Applied Graphene Materials plc (OTCQX:APGMF) Q2 2022 Results Conference Call April 6, 2022 9:30 AM ET
Company Participants
Adrian Potts – CEO
David Blain – CFO
Adrian Potts
Welcome to Applied Graphene Materials Interims Results Presentation, where I’m pleased to be able to update you and share with you our progress with our graphene dispersions and application technology business. I’m Adrian Potts, CEO. And with me today is David Blain, my CFO. Together, we form the executive team. We’ve made some great strides forward in developments in our technology programs. The capability in-house is not just to make graphene materials, but to integrate them into example formulations and test them in real life applications.
This truly sets us apart in the spaces in which we operate and gives us a solid technology platform to enable long term commercial growth. At Applied Graphene Materials, we’re proud to be a leading innovator with graphene nanoplatelets through our dispersion and application knowhow and technology footprint. Our purpose is clearly about recreating value for all our stakeholders, applying graphene materials reliably and repeatably into a range of applications. This creates a valuable technology platform for graphene deployment and the results of this are an exciting range of materials technologies that stand out and are easy to deploy in practical applications.
Our mission at this stage of our development is continuous innovation and technical leadership with graphene through dispersed formats, and to deliver successful outcomes with customer engagements using our dispersed products. And this ultimately is what creates a valuable revenue stream and value for AGM, and the vision, growth and performance and return on investment pushing the boundaries with this exciting class of materials and developing our commercial revenue position in our chosen fields of application.
We believe that our approach enables a greater potential for successful outcomes around the possibilities with graphene. Great knowledge around how to use these materials to great effect is backed up with solid performance data. Our dispersion technology experience and know how are true differentiators and the key to benefiting from the outstanding properties that grapene has to offer.
We offer a range of graphene types to suit different application opportunities. Offering a standard dispersed product range has been key focus for us to afford end uses a reliable and repeatable product experience. And we can also customize to suit specific formulating applications. Our dispersion and application knowhow enables determination of the most appropriate graphene and particular dispersion formulation to suit the particular end use application. This is our key USP that truly sets us apart.
In terms of operating highlights or operational highlights, it’s safe to say that we’ve been operating in a challenging environment for the past months in the industrial protective coatings environment. Despite this we’ve made excellent progress with some of our customers using our products and good progress in our technology platform development and in our work with our distributors as well. We’ve been successful using our products in anti-corrosion applications with the UK Environment Agency and with Alltimes Coatings.
Conductive products have also been used to really good effect with stand back in India. We have the launch of our own primer products to enable further customer engagement. And the car care sector is progressing well for us, and from early stages of products launched by small entities, we now have larger companies evaluating our materials.
Similarly, useful progress is being made with companies in the hydrogen storage sector with graphene in composite materials, and in-house we’ve continued our push for development of our technology platform with anticipated marketing of new data to enable reach into new areas, such as chemical resistance applications market. Our IP portfolio has expanded with patent grants, and regarding customer products, our Graphene dispersions are now being used in a number of launched customer products from protective industrial coatings to car care to composites. These early products are great validations of the potential of Graphene in these applications and beyond.
Our commercial strategy is to present AGMs products and engage with global opportunities through a network of distributors on a wide platform, we’ve been able to support them well technically regarding our products and how to use them to really good effect. We’ve also added to the sales network with a new distributor in Taiwan. One of the areas of support and commitment on our part is for regulatory approvals to be able to support our distributors for future higher volume use. And current activity in this area is focused in the United States.
David Blain
Thanks, Adrian. So I’d like to cover the main financial and strategic highlights during our last period, and our current stage of commercialization. And these include, revenues for the half year of GBP 46,000; operating expenses were in line with expectations on the previous period; loss before interest tax depreciation and amortization increased by GBP 145,000 versus the previous period essentially as a result of the increased gross loss. Cash, we believe we’ve managed well and it’s at 4.2 million at the period end, which continues to carry us beyond the January 31, 2023.
