in that sort of direction as well, right, with the energy efficiency indexes, etcetera, and the carbon intensity indexes sort of being put into play and also being developed then going forward. So a very clear path for the I o m o and for global shipping so far and some good progress as well during q one this year. That’s all, yeah, the case hold of water, you could say. And then coming into to iTech’s world and and the challenge of barnacles then.

Why are they such a bad challenge? And we talked about this a long times or many times before, so this is essentially, let’s say, a recap for our new listeners then. But barnacles, they really have a big impact on drag resistance resistance and the friction in the water for the ship, which increases fuel consumption or results in speed loss. And barnacles, they do thrive in most marine environments. Of course, the warmer the water is, the more activity you have.

And they essentially superglue themselves to the surface and are extremely difficult to remove. And, when you try to remove them, you typically damage the ship’s coating and and essentially so much that that we couldn’t you have to go and and send the ship for for repainting essentially afterwards, which means that then the really, the the most efficient strategy is to prevent them from settling on the ship’s hulls, and that’s where I think comes in. Right? And and we talked about it in q q four or in the year end presentation as well. Right?

But what if the a third of the global fleet actually was using 36% more fuel than needed just for a day? What would that mean in cost and emissions? And what we presented then, I think, already in February was this slide, right, the new in docking data study that we conducted in the end of last year, beginning of this year, where essentially we asked Safina, a coating partner to ship owners, to look at their data and they essentially they give advice and and suggest solutions for ship owners, what type of coating to put on the ship. They were looking into the data sort of on the of over 760 ships. And what they could see there when they came in for doing dry docking then, a third of those ships really had completely unacceptable levels of barnacle fouling.

Right? More than a third of the underwater area being covered in barnacles, which means then, yeah, 40% or more additional fuel if you want to say sail at the same speed. And what we also found in the study then was that the the ships that were coated with select hope had a significantly improved condition in terms of that. So almost no no or very little barnacles in those cases. And today, actually, then we thought of showing you some data.

What does this mean for a ship owner or ship operator that your ship is fouling and that you have, for instance, barnacles growing on the ship’s hull? So I want to show you some some new data then. And first, we need to talk a little bit about vessel performance then. And when we mean vessel performance, it’s essentially, you know, you have a certain RPM on your engine, and you can measure then what is the speed I get through water. And you can look at that over time.

And that essentially you get a plot like this. You can see a lot of dots sort of seemingly all over the place. And of course, there are a lot of things impacting the speed of a ship. Right? The wind force, the wind direction, the waves, the wave direction, the currents, and so on.

Right? Hence, you will get this really scatter of data points if you try to measure them what sort of engine power results in what type of speed. And essentially, what you can see though is you see here the graph is speed loss is sort of on the negative x axis here. So the lower you get, the more speed loss you have versus sort of your set speed. What what is this ship supposed to sail at what speed with certain engine performance.

Right? And then you can see over time. And what you see then is essentially a linear reduction in the speed over time. Right? And that when you go into dry docking and you apply a new anti fouling coating, then sort of that performance is gained back again.

You know, the ship can save faster through water, and you started sort of a new round then of degradation. Right? And this is essentially why the ships really need a new coating then and sort of have to go into docking approximately every five years. So this is sort of a typical data set then for a ship owner. And I was speaking to several of performance monitoring service providers.

So essentially companies then that help ship owners to to monitor the performance of their ships. So they install essentially sensors and they have softwares and and data models and to see how the performance of the ship and sort of the speed through water develops over time. And sort of what what they told me, you know, looking at their data, one specific service provider, he said, yeah. Typically, know, I have we have a lot of tankers and bulk ships in in our fleets. Right?

And what we see on average is all of you know, with all of this data, approximately, they lose 7% of the speed over the five year period. And, of course, there is variation in this dataset. Right? So there you have some vessels that have, you know, premium multi fouling coating that is really optimized for their specific route and and the activity level that has close to no speed loss, right, during the five year period. And there are plenty of examples of sort of, you know, catastrophic examples.

