Ilika (LSE:IKA) — Post AGM Investor Presentation

0:02 Good afternoon, ladies and gentlemen, and welcome to the ILIKA PLC Post AGM Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted any time via the Q and A tab situated on the right hand corner of your screen. Simply type your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where appropriate to do so. These will be available via your Investor Me company dashboard. We'd also like to remind you that this

0:33 presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Graham Paddy, CEO and Steve Baudel, CFO of ILIKA PLC. Good afternoon. Good afternoon. Good afternoon, everyone. Many thanks for taking the time to listen to this short update from ILIKA. Just going to move into the presentation now. So for the avoidance of doubt, ILIKA is one of the few independent global experts in solid state batteries, and that's gonna be the subject of this presentation. The company was AIM listed about ten years ago in 2010.

1:22 There's two parts to the business. First of all, scaling up our miniature Stereax technology, which I'm going to talk about in quite some detail, and also our Goliath pouch cell technology, where we're collaborating with automotive OEM partners and the UK government to develop solid state sales for electric vehicles, and other markets.

1:55 So needless to say, the global battery markets are are very large addressable opportunities. The Stereax miniature cells are more suited to the medtech and industrial sensor or industrial IoT markets. Then our larger goliath cells are aimed at opportunities in consumer electronics and electric vehicles. So why are people interested in solid state batteries? First of all, they are ultra compact, so, you know, as a rule of thumb, they're about half of the volume of a standard lithium ion cell, and this is particularly useful for some of the medical implant applications we're looking at.

2:50 They also operate at higher temperatures, so they're resistant to higher operating temperatures, and this opens up opportunities for some industrial hostile markets where traditional lithium ion cells, which top out at about 60 degrees c, can't be deployed. And they're also rapidly charging, so fast charging, and and actually, what we've seen is that we can expect charge rates about six times faster than a standard lithium ion cell. So that means that consumer appliances or EVs could charge in ten minutes if they take an hour to charge using a traditional lithium ion cell.

3:39 So people often say to me, could you give me some concrete examples of applications within these markets where solid state batteries have have really got a a unique proposition? So within the industrial IoT sector, the one that we often talk about is wafer sensing. So the electronics industry deposits its devices, makes its devices often in vacuum deposition processes, and these take place in large chambers where the materials are deposited, and it's often key to make sure that these chambers are operated at a specific temperature, too low and the devices weren't formed properly, too high, and you get a destruction of the materials.

4:39 So you you calibrate these chambers using a calibration wafer to improve process yield, and ideally, actually, these wafers capture the data and transmit it wirelessly. So you need resilience to temperatures above the threshold, typically, for conventional lithium ion batteries, so high temperature resilience is really useful. You need to have very thin batteries, which our stereoc cells also deliver, and they need to be vacuum resistant. You can't have materials that would evaporate in a vacuum, that's why solid state is particularly useful. So there's a really good fit with our technology. Also, example for medical devices, you know, there's a massive revolution that's sweeping through the medical device industry as companies move from traditional, often passive devices, passive implants that have got a mechanical function, to those that have either got a bioelectronic therapeutic effect or ones that are smart devices that send data outside of the body.

5:55 One of these biotherapeutic or bioelectronic devices, is an application called vagus nerve stimulation, and you can use this to treat chronic conditions, including arthritis, Crohn's disease, and also nerve injuries. And you can imagine for this type of application, which is an implant, they need to be as small as possible. The batteries need to be customizable, so you need to be able to make them in different shapes. Need to be especially safe and, you know, rechargeable with a a long lifespan. So you don't want to have to go in there and remove the batteries at all if you can avoid it. So really, you're looking for a ten year lifespan, and solid state is a a really good fit with these applications.

6:46 So what's our business model? Well, at the moment, ILIKA is a a a manufacturer and a seller of batteries. So we operate a pilot line here in Southampton in The UK, where we actually fabricate our own wafers. We do outsource part of the dicing and thinning of those wafers, but we we stack our batteries, form them, test them, and then send them to customers. So we take the purchase orders or the contracts from our customers, and we fulfill those orders. The next phase of our business model is to go into a fab partnership where we act as a a supply chain manager, where actually we we take the the purchase order or the contract from the customer, but we manage the supply chain, and we outsource the wafer fabrication as well as the other parts before taking the batteries back in and forming them and testing them and and sending them through to our customers.

7:52 And then ultimately, when the scale of demand for batteries exceeds what such a a fab would be able to deliver, we would go to one of the large, probably Asian fabs, and that would be a licensing model where the the process is fully understood, and, you know, the the the fab buys its own equipment and manufactures for customers who place orders with them, and we license our technology, transfer the technology to that much larger fab so that they can implement it.