Coatings industry has been going through a very challenging period in the last 12 months. And this has impacted our sales growth. One of the key reasons has been diverted resources away from our customers to deal with supply chain issues. Despite this, new customer launches totaled 24 with five new products launched during period. We continue with a strong pipeline of engagements. Although the pace of evaluation of our approach has slowed as I’ve just previously discussed. We see this as a timing issue rather than the fundamental change. Our commercial focus is on distribution of Graphene dispersions as the conduit for sales on a broader platform and we were pleased to add a new distributor to our sales network to strengthen the opportunity in Asia in March, 2022.
Adrian Potts
Thanks, David. To talk to that dynamic that David’s been discussing in the industrial coating sector and beyond, the past 12 months have seen significant impact by our number of conflicting events. The challenge has been in the basics of building block chemicals used for the industry. And this has been wide ranging. It’s also been overlaid with the logistics problems from Asia and beyond, where a lot of materials are currently sourced. Customers have needed to respond accordingly to these pressures and to ensure continuity of their standard products. The practical means of them achieving this has been for them to reallocate in a innovation teams and R&D resources to basic problem solving for base chemistries. And that involves finding ultimate basic materials that will work in their products. So switching from looking at new technologies to finding replacement for current materials that are in short supply.
All of these impacts of combined with the legacy of COVID and the availability of staff to meet this challenge. And the outcome of this has led to a lack of availability of innovation resources in many of our customers, which in turn has affected the pace of engagement with our products. And this is especially true with some of the smaller companies where resources are especially thin.
The challenge has been ongoing through 2021. The good thing is that the industry is starting to regroup and reliance on single sourcing and offshoring continues to be addressed across the breadth of the industry for wide-ranging materials. As David mentioned, timing-wise, we see this as a timing issue and we see the industry starting to bounce back in terms of volume of products sold and as a result of that, R&D teams being able to regroup and return to their normal operation. So, we anticipate a progressive upswing in availability of resources to look again at innovative products for customers, for future product development. It won’t be immediate, but we see the signs as positive.
Our commercial strategy continues to be centered on and expanded salesforce through well-equipped distributors. We have a strong network of representation around the globe, and we continue to develop this with new appointments expected in areas such as Latin America and India, being two key areas for us. I’m really pleased to have secured a distribution agreement with Rayoung Chemtech in Taiwan to strengthen our opportunities in Asia. Positive progress with them is already starting to happen, and that organizing multiple materials sampling requests for customer applications in that region.
With the opportunities potential that graphene presents in the coatings and composite space, we have worked especially hard with our distributors to support them technically, and as have sought to introduce our dispersed graphene materials in their respective regions. We see this pull on AGM resources as a good thing. Firstly, it means distributors are presenting the products and secondly, it creates opportunities and means that our customers are actually asking the right questions. So this effect, this effort is a good investment for the longer-term success of our distributors with further engagements with our products.
As I mentioned before, regulatory support behind the scenes, it’s not an often discussed subject, but it is a necessary one for the future volume of our class of materials. AGM set out a strategy to get ahead in this area and in doing so answers the challenge of future volume use of graphene materials, our efforts to cover a range of territories, but specific focus is in the United States market with the EPA, and with a target to achieve a TSCA listing for our products.
And back to David to talk to the pipeline.
David Blain
Thanks, Adrian. We have always said that the sales cycle of graphene products in most applications can be lengthy and it is very difficult to focus the duration of each development program, and this is especially the case in the current climate. The pace of adoption ultimately is dictated by the pace of our customers. And as we discussed, this has slowed given the issues in the industry at large currently. The chart on this slide helps to describe the progress of increasing technology readiness levels within a customer project from inception and first to look at the graphene dispersion to final commercialization of finished product. The numbers in each box cover the number of customers at each stage of evolution through the process of customer engagement, evaluation and testing.
Most of this activity is for industrial focused protective coatings customers with activity also in aerospace, oil & gas and marine. Stages four and five is where the processes becoming more developed and testing repeated, have grown on top of some of the parts that having come to — have been completed during the period and have been launched. At the end of January, the pipeline is 34% greater than it was at 31st of Jan, 2021.
