Ilika plc (IKA) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Ilika plc investor presentation. [Operator Instructions]. And I'd now like to hand you over to Graeme Purdy, CEO. Good afternoon, sir.

Thank you, Lilly, and welcome to everybody who's chosen to attend this IMC session. This is Ilika's annual results for the year that finished at the end of April '26. And I'm joined here by our CFO, Jason, who despite appearances, is actually sitting next to me. He's looking at the screen on his own laptop. So we are both at the same table. So we will now go into the slides, and we will drop through. And if you have any questions, as Lilly said, please submit them into the Q&A chat, and we will do our best to answer those for you. So those of you who have been following the company for some time now will know that we've got 2 product lines. They're both solid-state batteries. On the one hand, we've got our large format Goliath batteries, which have been designed for EVs and consumer appliances. And on the other hand, we've got our Stereax miniature solid-state batteries, which have been designed for active implantable miniature devices. and they are principally for medical applications as well as for Internet of Things or wireless sensors. So let's have a drop through some of the activities, some of the milestones that we've delivered over the past year. I'll start with Goliath that's shown at the top there. We've secured significant grant funding from the battery innovation program and also the advanced propulsion center here in the U.K. So we've effectively doubled up on the deployment of shareholder equity for our R&D program by accessing this grant funding. We have been working on prototype development with Jaguar Land Rover and also [indiscernible]. We have a technology collaboration agreement with them. We've completed the automation of our megawatt hour pilot line that we use for making these cells and sharing them with customers. We've also sent out batches of these cells to OEMs and Tier 1 companies for them to evaluate and give us feedback. And we've had some early feedback actually from a defense agency that advises the Ministry of Defense here in the U.K. on the safety and suitability of batteries, and that was a very positive validation. And also, we've announced that we're collaborating with that well-known folding bike brand, [ Brompton ], for their e-bike range, and that program has just started. On Stereax, we have commenced production of our M300 batteries. We've initiated delivery of those batteries to customers. And we've also switched from being an R&D company to a revenue-generating company because we've now started recognizing revenue from the sales of electrodes for those batteries. We sell those electrodes to Cirtec.. And you'll see actually in our accounts that we've recognized a modest amount of GBP 100,000 in the last financial year. And of course, this is expected to grow in the year that we are now progressing. So just a quick review of our business model. for those of you that are not familiar with it. So we have an asset-light business model, which means that we license our technology. We've already licensed our Stereax technology through to Cirtec Medical. And in return for that, we receive a profit share and royalties. That's what's shown in green at the bottom of this graphic as well as revenue from the electrode sales, which we were just talking about. And then in blue, for Goliath, we received grant support for the development of this technology. And then in due course, we will be licensing it and also receiving engineering fees. In fact, some of those fees have already started because we sell prototype products, the 10 [ Ampower ] prototypes that we released just before Christmas and also the technology collaboration agreement that we've got. These are fee-paying arrangements, and then that flips into a royalty-bearing license. So we've been successful in securing a top-up round of funding just last month. And actually, that's enabled some of these strategic imperatives over the next 12 to 18 months. First of all, for Stereax, we're continuing to support Cirtec's marketing efforts. They are, of course, very active, particularly in the U.S. selling to their customers, and we can piggyback off their marketing efforts to actually make sure that the word on Stereax is getting out. And of course, there's some technical sales support that's required as part of that commercialization. The next thing that you'll see actually is an integration of our batteries into the Cirtec demonstrator, the Cirtec technology platform. That's one of the real advantages actually of working with them is that they not only sell components, but they sell a technology platform that's then integrated into the products that their end customers sell. And actually selling those cells as part of a solution as part of their offering will trigger the initial royalty payments because those payments are due on product sales to or by Cirtec rather than by the final commercialization of the product by the end customer. In terms of Goliath, we've got an opportunity to hit some early commercialization, which we're very excited about. because what's happened is that when we sent out those [ 10-am ] Power prototypes to a range of evaluation partners, some of them were nonautomotive. Remember that those prototypes were really sent out not because they were the final product, but because they were an important milestone on our EV road map. But some of those organizations actually viewed a 10-ampower cell as being adequate for their applications, in particular, in the defense sector and for e-bikes, too, actually, that [ Brompton ] is another example of where this [ 10-am Power ] cell format is directly relevant to their product line. And so based on the feedback that we've got from those evaluations, we have decided that we're going to take that prototype and turn it into a product -- and of course, you need a larger amount of testing and validation certification in order to do that, and that's part of this MVP delivery. And hand-in-hand with that, we've got a series of commercialization agreements that we're talking about with nonautomotive organizations. So we expect to be able to put letters of intent and, of course, pull commercial agreements in place on the back of those discussions. And that will enable us to generate some early revenue, close that gap to profitability and give added commercial momentum to the company. But we haven't totally forgotten the EV commercialization opportunity. We still got a series of 10mpower validations of those cells that are in progress. It does take a while to complete those tests because cycle life is part of that validation and actually understanding how resilient those batteries are is part of a full spectrum of testing of those cells. We are likely to secure some additional grant support for pack integration and other scale-up activities. And then that will lead into the first option to license. So before we get to a full license, there's likely to be an option phase where a partner takes the technology, validates it, goes through the BCD sample routes that people talk about for automotive before integrating it into a vehicle design. Right. So that's the overview. Let's talk a bit about Stereax in some more detail. There, you see the Stereax [ M300 ] products beside some pharmaceuticals in the central picture. And on the right-hand