They did it. I mean, he mentioned one specific here. Could see a dataset of a tanker that was idling outside the coast of Mozambique for three weeks. And essentially after that, they, you know, the the the the speed was heavily impacted. And they sent down divers to look, and they could see that both the sides and the and the flat bottom of the ship had 30% or more cover of barnacles and slime and algae, etcetera.

Right? So essentially, that ship would have to be sent to cleaning. And most likely, at the cleaning event, they would damage the the hull coating so much that they probably would have to clean it again very shortly afterwards or actually consider an early dry locking for that ship because it simply wouldn’t perform. So, I mean, this dataset is, of course, covered with with different examples of ships and how they perform. And then you could say, okay.

So what does this mean for for a ship owner in terms of trying to translate the speed loss then into money? So we prepared a little casing just as a as a case of example. So the rule of thumb, they say, is, you know, what whatever speed loss you have, you can multiply that three times to sort of get an estimate of the additional fuel that you need to to recover that speed. So essentially, a ship that that is has a speed loss of 7%. If I want to sail at the same speed, I have to increase the engine power and the fuel consumption three times seven.

So 21%, actually, the the the fuel consumption. And, of course, that would have a massive impact over five years. And if the nice thing here is, of course, if it’s a it’s a linear effect that happens over time, you can see then, okay, what is the impact? Right? So let’s say that the ship captain, he was just compensating all all the time the speed loss, right, with increasing the engine power and increasing fuel use.

In the end, over this five year period of time here, they would have overconsumed bunker fuel for a value of 1,800,000.0 US dollars. Right? So quite significant. Right? The other option that he has is, of course, that, okay.

I I, you know, will sail slower because it’s no problem. You know, there is congestion in the port anyway. We will have to wait when we get to Rotterdam, etcetera. So we just steam along, you know, slower. But this, of course, also has an economic impact.

And that economic impact depends if you are sort of a ship owner that yourself, you’re operating the ships and and you are doing sort of the the the trade service yourself, or if you are a ship owner that just charters your boat to others. Right? And typically, when you charter your boat, you have a fixed daily fee, and I I assume the quite low rate here of $15,000, which is, you could say, quite a low rate considering today’s situational conditions in the market. Right? But anyway then, over this five years period, you would have lost forty five days of productive time.

Right? And of that would have an equivalent value then of 670,000 US dollars. So also substantial money, right, to be saved by having a better antifouling solution. But then you come to, okay, what is the trade off then? What is the cost of a premium antifouling versus sort of a basic paint scheme on the ships.

And that could be an example we heard is up to $200,000. Right? That’s the the the difference that that can be. So, of course, depending on the the conditions of the market, you know, is are there good rates or are there bad rates, etcetera, you know, what is the likelihood that the ship owner would put on high performing coating. Right?

It is always a balance. And and you could say, is there enough money around to spend on service, or do I have to to save on that as well? So things that actually impact the ship owner’s decision of of taking a premium coating or not. And just to reiterate to what we’ve said in the past as well, right, we do see an increased number of ship owners choosing premium anti fouling coating. That has really grown its share in recent years.

And we expect that to continue as well because essentially the saving is really positive to do that. And that leads me to the market outlook then. So we in iTech, our solution then is used both for newbuilds and for dry dockings, right? And we estimate then with of the 10% increase, there will be around 2,000 new vessels being put on the market this year. And the dry dockings, they simply follow, you could say, a regular scheme.

They have to come in at least every 60. However, of course, there is some wiggle room here. And typically, what you see with the ship owners now is that, you know, times are uncertain, the shorter rates are dropping, etcetera. Then the the ship owners are trying to postpone the dry docking as long as possible, right, to maximize the value that they can get because they know that the the charter rates will go down. Right?

So let’s let’s wait and see, right, and and not not not go in for a service event right now. Yeah. I mean, reflecting, you could say, our sales, both for new ships or vessels and for dry dockings, then China is dominating. But for new ships, then Japan and Korea are quite sizable markets as well, as well, and that’s something we talked about in the past. And the opportunity then for SelectTope and for good antifouling technologies, we estimate to be around 3 to 500,000,000 US dollars overall.