The number of opportunities in the final stages of the pipeline, that is stages four and five, has grown from 17 to 21 during the period as a result of the 11 opportunities moving up the pipeline. Five opportunities were completed, and two opportunities have discontinued. In total, method additions to the pipeline, 8 opportunities have been discontinued during the period. We can currently identify six further customer engagements, which we believe are very close to commercial traction.
Clearly, not everyone is successful in their use of graphene materials, but the level of support we are able to offer, plus the depth of knowhow in use of our materials in a practical way we see good traction with many of these opportunities.
I’m just looking at the distribution of the pipeline. The majority of our activity continues to be centered on protective coatings technology, around 85% of the total value. Protective coating is our strategically important market where we have demonstrated the performance advantages of graphene nanoplatelet dispersions. And that’s — it gives us a platform technology that we expect to expand in the future.
Regarding sales valuation of product engagements in our pipeline, we attribute a potential revenue value to each of the 168 engagements at 31st of Jan, totaling 2.7 million. So this is essentially an expected annual revenue of when the product is at a recurring level in full use and it’s successful, we then perform a technical and commercial review and a probability of success factors applied to each opportunity. So we see a probability weighted annualized sales value for these engagements of around 2.7 million.
So we see some great potential value for revenue growth as these projects complete and come to market. We believe that the pipeline of engagements is a strong asset of Applied Graphene and development risk is spread across numerous opportunities other than dependent on a handful of larger ones. As you can see from the pie chart on the left, emphasis is heavily on the opportunity in protective coatings with 64% of the opportunities by sales value being in that area and a further 21% of the opportunities in the car care sub sector of coatings.
We are expecting good growth in the number of engagements and materials being evaluated once the marketing push into the chemical resistance protection sector commences which we expect to be later in April.
Composites, those small by value at this stage contains some solid engagements with customers looking at materials in the hydrogen storage sector. The pie chart on the right shows that regional split of the pipeline, it is a well-balanced portfolio of opportunities with our distributor partners. The pipeline includes 60, which is 30% to 60% of the opportunities with the distributors. And we now have approximately 90 sales people promoting Applied Graphene products via distributors, and also our small in-house sales team.
Adrian Potts
Thanks David, and turning our attention to commercial use of graphene dispersions in industrial protective coatings. We launched two new primer products for the sector in the period to demonstrate directly the potential of graphene in protective coatings. One of these products is for general purpose industrial use and the second is for much harsher anti-corrosion protective applications typified by the use on UK Environment Agency coastal flood defense applications.
Why finished product launches? Of course to create further income stream, but also to be able to offer these products to enable customers who wish to fast track their development to evaluate a finished graphene enhanced formulation and demonstrate effectiveness of the material in their specific application. We’ve supplied our Graphene HC or Harsh Corrosion Primer to the UK’s Environment Agency contractors for use of this finished coating on UK flood defense assets in the Northeast of England and are pursuing the next phase of engagement with sales of primer to further UK EA locations.
This is an important project for AGM as it marks the practical use of a Harsh Corrosion primary in real world applications where the objective is maintenance reduction through longer life Graphene enhanced coating systems in harsh and salty coastal environments. The coating deployed as a result of some 18 months of product formulation and extensive testing. A further customer focused development project is underway to finalize the development of a top coat to also complement the primer product for customers like UK EA. It’s a collaboration like this where customer has a clear objective to enable successful product outcomes, and this underpins the sales potential for the longer-term for AGM.
Positive progress has also been weighed with Alltimes Coatings and the use of their advantage Graphene product, which contains our Graphene dispersions on a growing number of roofing and construction cladding projects principally within the UK. Alltimes are making really good progress with the application of the Advantage Graphene product. The coaching offers a really great sustainable solution, outstanding barrier and anti-corrosion performance, substantially reduced corrosion over time. It benefits cladding and cut edges and guttering. It’s cost effective as a single coat system and enables thinner coatings to be used, extended life and reduced maintenance cycle, and the potential of increased intervals between inspection and maintenance.
And the system is now in use in a number of building maintenance projects, including buildings for [P&O], the Royal Mail [Little] and other retail entities. So it’s great to see the use of this product now becoming more widespread. And Alltimes’ purchase to also achieve certified use with architects and this enables specifies to actually call out the use of the Advantage Graphene product from the inception of new projects.