8:35 So our pilot line is increasingly being used to fulfill customer orders. The dark part of this chart that I'm showing now is the part of our demand that is being met by product sales. So you can see that's been ramping steadily since last summer, which is a great thing because it demonstrates commercial traction. But on the other hand, it's using capacity of that pilot line that we would also like to use for research and development. So we've got this concept of continuous improvement where we are constantly improving the performance of our STRS, and we need capacity on the pilot line in order to implement those improvements.

9:27 We did have a short closure due to COVID lockdown. Since the end of June, that line has been fully operational and has been running flat out in order to catch up for those last few months. And you can see that our expectation is that until the end of our current financial year that that commercial activity will continue to ramp. So that's really triggered the opportunity for us to invest in a larger manufacturing partnership, and this is how we're gonna scale up. We currently make about 50 wafers a year on our pilot line. There's a 70 fold increase when we go through into the FAB partnership and implement that. And then you see in the in 2022, we'll start to initiate discussions for a further ramp up to address the larger markets through large scale licensing interaction.

10:38 So we are currently implementing our fab model. We have placed the purchase orders for tools one and tools two. They are the two key pieces of equipment, which are scaled up versions of the process steps that we use in our pilot line, and we're having monthly meetings with the tool suppliers, the tool vendors, in order to track their progress. We are expecting that tool one, which is the tool that we use for making the cathodes in our batteries, will go through its final testing in q four of this year before being delivered in q one and being installed in q one at the fab.

11:32 And then we will be commissioning that through to the the mid of twenty twenty one. Tool two is on a synchronized delivery trajectory and will arrive at the end of q three, and, you know, that will allow us to make complete wafers at the fab. We've also got an ETCHA, which isn't really on critical path, but that's also been ordered, and that'll allow us to then switch into product qualification in the tail end of the next calendar year.

12:14 In addition to ordering the key equipment that we're going to be implementing in the fab, we've also recently appointed a technology transfer director, so Paul Marron, who has made a great first impression and is getting his feet under the table and assisting with some of the negotiations that are ongoing with the fabs, making sure we've got the right commercial framework for for both parties, both for the fab and ourselves, and and helping sort out some of the technical detail associated with the implementation. Paul's got a great track record of working in industry, having started his career in the semiconductor industry back in the nineteen eighties, and having worked in a number of operational director roles laterally, also actually in the automotive and aerospace sectors.

13:14 So let's change gear a little bit and talk about Goliath. You know, we mentioned consumer electronics for Goliath even though we've got some fantastic automotive partnerships, and the reason that we we mentioned consumer electronics is that I believe this is an early adopter opportunity to take solid state Goliath cells and integrate them into devices that are used by consumers around the home. Just about all of the manufacturers of consumer electronics have got a cordless roadmap, and so that means, you know, effectively taking vacuum cleaners and hair dryers and other beauty products and changing the design of those so that instead of having to plug them into the wall, you can power them with a battery pack.

14:13 And and these cordless roadmaps are are driving innovation in this sector. It's been a very robust sector during COVID, during lockdown because, you know, people haven't been going to the hairdressers as much. You know, they've been buying products that they use in the home, and the requirements there are compact battery packs. They need to be rapidly charging so you can use these devices very, very quickly, and they need, of course, to have a long lifespan. You want the battery to be rechargeable for the the the lifespan of the product that you've bought.

14:52 So I think the the timelines to adoption for this segment are very attractive, and it's one that we're working closely with. With electric vehicles, there is an absolutely unrelenting drive to improve battery performance. Solid state is required to meet the twenty twenty five UK auto council battery performance targets. Unless we switch to solid state batteries, the performance targets in terms of power density and capacity per kilo of batteries just won't be met. And so there is a a real driver there to to do this technology switch.

15:41 We have been supported by the Faraday Battery Challenge, managed by Innovate UK, to the tune of £5,000,000 worth of grant funding, three projects with industry partners, who I'll go through in a moment, and that's really allowed us to undertake some very ambitious development programs for Goliath. We have designed and outfitted and opened our

16:08 prepilot facility here in in Romsey, close to Southampton. We did that within nine months last year, and some of you may well have come down to our Capital Markets Day last December and seen around the facility. If you came back today, you would see that there's been further improvement in the efficiency of operations and an increase in the throughput of the capacity. So we're very excited about the progress that's being made here in that regard. So the programs that we've got going, we've got one called PowerDrive line, which is all about rapid charging of electric vehicles. We're doing that together with Honda and Ricardo.