So that is sort of the market that we’re tapping into. So, yes, for the newcomers, our solution is select top then, which is a substance called metatomidine that comes out of pharma. It’s used as a sedative sedative in veterinary and human medicine today. And it has the opposite effect on barnacles. It actually makes them temporarily hyperactive so that they cannot settle on the the sheep’s hull.

But it doesn’t kill or harm the barnacles. It’s a temporary and nonlethal effect. It enables coating companies to make more innovative, because they’re better performing coating that has a lower also environmental footprint. And it is commercially proven now and used in six out of the nine largest paint companies. We hope to see number seven coming during this year.

And it is applied then to what we estimate a little bit more than 3,000 chips so far. So we believe we have a very, very scalable business with plenty of additional potential then. I mean, 3,000 ships out of a global fleet of 110,000 ships, there is definitely room to grow. Our model is outside asset light. We have outsourced the production, and we are looking into continuously optimizing, you could say, our supply chain and production setup.

So that is also what we are reaping the benefits of now in the gross margin. We are essentially a a company, so we’re based on intellectual property, formulation, know how, and sort of knowing the customers. And we have a really unique technology with Selector. There is no direct competition today, but of course, other antifouling solutions are available in the market. We also cannot avoid this topic.

I mean, to to most of you listening in, you are aware of our reregistration process and the challenges that we have faced here in in the European Union, and we have continuously talked about that. What we know has happened now is that the standing committee on biocidal products have had this meeting in March with the first discussion, you could say, with the member states regarding all that support that we got during the public consultation. So, essentially, all stakeholders were able to submit their comments, etcetera, to ECA’s proposal and also describe sort of how they use SelectOpen, why, you know, if they believe it should stay on the market, etcetera. Right? And we did, as we have reported earlier, received quite a lot of input in this, which we are very happy about.

So thank you if you also took part in that. That’s really important now. But we expect this discussion, you could say, regarding the input and the way forward to continue now also in the June meeting going forward, and that the situation will become more clearer towards the end of the year. And what is it actually that the European Commission is suggesting sort of to to give Zenithope renewed approval or another decision. Right?

What we also can say is that since the the current approval of Cellectope will end in June year, we expect now that the standing committee on bioCyber product will announce that there is a temporary extension of the current approval. That is sort of a standard procedure that is done in all these cases because they typically they drag out in time, and they are not able to to finalize their assessments in time, so they extend the the current approval. So that’s course, we we will not lose our license to operate in in Europe in the middle of this year because they haven’t decided. So that’s something we are expecting now to happen in in the coming month. So that that on the European situation, I think we are arriving then sort of at the outlook.

And and I think what I want to say here today, I’m we really see increased uncertainty and market turbulence that is affecting the sentiment in the industry. So people are avoiding taking decisions, whether that is to place orders for new ships or doing service events, etcetera. And the market is sort of reorientating itself in terms of global trade. Right? And, of course, the last word is not said here, but definitely, I think it has an impact on our market.

Right? And we haven’t seen much of it in numbers in q one, but we just want to flag that this volatility that we keep on talking about, that we have volatility in our sales over each quarter. Right? The likelihood of that volatility has increased a lot under the current conditions. And also we see then, of course, the currency headwinds really weighing in on us during this year, right, because the US dollars, as I wrote in the report, it has depreciated with approximately 10% during the first quarter.

And let’s see what happens then. I mean and and we haven’t seen the effect of that in in our numbers really yet. Right? So really flagging for a worsening macro environment. Right?

And it’s it’s really interesting how quickly this changes. Right? When we presented it in February, you know, the the signals still overall looked all positive. Right? And now that picture is really completely different.

So it just tells you a little bit of the volatility in the world that we’re living in. Right? Of course, besides that, we are look looking forward to new customer product launches. As I was mentioning then, we we did announce in the beginning of the year another customer coming on board, and we expect them to launch products as well during this year. And also, as we talked about here a number of times, we have a business development activities that really have accelerated them.