Business opportunities in India have developed with our customer Stanvac-Superon. The Stanvac Graphene based conductive and barrier coaching product is designed for reducing power losses on transmission line connectors, and it’s been used to demonstrate superior performance through this new product offering. Stanvac reports around 50 — 30% to 50% improvement with the Graphene based product depending on application.
We confidently await customer approval of the Stanvac product, which in turn will enable wider adoption and a progressive increase in sales volume for our dispersed materials. And Stanvac report to as that customer trials are reportedly going well, the customers are seeing the results that they anticipate and opportunities for customers to actually run the product is through their refurbishment and maintenance cycles. And this is where the product will enter service, and we will start to see increased demand.
In the floor coating sector, our lead customer in this sector reports that the testing phase is complete with our Graphene materials and that they’re now moving towards a development of a marketing campaign for the graphene based product. And we eagerly await the launch of this innovative concrete floor coating product, where Graphene is being used in a highly effective way. The graphene here is used to replace legacy materials at significantly lower loadings, giving the customer greater flexibility and reduced cost and improved performance.
So where does this lead for us? Initially the first customer product launch in this floor coating sector and that gives really good read across and confidence into our imminent chemical resistance coatings technology product launch. That’s expected to add to a number of engagements in this important sector opportunity, and we are also anticipating further development opportunities for anti-septic capability for floor coatings formulations to suit potential, for example, in the electronic sector.
Within the car care sector, one of our early customers in the automotive coating space, James Briggs, has a wide range of white label aerosol primer products using graphene for excellent anti performance, and this is developing into regular demand alongside that core high coat product. Product launch traction in the detailing sector in the car care market has been with a lot of smaller entities that have launched products on the back of very high efficiency, low graphene loadings and that means that run rates are inevitably low and hence demand for our products is similarly small.
It’s allowed them to differentiate though, and this has created technical traction for graphene within the car care sector, which is really important from a standpoint of product validation and future use with large entities. We are now well beyond that initial proof-of-concept and are looking for higher volume throughputs for our graphene dispersions, with large entities with consequential bigger demand for their products and wider presence on retail shelves.
We offer both a water based and sector relevant solvents based products with graphene dispersions, which are aligned well with customer need. The pipeline for engagement in the sector remains steady at 21% of total engagements by value, and with four customer engagements at a pretty advanced stage and completing testing. Post product launch, one of our U.S. customers continues to roll out their new technology to their sales network and anticipate progressively increased adoption.
We are at an advanced stage of development of engagement with one larger car care supplier and a hopeful of positive outcome for product integration and consequential sales volumes, once testing is finalized. And we were pleased to be able to launch 3 graphene dispersions in volume to a further U.S. customer in the car care products sector, which will enable them to launch white label graphene based product range imminently. And then finally, we have a further customer in this space, which is completing products stability testing with water-based and solvent-based dispersed products with a view again to launching into the U.S. car care sector. So a lot going on in the car care market, which is great to see.
Turning our attention to Composite Materials. Our Graphene dispersions offer specific technology opportunities in this sector efforts in the hydrogen storage space are starting to really govern momentum for us from the solid example that we have established with Infinite Composites Technologies. The use of graphene nano-platelets in composite structures enables a very specific performance gain in these already high performance materials. And as is the case with composites, is the process of how the material is incorporated, which determines the quality and the success of the outcome.
So AGM’s dispersed graphene systems are ideal for such targeted inclusion and marrying up with the range of composites processing methods employed for pressure vessel applications. As ICT progressively increases our build rate momentum with further demand, we are encouraged to see demand for our specialty dispersed products for the pressure vessels. And we anticipate an increased volume of dispersions to be supplied to them in the coming months.
A number of additional current engagements in the era of pressure vessel for storage of liquids and death technology is now actively evaluating our graphing dispersions. The appetite for exploration of the use of graphene in this area is expected to continue to grow given the increased awareness and interest of hydrogen power to sit alongside current and future battery technologies. So we anticipate a growing and longer term demand for hydrogen storage applications and are confident that we’re well placed with the end-to-end understanding of how to use graphene in these demanding applications.