16:55 Another one that's led by McLaren and is about high performance vehicles, as you might imagine, and a third one that is being led by Jaguar Land Rover, and we're working together with a small cell manufacturer, AGM, and looking at the cost of producing solid state batteries for the mass market. We've also got this commercial lead partner framework, and that allows, in particular, some of these consumer electronics companies to work with us outside of the Faraday Battery Challenge framework.

17:42 So this is what the facility looks like. On the left hand side, you can see some racks with some webs or foils, actually, the current collectors with materials printed on them. You see some of the the the full printed batteries on the top with some of our technicians handling them. There's the team as it was at that point when the photograph was taken, and one of our lead scientists, Laura Perkins, holding up a a pouch cell proudly demonstrating the finished article. So I should say that they are alpha cells and are currently being tested and improved through our development cycle.

18:39 So what does the future look like for Goliath? You know, how are we gonna get from facility here in Romsey up to, you know, larger scale to allow us to fully commercialize it. Well, we're looking to improve the automation and process control of the facility that we have here at ILIKA. So we will, in fact, ramp up the production volume from about one kilowatt hour per week to about 10 in the course of next year. We'll then work together with the Battery Industrialization Centre or the BIC, or the UK BIC as it's called, which is being built in Coventry at the moment.

19:27 Now the first phase of the BIC will be focused on, let's call them, conventional lithium ion batteries. But the second phase will have a solid state string to it, and, that is the area where we'll be feeding into. So, we expect that that will be a fantastic facility to allow us to take the automated processes that we're developing here at ILIKA and implement them at a scale where we'll be able to seed the market and demonstrate commercial traction. And then following that, we'll be stepping up to a full manufacturing JV in order to manufacture the the quantity of cells that'll be required for, you know, both a mass market consumer electronics device and also to enter the automotive space.

20:24 So at the minute, we are concluding framework discussions with the UK BIC, and that'll be part of our future news flow. So, Steve, do you wanna say a few words about our revenue development over the past few years? Sure. So this slide shows the last four financial years and the makeup of our revenues. Our financial years run to the April 30,

20:56 and these are the numbers that were released in our annual results back in July and approved at today's AGM in the financial year 2020 context. You can see the green part of the bars make majority of our revenue that's still associated with grant revenues. But in the first three years, the dark blue represents contract revenue, mostly for some materials development.

21:24 The top slice of the financial year 2020, the lighter blue, shows that we've transitioned away from those type of revenues to product revenues, so battery related product revenues. So we're now a fully battery company and that just shows that transition from service to product revenues whilst maintaining growth. The next slide is an overview of those financial accounts. Again, April 30 showed a slight increase in turnover. A lot of that was associated with the three large format battery development grants that Graham has discussed under the Goliath programs. And again, as the battery revenues are replacing those service revenues. The loss for the year widened slightly, but that was pretty much all down to the increase in depreciation.

22:14 We've got a very aggressive depreciation policy, writing off a lot of the Goliath assets over three to four years, and that's what caused that increased loss. But actually from an EBITDA perspective, the loss narrowed. The other point to make is that we had quite a large fundraise in the year, raising 14,200,000 net towards the end of the year. That's was the 37,500,000 shares issued at 40p, and that left us with 14,800,000 on the balance sheet at the end of April. Thanks, Steve.

22:55 So just to wrap up, we believe that ILIKA is strongly positioned to progress the commercial scale up of our Stereax technology through the third party fab implementation that I mentioned as we're going through the presentation. Of course, we'll be maturing the Goliath technology with those automotive and and consumer electronics partners through a series of defined technical milestones, and we will be pursuing some of the the revenue growth, the significant revenue growth that this sector offers. Thank you very much for your attention, and hopefully, we can now move across to a few questions.

23:48 You very much. Ladies and gentlemen, do continue to submit your questions using the Q and A tab situated on the right corner of your screen. Just while the company take a few moments to review investor questions submitted today, I'd like to remind you that the recording of the presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboard on the Investor Meet company platform. Lastly, before I hand back to Graham and Steve, I'd like to remind you that your feedback is important to the company. Immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations. Graham and Steve, before we perhaps look at questions submitted today, we've had a number of pre submitted questions by investors. Perhaps I could just read those out and run through those first, please. Please do. Yeah. Great.

24:37 Okay. Where are we going? The first one we've got here is, do you have any competitors? And if so, do you see them as a serious threat? Well, solid state batteries offer many advantages, as we've heard, over current lithium ion technology. So I guess it would be a surprise if we didn't have any competitors. If we take the two businesses separately, our miniature Sterex batteries have fewer competitors, you know, probably because they address specific niche markets. Actually, our Sterex competitors are small privately owned US companies. But on the other hand, the the large format Goliath batteries have got more competitors because, you know, the the impact of the technology will be relevant to very large global markets.