And and we, of course, look forward and would like to present more details on this during the year, but there is very good progress and momentum on some very interesting new growth opportunities for the company. So more on that to come. And, of course, we continue to work with the operational improvements, and and we hope to be able to present sort of more on that during the year, and then you can see the effect also in the gross margins. And also you could say now the advocacy regarding regulations and renewed approvals is becoming, you could say, more or less running business. Right?

So we have sort of signaled during last year that we have taken on higher costs for that. And and, I mean, we see that continuing for the for the good part of this year. Right? Essentially, the costs that we have associated with with advocacy and and new renewal of improvements, etcetera. So that is what’s seen ahead.

All right. That was actually the presentation, Fredrik. And now I’m eagerly awaiting and happy to receive your questions.

Moderator: Thank you for this presentation, Markus. We have received some questions here for you. Could you provide any additional detail on what percentage of total net sales CMP and PPG accounted for during this quarter?

Markus Janusson, CEO, Aitek: Yeah. We we have talked about, you could say, diversifying customer base. Right? I mean, if you if you come from sort of, like, 2023, you know, CMP was representing 80% of sales, essentially. Right?

And what we saw during 2024 was really a diversification. Right? Other customers really increasing the penetration and the use of SenecTube. Right? And we ended the year essentially with CMP then representing 66% of sales during 2024.

So we could say a good solid progress on diversification. That is that trend is still there, and and we see actually the same result this year that CMP now in q one represents about 66% of the net sales. Meaning then that PPG is, you could say, in that increasing pool of customers that represents 33% of the net sales. I don’t have the exact numbers now, unfortunately, for PPG, but, you know, they are coming from a a low base. Right?

But we see them being quite successful and and really increasing their sales dramatically. So I think, you know, stay tuned on that to see how that develops during this year. But essentially stable then, you could say. C and P is 66%.

Moderator: Thank you for that answer. I noticed that some major companies have been in the customer portfolio for several years, but still represent only a small portion of total sales. Should we expect these to scale up over time? Or how should we think about this?

Markus Janusson, CEO, Aitek: That is definitely our ambition and what we, of course, try to convince these customers of. Right? You’re you’re absolutely right that some customers, you know, they are using our product, Sellito, in some niche products, right, that are solving specific challenges for instance and have had, you could say, yeah, sort of a a stable business for these products. Right? Our challenge is to convince them then to use them also in the mainstream projects products, sort of the higher volume products.

Right? And that is ongoing. And, of course, you know, that is you know, the challenges can be related to technical, and, essentially, they will have to reformulate and and implement new technologies. And that could actually be beyond only using selector. Right?

Because our product is highly efficient on, for instance, barnacles, but, of course, you need a protection that that covers sort of all the different biofouling challenges. And if you go in and make changes in the product, right, it typically takes customers some time to do this. But we are working very actively on that, and really, it’s our target that they would also grow their sales going oh, sorry, their purchase of Cellectop going forward.

Moderator: Thank you. Why is it easier to initiate sales for new builds compared to drydocking? What is the current share of each segment?

Markus Janusson, CEO, Aitek: Yep. It’s a it’s a very good question. Right? And and sort of the success of Selector really started in the new build segment because, essentially, you can see the effect very, very quickly. So the bottleneck of new shipbuilding is the dry dock.

So what the the the the wharfs are doing, they are sort of hurrying to put the ship together so it can hold water, and they put it out in the in the dock instead, of outside the dry dock in the water, and then they complete the ship there. And at that time, the ship is lying still in the water for between six to twelve or even eighteen months if it’s a very complex ship. And during that time, of course, the ship is sitting still in the dock. It’s warm water. It’s summertime.

It’s a perfect sort of condition for various fouling to settle on the ship’s hull. Right? And when the ship is ready, it actually has to pass the sea trial. So they take the ship out to sea and they sail it, you know, they rush the engine, they test it and so on, and it has to sail at a certain speed because that’s what the the ship builder has promised, right, to the customer. And, course, if you have a lot of fouling under the ship’s hull, it it will not pass these tests.