Despite the slower place of customer activity that we talked to earlier ATM has focused on continuing the important work of developing our comprehensive platform of technology and the product offerings for the protective coding sector and beyond. And these are supported with extensive data and guidance documents on example formulation arising from many months of testing. These data serve to equip our distributors and customers on how to be successful in the use of graphene dispersions. And across the range of applications, we now have products that can fulfill the broad range of requirements in the anti-corrosion world and car care sector, and then combinations of attributes arising from graphene plus the use of a green product range to satisfy the requirements of sustainability initiatives with our customers.
We’re anticipating a major push in the area of chemical resistance coatings beyond the end of April and into May. This activity and this application opportunity is anticipated to open up substantial new prospects for us, with our graphene dispersions in a broader range of coatings possibilities beyond anti-corrosion.
We’re also expecting that the successful development of a graphene enhanced top coat product as I mentioned earlier, to complement the use of AGMs graphene enabled primers and intermediate barrier coats. This will give the end user full flexibility for determining the specification of their protective coating system development. So following on from the successful deployment of graphing dispersions into anti-corrosion formulations and developing the knowhow for this, we now see ourselves as really well placed to push into the chemical resistance coating sector. We have spent significant amount of time and effort evaluating our dispersed products in starting point formulations and have completed this data development which demonstrates great utility of graphene in this space.
The imminent chemical resistance coatings technology launch is expected to add substantially to the number of engagements in this important sector within our pipeline both with our own sales approach and through our distribution network. The scope for chemical resistance coatings is broad providing good platform engagement opportunity in protective coatings for concrete in pipelines, in transportation, in chemical storage and in composite materials used in this field.
Our platform technology development technology and innovation is central to success. And AGM is active in a number of further developing areas to build strength and depth to our IP portfolio and practical knowhow, which we can then use to good effect to support customer engagements. Near-term innovation for further opportunity creation, includes the complete data package that I talked to on chemical resistant coatings, proving our products in real time environmental testing and a range of applications, a further dispersion development to enhance the engagement opportunity with customers, looking at hybrid technologies and further dispersion chemistries, development of application focused materials technologies such as top coats and application for wind energy and coatings for electronics, a life cycle analysis for Graphene based proteins, so proving that the model works from an economic and end to end life cycle value review. And then work in principles and elastimers for textiles composites on providing the all important data packages for regulatory accreditation.
Our longer-range technology development in the areas of material evaluation for green energy, for battery technologies and hydrogen fuel storage are progressing really well. For the longer-range, further development of Graphene in composite pressure vessels, battery applications with our Graphene coatings products, including work at St Andrew’s University, Warwick Manufacturing Group and Silicon-Lithium project at Northumbria University, and then the application of novel material structures for hydrogen fuel cells. And we’re also progressing the development of thermal interface materials from the platform of thermal adhesive technologies. We anticipate a product — a positive engagement in the automotive sector for such materials, which embody high thermal conductivity and low weight through low density.
We’ve made positive progress continuing to build an IP portfolio around the effectiveness of Graphene in the application of these materials through our dispersion technology. And recently a UK patent was granted for the use of Graphene nanoplatelets in water based coachings to support sustainability initiatives. Post period patent grants were notified in Singapore for corrosion on multiple substrates, and then a Chinese patents office grant for our patent for aluminum corrosion protection with Graphene. And trademark progress has been good as well with trademarks granted in the U.S. and Turkey.
In terms of customer product launches to date, we’ve seen some great progress here. 24 products now launched by customers as David mentioned earlier. Some recent examples of this in practice, Stanvac, that we talked to before from a previous slide, and as a reminder our 30% to 50% improvement in performance with the use of Graphene in their coating. Infinite Composites, in the customer’s words, Graphene helps solve the micro cracking dilemma in composite materials at cryogenic temperatures. It’s now a mature technology with a developing order book.