25:32 And, you know, most of the automotive OEMs have either got in house efforts, or they invest in SMEs around the world, a bit like ILIKA, or they're members of government backed partnerships like, you know, their national equivalents of The UK's Faraday Battery Challenge. That's that's great. Thank you very much indeed. Just right at next one we've got here, I've read about some potential capacity constraints, environmental issues with regard to key commodities required for the development of batteries for vehicles, e. G, nickel in Indonesia. Does the ILIKA technology rely on availability of nickel or other particular commodities? Yeah. Well, we take particular care to ensure that ILIKA's Goliath technology isn't reliant on the supply of scarce minerals, which might be subject to price volatility.

26:30 However, Goliath cells will continue to use commodities which are are currently used by traditional lithium ion cells. So nickel is a good example. You know, it's a a constituent of NMC, which is a commonly used cathode in the automotive industry. So, you know, NMC stands for nickel, manganese, cobalt. The, you know, the the lithium ion battery share of total nickel demand is currently only about 3%, but this is likely to grow. I think most analysts are suggesting it's gonna grow to double figures in the next ten years, so, you know, over 10%. But we don't expect nickel availability to be a long term constraint on the battery industry.

27:22 That's great. Thank you very much indeed. Last pre submitted question. Could you compare the technology of ILIKA with that of QuantumScape? Do you have a view on this stage of development relative to ILIKA? If you're direct competitors, how will you compete with their heavyweight backing and funding? Yeah. That's a great question. I mean, QuantumScape has made a a big splash, in the last few weeks. So the reality is there's not a lot of information in the public domain about QuantumScape's technology. However, I did see a recent investor presentation that referred to the use of a solid oxide electrolyte, which is actually the approach that ILIKA is using. You know, one main difference appears to be that they're using a lithium metal anode as opposed to ILIKA's use of silicon.

28:17 Although, actually, when QuantumScape's batteries are manufactured, they don't initially have an anode. They rely on the anode formation through lithium plating during cycling so that, you know, the lithium comes from the cathode. We actually tried this approach with our first prototype Steriax thin film cells, but we found that it led to mechanical strain and reduced cycle life in the cell, so that's why we switched to structured silicon. Well, QuantumScape are still in development mode. They produce prototype single layer patch cells that look fairly similar to the one that I was showcasing in our slide about the ILIKA prepilot line. So we make similar pouch cells to them.

29:05 We haven't seen any evidence that they're technically further advanced than us, but, of course, we'll be keenly looking at future announcements and and see how this develops. That's fantastic. Thank you very much indeed. I know I haven't given you perhaps a huge amount of time, but can I actually just have a little scan through the the q and a tab and just see if you can run through some of the questions that have come in? Just perhaps read out the question, who it's from, and and answer where appropriate, please. Yeah. Let's have a look. So the first question is, when do you expect to get your first commercial order for Sterex batteries to be used in commercial devices rather than for samples? Well, of course, you know, the the Sterex batteries are being sold at the minute for commercial device development.

30:02 So that's an intrinsic part of our customers' development cycle. And, really, I guess, the question is, you know, when will the the volume and size of these orders starts to ramp? And, you know, that will be done in coordination with us deploying this fab scale equipment. Because at the moment, if we got a a large order, it would, you know, simply be a deferred order until we had the capacity to execute it. So the the fab implementation is really key, and, you know, we expect that, as I was showing in the the fab implementation Gantt chart, to be completed next year with in with a a ramp up to production volumes in calendar year 2022.

31:01 So the next question is, it's clear that US investors value technology much more highly than UK investors. Yeah. Perhaps that's a reference to the the QuantumScape valuation. Would ILIKA PLC consider dual listing on the Nasdaq? Well, you know, that's certainly something that I wouldn't rule out, and, you know, that has been a path that's been followed by other technology companies in The UK in the past. I would say that that's really a question of how quickly we scale. You know, it is quite expensive to maintain a listing on Nasdaq. But certainly, I agree with the sentiment that US investors are happy to make substantial investments and and and indeed value their technology companies more highly.

31:57 So next question is where are you on the cost curve versus incumbent batteries in consumer cord cut goods? Yeah. So, you know, for the foreseeable future, we won't be competing on cost. I think, you know, that would be a lost cause. Solid state batteries are produced in relatively small volumes at the moment, certainly much smaller than the the scale of production of cells, you know, for the mass markets that they're sold into. So when we we sell our batteries, it is on the basis of their unique selling points and differentiation relative to standard commodities.