And in in historically, the what the they had to do was to bring the ships up in the dry dock again and and blast them and put a new layer of painting. But what they can do with selector then is essentially they can skip that step. So they can have the ship in the water and use specific outfitting paints they have sort of with, you know, very strong good protection against fouling. And then the ship is is ready and can be delivered when it’s finished. So it is a huge saving, and and that’s easy to see the value of SelectTOPE.

For sort of the five year period, you know, you can hear already there. Right? It takes five years to see the effect of a product. Right? And so that’s why it takes longer in dry docking.

Commercial sales for Cellectope started in 02/2014. So we are essentially now only two dry docking cycles down the road from when we were put onto the market. Right? But, of course, dry docking is 10 times bigger than the new bid. Right?

So that is the segment where we need to to increase the penetration. And hence, the data that I was showing now regarding the effect of Selectop over a five year cycle, right, is very important to us. Right? Because it clearly shows there is a lot of savings to use SelectRope also over sort of the full five year period, not only when you are building chip in the dock.

Moderator: Thank you. And do you expect the optimized production to balance out negative currency movements on gross margin in the coming quarters? Or should we expect a somewhat decreasing gross margin?

Markus Janusson, CEO, Aitek: Sorry, Fredrik. I think I forgot to answer your question also. The split between new build and the and dry docking, that was part of the earlier question.

Moderator: Yes. It was. Please.

Markus Janusson, CEO, Aitek: Yeah. Sorry. So yeah. Historically, we have said we had about sixty forty. Right?

60% new build, 40% for dry dock with our internal target to really grow the dry docking business. And and for instance, the PPG product that we talked about is one such product, right, that is really targeting both new build but definitely dry docking business. Right? So it’s an important product for us. However, when we analyze the numbers, we said we we had very good growth in 2024 and specifically in the Korean market where there is a lot of new builds.

So I would say it’s it’s still 6040 or even for the full year 2024, it could actually be a little bit higher even for new build. So we are still analyzing the numbers on that. So it is you could say our growth, our untapped market is in the dry docking segment, and that’s where we are working, you could say, both technically and directly with the customers. Alright. And and, sorry, could you repeat, Frederic, the question on the gross margin just so I get it right?

Moderator: Yes, of course. Do you expect the optimized production to balance out negative currency movements of gross margin in the coming quarters? Or should we expect a somewhat decreasing gross margin?

Markus Janusson, CEO, Aitek: Because of the currency, you mean? Yes. Well, no. I I wouldn’t say we will see a a decrease in gross margin because of the currency as such. I mean, the the gross margin, I mean, we are our operational level currency is US dollars.

Right? So we both buy, you could say, product and sell in US dollars. So so that does not affect it per se, you could say. So I think we would see percentage wise that we can continue to improve the gross margin.

Moderator: Thank you. Next question. You talk about a slowdown in shipping orders and generally weaker shipping industry with rates down, etcetera. How and when would you expect this to impact Aitik? Presumably, it won’t impact 2025 much, but could it impact you during 2026?

Markus Janusson, CEO, Aitek: Well, as I said, the the likelihood that we see volatility in our business as well has increased dramatically. So it goes really quickly in in today’s world, right, how things are changing. So I would say that this year has you know, it’s it’s become less certain where we will end this year. Right? And and I would say this volatility already impacts the shipping business.

Right? And, of course, we are, you know, upstream of that. So, I mean, already today, there is impact. So we definitely would see that, I would say, this year. Right?

But we don’t know exactly how it will pan out. So I would say already this year, we should expect to see the effects of the ongoing transformation on the global order.

Moderator: Yeah. Can you give us an update on how much of your business was represented by CMP in the first quarter?

Markus Janusson, CEO, Aitek: Yes, 66%. I think that was the first question as well. So they sort of maintain a stable share in Q1 as well.

Moderator: Thank you. Can you give us an update on how your business with PPG is developing? Is it growing strongly? But are you you are only presenting one product, I believe?

Markus Janusson, CEO, Aitek: Well, the the fact is that this product that PPG introduced and launched during last year is their new flagship product. Right? So it goes both for new build and for the dry docking segment. They apply, you could say, a little bit differently depending on if it is a dry dock or a new build event. Right?