U.S. customers, we’ve supplied over a hundred kilos of dispersion to one of them in readiness for product launch. Another U.S. customer with a similar product currently being market — marketed, and then application for Graphene in commercial vehicle coatings application in the UK.
In addition to the 24 products, we have also launched two finished primers available directly from AGM, and one of these has been used as we have talked to on Environmental Agency assets. Our current valuation of these products is around 0.5 million per annum of dispersion sales at full use rates once these are fully realized in sales. The reduction in sales value reflects the more cautious valuation of these products, based on recent sales experience and the ongoing difficult trading environment that we have discussed earlier.
Our focus on sustainability has centered on product offerings with the power of graphene to bring a more sustainable solution as compared with conventional materials offerings. The application of our coatings with UKEA has illustrated of the potential for a longer life cycle between maintenance events, reducing the cost of maintenance and reducing the environmental impact of stripping and re-coating large assets. The pursuit of this lifecycle analysis is being completed to review the impact of graphene based coatings for the long-term. And as the graphene industry is moving towards more water-based focus, our water-based technology with graphene dispersions offers an ideal opportunity for end users to innovate with easy-to-use solutions to introduce new technical possibilities for their coatings application.
Our focus for the period on our manufacturing footprint has been on dispersion capacity. We are in the process of completing a lease on extending our space at the innovation center in Wilton, to enable an expanded dispersion plant to be added. Equipment is on order, and we anticipate completion in the summer of ’22. We have also continued to evaluate a broad range of products to ensure the best combination of materials to suit the end users’ application. So, as the industry develops and returns to the opportunities to innovate and utilize our products and they evaluate graphene dispersions, consistency of graphene in the customer’s hands will be crucial to successful repeatable outcomes for graphene adoption. We’re focused in this area to deliver the highest quality and most consistent dispersed graphene materials to enable our customers to achieve these goals, time-after-time.
So in summary, and to reiterate what we are all about, whilst we have seen a slowing of activity in the industrial protective coatings industry as we have talked to and the reasons behind that, we see this as a timing challenge, despite all of the challenges that we have faced in terms of engagement in the sector, we have continued with our efforts to develop and test and demonstrate practical graphene solutions for end users to adopt. Our product range is designed to meet the needs of innovators in the industry, evaluating substitution with graphene into conventional chemistries and those looking for advanced sustainable solutions.
We have a high technology readiness level with these standard products, and we are also adept to customized graphene solutions to suit specific opportunities and customer needs. We see AGM as extremely well placed to engage with the industrial coatings sector, as it returns to a more normal product development cycle and normal activity levels. We continue to demonstrate performance advantages with the use of graphene. We have greener product portfolio to support sustainable product development, and we are committed to developing the opportunity portfolio further with the approach to chemical resistance market.
Offering a broader platform of technology supported with regulatory positioning is really important for us. And we’ve launched our own graphene loaded primer products to support the early adoption of graphene materials and to create further sales conduit for us. Emerging opportunities in the areas of battery technology and hydrogen fuel cells and storage are progressing really well. Our global distribution platform is now well trained in the use of our products and we’re anticipating stronger performance from them to drive the number of engagements in our pipeline. And the new addition in Taiwan, strengthens the distributor network even further.
We maintain a strong pipeline of customer activity, although recognize that this has slowed in activity level in throughput in recent months due to resource availability with our customers. The level of support to our distributors remain strong, both in technical support and regulatory efforts. And then we’re adding dispersion capacity in preparation for increased demand as the industry starts to increase activity again. The board is confident that the technology positioning of AGM will enable solid future opportunities. Our cash position takes this beyond the 31st of January 2023, and we’re confident that we can drive this business forward with the reemergence of the innovation activity in the protective coating sector, and believe that AGM has a bright future based on technology that we’ve developed for our graphene nanoplatelet technology through our dispersion and applications knowhow.
So with that, I’d like to thank you for your time and attention. Love to talk some more to you on an individual basis about our company, our technology, our customers, and how we fit in the graphene landscape. So we see a great investment opportunity for grapheme materials technology and the opportunity that our technology footprint represents.
So with that, I’d like to thank you for listening.
Question-and-Answer Session
End of Q&A
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