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Nexam: Many bullish comments in Q3 report

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Nexam Chemical released its Q3 2015 report today which has many arrows pointing into the right direction. As operational highlights during Q3 we note in particular:

  • First industrial order regarding product for modification of plastic pipes received.
  • Strong sales growth, amounting to more than SEK 4 million.
  • The number of on-going customer projects increases in all phases with an emphasis on full scale testing.
  • The company was granted SEK 2.4 million in development funding from Vinnova/Eurostar.

CEO Anders Spetz comments in the report:

The third quarter has been intense for Nexam Chemical. We notice that the number of on-going customer projects have increased in all development stages that we need to pass, in order to achieve continuous and long-term sales of industrial scale. The number of customers evaluating and testing our products in all stages, from laboratory and pilot scale to full-scale testing, are increasing and the emphasis are now on full-scale testing.

During the quarter, we have had customers within polyethylene pipes and high performance plastics for the electronic industry that have passed all stages in their development processes. They have now placed their first commercial orders, which is yet another confirmation that our technology creates customer value in both of these focus areas!

Our focus areas

Polyethylene pipes
The development of polyethylene pipes is moving forward as planned. We have a strong proof-of-concept and a number of customers that have been evaluating our products with good results.

This market is heavily regulated, regulations that affects all parties in the value chain. To move from positive test results to commercial volumes therefore takes time. We are, however, pleased to see that some test series have been finalized with the outcome of receiving our first two commercial orders for this very important area. We look forward with confidence and expect positive results from tests and certifications that are ongoing with other customers.

Polyester foam
Within the focus area polyester foam, the full-scale testing continuous with some initial sales for Nexam Chemical. Our technology for polyester has proven to be extremely efficient, providing significant property enhancements even at low dosage. For customers, this provides an opportunity to open up new and larger markets for polyesters in applications which today are relying on considerably more expensive and environmentally inferior materials. We see that our technology is on its way to create the conditions for a new generation of polyester foam.

Polyester foam will be a large and important area for us, but we can once again say that it takes long time to establish a new technology in a traditional industry. For our customers the challenge is, besides scaling up the production, to implement a sales- and marketing plan to introduce a new generation of foam to the market.

The great interest we encounter from new customers is very positive. This enables our ambition to broaden in terms of both customer base and the number of plastics, to which we have products with customized formulations. We are very pleased to see that this has already resulted in confidentiality agreements with several new players and that the initial tests carried out show good results.

High performance plastics
Our oldest focus area continuous to develop. Our technology is still seen as new to the market and customers are continuously evaluating our products for new areas. We already have commercial sales to, among others, airplane industry. During the last quarter we have had success in several projects aimed at the electronic industry. Promising trials have also been carried out with one of the largest suppliers of composites for the automotive industry. Many other applications have been evaluated at our customer ́s laboratories. However, one should keep in mind that the high performance plastics have the longest development cycles of our three focus areas.

Sales

Our sales took a big leap forward during the quarter, and although it is still in modest levels, we are on the right track. Sales in the third quarter mainly consists of high performance plastics, but we expect that the proportion of sales from polyethylene pipes will grow in the future based on the breakthrough with our two first commercial orders. Important to note is that we are now receiving more orders on continuous basis and also forecasts from our customers that extends far into the future. The conclusion we draw from this is that our customers sell their products containing our chemistry with good results and that they believe they can develop their business further for the benefit of both parties. Sales to the focus area of the polyester foam is still marginal and goes to test runs in laboratory, pilot and full-scale.

During the quarter, we also sold self-produced products to a global pharmaceutical company. This demonstrates our engineering capabilities and the high quality level of our production facility in Scotland.

Market

We are continuing our strategy with three focus areas, which also applies to our marketing activities.
We have established good contact with the players in the market for polyethylene pipes and there are discussions ongoing regarding a number of exciting collaborations. Within polyester foam the customers are, based on the positive test results, in full swing of developing their product portfolio with the ambition to take market shares with the help of new products enabled by Nexam Chemicals new technology.

During the quarter we signed a very important agreement on market cooperation with our partner Evonik. Within high performance plastics, specifically polyimides, our product portfolio complement each other, and together we can offer the customers unique solutions. The partnership has already generated a number of confidentiality agreements with world leading players within the area of polyimides, both in the automotive and electronics industry.

R&D

Our development team are now prioritizing formulation and process development to support the customers to optimize their production processes.

During the quarter we have received strong indications that our technology is relevant within a new area, TPU (Thermoplastic PolyUrethanes). We are still in the development stage, but potentially this might be a new focus area for the future.

Reduced cost base

We can now clearly see that, according to plan, the costs are decreasing in the third quarter compared to the same period last year. This is also reflected in the cash flow. Expenses will continue to be significantly lower over the next two quarters compared to the previous year.

Organization

We are a strong cohesive team, who together strive to deliver on our chosen strategy and goals. During the quarter we worked on a couple of recruitments to further strengthen our commercial capabilities. One of these recruitments are now in its final phase.

Overall, the third quarter was a quarter that gave us reason to celebrate several successes but also reminded us of the lead time required to establish a commercial business from first contact to regular orders. This is how it looks in the high tech industry in which Nexam Chemical operates.

We continue our efforts to deliver on the chosen strategy.”

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