But the it is really a flagship product, so it is the product to be in for PPG. So it’s it’s quite important for us. And I I think we also wrote that in the report. Sales with PPG is up, like, 300% if you compare it to q one last year. And, of course, you could say that they they basically launched the product during q one last year.

Right? So, of course, you know, it’s it’s up from from a low base.

Moderator: Do you think they may include SelectTOPE in more products?

Markus Janusson, CEO, Aitek: Yes, we certainly hope so. And if there will be additional products going forward, yes.

Moderator: What’s your base case on the gross margin going forward on the back of the currency movements headwind? Are we looking at closer to 50%?

Markus Janusson, CEO, Aitek: No, I mean, we don’t give a certain number estimate here going forward. I think the target is to continue to improve the gross margin per se.

Moderator: Yes. Thank you. We have even more questions here. You did not specify the regulatory costs for this quarter in the report. But judging by the higher external costs both quarter on quarter and year on year, it seems they are higher than in previous quarters.

Should we assume this elevated level will continue until a decision is made in the regulatory process?

Markus Janusson, CEO, Aitek: Yes. We shouldn’t expect them to go down in sort of this year, no, exactly. We expect it to continue to be on a high level, like you say, right now in the Q1 level approximately. And that is due to all the activities that is being done linked to reregistration.

Moderator: Thank you. Asia accounted for 98% of your sales this quarter, and China was the fastest growing market. Is your view on the potential for growth in the Chinese market future?

Markus Janusson, CEO, Aitek: Well, I think it’s a massive opportunity to grow in China. I would say also with CMP, the existing customer, right, and also new customers. So it’s such an important market. However, I think we talked about this earlier as well. The the conditions in China are very different from Korea when it comes to new build.

Right? Most of the the Chinese shipyards are in river deltas. So they do not have the same problem with barnacles during new build or construction of ships that you have in Korea and and China. So you could say that the the the fundaments of the business that sort of that started for SelectRope in Korea and Japan does not exist in China. Of course, the dry docking value proposition is still very strong, right, and that’s where the growth opportunity comes in China.

I I want to say also on on the external costs as well, Frederic, sort of, yeah, I mean, we we see sort of stable costs, I would say, on on the regulatory affairs. I think we also see an increased cost, and that is also linked to our business development activities. We see that, you know, we are, of course, increasing our resources here and and sort of our efforts on business development. And that’s another source of additional costs, right, for us going forward. So it’s not only the regulatory associated costs that is making the the base or the growth of the external costs.

Moderator: Thank you. The new product launches you mentioned, are these primarily for the drydocking market or new build market?

Markus Janusson, CEO, Aitek: If we speak about this new user, the Asian coatings company, we cannot say it. We we do not exactly know the the proposition of those products. Right? So we we know they are in the making, but we don’t know the details. Hopefully, both.

Moderator: Thank you. Could you elaborate a bit more on the expected currency effects coming quarters? Should we expect that the effect to hit more in the coming quarters? Or do you have adopted a hedge strategy, for instance, for handling these effects?

Markus Janusson, CEO, Aitek: No. I think we should expect increased effects going forward. We don’t have a specific hedging strategy. So and of course, it depends on where the currency go from here, right, or the exchange rate, essentially. Right?

But we we haven’t seen really the the negative impact to to that extent yet in q q one. I think we will see more of it sort of in the coming quarters of the year. And then depending on how this develop, right, it it could be even more sort of pronounced effects.

Moderator: Thank you. Can you elaborate a little on your customers’ buying pattern? Are they building inventories in these market conditions? Or is the top line predominantly driven by higher volume demand from end users?

Markus Janusson, CEO, Aitek: Yes. I would say predominantly the demand. Right? So everybody wants to avoid building any type type of stock, I would say, in in in the market conditions that we are in now. Right?

But but our customers do need a minimum stock level, right, to actually operate the business because it is not as predictable with the drydocking business as it is for new build. Right? A drydocking event, simply a ship owner can decide from, yeah, one week to another. Right? Let’s dock this ship.