32:46 So we are much higher on the cost curve than traditional lithium ion right now. But over time, as we implement our processes at scale, you know, think about that scale up story through the big and into a manufacturing JV, we've demonstrated actually through our cost modeling activities that we can get down to below the current price point, or the expected future price point, actually more accurately, I should say, of conventional lithium ion. So the next question is to what extent do you see Tesla's million mile battery being a threat to your Goliath project? So today is an exciting day actually for battery aficionados because today is Tesla's battery day, September 22.

33:41 So that's just a coincidence that our AGM was today. But later on, I guess, we will see what is gonna be unveiled. So there's been, you know, quite a bit of speculation actually about the technologies that mister Musk will be talking about. At the minute, it's difficult to say exactly what he will be backing. I don't really wanna add to the speculation there. But actually, I think it's great for the battery industry that there is this degree of competition and impetus for improvement. And, you know, I think some of that will only rub off on ILIKA, and I see ILIKA as being just as well positioned as a lot of the other solid state battery protagonists.

34:38 So let's have a look. What else we got? Question here from John b. When which year do you estimate that you will become cash flow positive? Steve, do wanna handle on? Yeah. Our current estimation is in financial year 2223. Obviously, there's a few things that are dependent on that is getting the Sterex pilot line oh, sorry. Fabrication facility up and running and producing volumes at the pricing that we expect. And certainly, we've got sufficient capital on the balance sheet to see us through to that time. Very good. So let's have a look. Paul p says, what is ILIKA's current relationship with Toyota? Is it active?

35:24 And if so, what nature or inactive? Well, I'd say that our relationship with Toyota has matured. We actually co own some quite important patents in solid state batteries, and we are jointly prosecuting those patents with Toyota. You know, the the early interaction between us and Toyota was focused around materials development for batteries. That IP was captured in the form of patent applications, and they are now maturing around the world. So that is the type of relationship we've got now. We've we've got an IP management relationship with them.

36:14 And then let's have a look. Roy m says, how do battery powered sensors compare with self powered sensors, e. G, those powered by vibrations? So what we usually find is that we combine our batteries as a buffer to store the energy that is created by vibrations or other forms of energy harvesting. It depends a bit on the context. So, you know, most of the sensors that we power actually are located in hostile environments where the energy harvesting is intermittent.

37:03 So, you know, you you may have, for instance, wind created vibrations in a wind turbine blade that you you then store in in battery in order to power the sensor for when the sensor draws the large current that it needs to transmit that data through to the cloud or, you know, the central data management system. And so the the battery there forms as much a buffer as anything else. So, actually, you know, I don't see the, let's call it, the energy harvester and the battery as as being separate solutions. They're they're normally integrated.

37:55 Let's have a look. Is there any way that the development cycle of Goliath Battery can be accelerated, enhanced funding? Yeah. So I think that, you know, we have quite substantial funding for the Goliath program at present. I think we have a a a handpicked, highly efficient team. We do know that we will be keen to get additional support from the UK government and or commercial partners going forward to enhance automation and efficiency of our development cycles.

38:46 So, you know, more resources will be required, but, you know, that appears to be likely to be forthcoming. So I I don't feel that we're resource constrained at the moment. But, clearly, as you get to a larger scale, the the amount of resources that you need to deploy start to scale as well. Let's have a look. Are there any questions that I haven't answered here? I think you've pretty much gone through with them, actually. Yeah. Okay. Good. Well, valid and and useful questions there. So many thanks to everybody who's posed one of those. And thank you to Graham and Steve.

39:31 As I said, I think you've addressed all those questions. If there's any further questions that do come in, the company, of course, review those and then publish their answers back on the platform. Graham, perhaps I could just ask you just to wrap up before I redirect investors to give you some feedback, please. Well, just like to thank everybody for taking the time to listen to this update. It's always, you know, very satisfying to interact with, the investor community and and to hear about some of your thoughts. I enjoyed that during, Capital Markets Day in December, and, I've I've enjoyed it on these virtual interactions that we continue to have on IMC. So I look forward to hearing from you all again in the near future. Thank you.

40:17 That's fantastic. Thank you very much, Graham. Thank you, Steve, for updating investors today. Could I ask investors not to close this session now? You will now automatically be redirected for the opportunity to provide feedback, which takes a couple of seconds after the end of the webinar. If you access the meeting from the website, the feedback page will appear in front of you. If you accessed it from the link in the email, you'll be asked to log in and submit your feedback. So on behalf of ILIKA PLC and Investor Meet company, we'd like to thank you for attending today's presentation. That concludes today's event.