Right? Let’s see what is available. Right? And, of course, to be able to catch such spot business in the dry docking segment, you need to have some basic level of inventory, right, if you are a paint company. Right?

And then you need that in many places because you don’t ex exactly know where your customers will come in. Right? So it’s yeah. It’s basically demand. That’s the answer.

Moderator: Okay. Strength you have a strong cash position. Where is that being allocated in the near future?

Markus Janusson, CEO, Aitek: Yes. Well, we have a dividend payment that is proposed now by the board to the annual meeting, and that is one thing. And then we will see. I mean, we need to have a strong cash position, I would say, as to really secure the the ongoing business, but also then, you know, to selectively invest in some of the business development activities that we have here. And and of of course, we are counting on sort of the the cash position we are to to to help us with that, right, going forward.

Moderator: Thank you. How many of your six suppliers have included your products in their broader product lines compared to niche?

Markus Janusson, CEO, Aitek: How many of the six active customers have included them in broader? Yeah. Sort of in more, yeah, in more than niche products? Yeah. Oh, that’s a good question.

I would expect three to four of them, but that was something I would need to check. But, at least half, I would say.

Moderator: Thank you. One last question here for you, Markus. Can you just develop a little bit on the macroeconomics effects on new build sales relative to repainting at the moment?

Markus Janusson, CEO, Aitek: Yeah. No. And and good again that we reiterated. So we don’t see sort of the turbulence today affecting the new build short term, right? Because the the ships that are being completed and painted now during 2025, they were ordered several years ago.

And and sort of the order books for the shipyards in Korea and Japan are and and I would say, basically, in China as well are full. Right? They they have a lot of work in the coming three to four years. Of course, you could say if if there is a severe downturn, people may start to try to get out of the orders of the ships that they have ordered. Right?

But then we are sort of into really negative territory. So I I you know, we haven’t seen any effect whatsoever so far of of the turbulence, you could say, on the new build. But we except that sort of the the the order intake for new ships have been really sort of hesitant in in the first quarter. Right? So the the filling up of the pipeline, you could say, four or five years down the road, that is what is being affected right now for new build.

And as I said with the with the service event, that is that that can be affected day to day. Right? So if the the rates for charter rates are falling, then, you know, the the owner can decide to try to postpone because there is some wiggle room. Right? You can wait six months with with dry docking your ships.

So let’s let’s do some some additional runs while the business is still here. Right? But also we see that if there is a downturn and, you know, a softer demand, that’s typically also when the ship owners do service events. Right? Because then there is time, you know, you’re not losing that much money, so it can also be eventually a a positive drive on on the service and the dry docking business.

Right? So I think the problem is that it’s it’s very difficult to say right now because there are many different signals sort of in in pointing in opposite directions.

Moderator: Thank you. Is your cautious comment comments regarding the outlook based on actual observations so far in this quarter or the current quarter among customers or just a very general cautionary comment?

Markus Janusson, CEO, Aitek: It’s a strong general cautionary comment and sort of, of course, speaking to the customers, yes.

Moderator: One last question. Have you noted any expansion towards retrofit repainting in your customers’ product offering?

Markus Janusson, CEO, Aitek: Sorry, Fredrik, could you repeat that one? I’m sure I Yes.

Moderator: Have you noted any expansion towards retrofit repainting area in your customers’ product offerings?

Markus Janusson, CEO, Aitek: More products, you mean, in that area. Yeah. I I would say we we saw that trend during 2024. We hope that to continue. Right?

That that we see more and more products that are targeting the drydocking or the service segment, right? So that was a trend that was happening or was positive during the whole last year and which we hope will continue also this year, right, that we will have more products than targeting the drydocking segment.

Moderator: Thank you. And that was every question we got in for today’s presentation, Markus. Any last words for the audience?

Markus Janusson, CEO, Aitek: No. I mean, thank you very much for listening in and for bringing forward such Yeah. I I hope I did my best to reply to them, and, you know, thank you for the for the interest and confidence in ITEC, and and see you in another meeting going forward. Right? So thanks for today.

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