side, that's actually part of the Cirtec Cleanroom where we've got some of our equipment installed as part of the microfabrication that Cirtec carry out there. So that partnership is really designed for growth. There are 5 end users that we'll talk about in a couple of slides' time. A nice portfolio of 16 customers that we're dealing with, and we've actually got more orders than we've got customers because some of those customers are big organizations. and they have issued us with multiple orders. So that's why we've got 19 as opposed to 16. We've commenced M300 deliveries to those customers, and we started generating those commercial revenues. The actual electrodes are made on wafers, and that's why we say it's wafer processing income, and that's what we've started to recognize. And that really will lead into the profit share and then ultimately, revenue share once commercialization volumes have been achieved. So we believe that this relationship continues to give us industry validation. And one of the questions we often got from end customers, well, this is great technology guys, but we're a multibillion-dollar company, and we expect to sell millions of these products. Can you really scale up -- and of course, with Cirtec, we've got a convincing scale-up partner. They've got significant multimillion revenues in the U.S. and have been a trusted commercialization partner for many of these OEMs for many years. So there's a lot of credibility associated with that partnership. And also, they have got a business development scale. So they've got a commercial team that has access to the customers that we're dealing with now and of course, a portfolio of others too, and a strategic alignment in that they're also very keen on commercializing products for active implantable medical devices. And this will, we believe, enable faster adoption of Stereax than if we were trying to do it on our own. So for the end customer, this has got many benefits reduce surgery time, which actually is the biggest cost driver in getting a medical device. You can implant these tiny little devices close to the point of therapy, so you don't have to manage leads that run through the body. They have a long life. You can charge the batteries at home inductively and they are powerful enough to be able to power a Bluetooth radio. And there you see on the bottom right, an example of the M300 integrated into an orthopedic application. So this is a knee replacement. In this example, the implant would measure movement in terms of amplitude and frequency of use. and send that data out of the joint through to a physiotherapist, which would then coach the patient for the optimum recovery after the surgical intervention. So effectively securing better outcomes for the patients. So there you see a summary of some of the milestones that we've achieved in 2025 and stuff to look forward to in the future. We've talked about integration in the Cirtec customer platform and also commencement of royalty payments. And these are the key applications really for Stereax. There are many potential applications, but these are the ones that we believe are the closest fit with what that technology can offer. So orthopedic implants, like we've just seen, that's actually the biggest market, lots of knee, hip and shoulder replacements that would benefit from this technology. Neurostimulation. So this is where you put a very small electrical current into the peripheral nervous system. So that's the nervous system outside of the spinal column and the brain. And this can help with pain relief. This is one of the principal applications where you can help with chronic back pain, for instance. Implanted sensors to measure blood pressure and also oxygen concentration in blood for patients with COPD. Ophthalmic applications where you can measure the chemical composition of tears and help manage different conditions like diabetes. And finally, orthodontic applications where, again, it can be a compliance thing to make sure that people are wearing aligners, but also monitoring of biomarkers in saliva. And this is how we build up the financial projections for each of these applications. The hashed areas are the prototype volumes and then we get through to mass manufactured product volumes. So when we build up our financial forecast to assure ourselves of an attractive return on investment, -- we do that from the bottom up. So rather than just saying that we're going to capture a percent of the market, we work out what's the volume of production that each of our customers are likely to be able to deliver. And this is just one of 8 prospects actually for orthodontics. Orthodontics is the most represented application in our customer base. And it is also actually the application where we'll probably get a product to market first because it's relatively easy to get FDA approval for this application. This is a Class II medical device. And there are some drop-in replacements that are particularly a good fit with this particular technology offering. So you get this for biomarkers, but also things like monitoring sports activities, in particular, where you might get concussion risk in contact sports like rugby, American football or soccer, not only for professional athletes. I mean those of you that follow the 6 Nations rugby competition will have seen that you get collision monitoring in that event right now, but also more broadly in amateur sports and for school kids where you may want to monitor that more closely. And clearly, the smaller the battery, the more comfortable it is for people to wear these particular aligners. Right. Let's talk about Goliath. There you see a picture of our 10 Ampower prototype held by one of our engineers in the middle. And then on the right-hand side, you see actually some of our coating equipment. If you look closely, you can see a web and that's what the industry calls these foils that you put the electrode onto. That's, in fact, a web with some anode coated on it. So why are people interested in solid-state batteries? Why bother with them? Well, people are actually interested in better batteries. And we did some modeling together with [ Balance ] batteries, which is a well-known consultancy to the automotive industry. And they worked out by taking a Goliath battery and putting it into a Hyundai [ Ioniq 5 ] that they could get a weight saving of 20%. And of course, if you do that, that correlates to a range improvement of 20% if you actually keep the weight of the battery the same or you can have a more compact battery. There's also a cost saving. We know that EVs are more expensive relative to their traditional counterparts. So anything you can do to reduce the cost has got a significant benefit in terms of encouraging customer uptake. And also, you can charge batteries more rapidly that our Goliath solid-state batteries. Here, we've taken about 1/3 of the charge time, reducing it from 18 minutes down to 12 minutes. So some very compelling reasons to adopt solid-state batteries. And this is what the path to commercialization looks like when we look at some of these milestones with the green boxes around it. We are expecting some more prototype validation back from the companies who have received those 10-mpower cells. Of course, we've built on some of that positive feedback by entering into discussions regarding letters of intent for nonautomotive applications. And that will, of course, turn into commercial relationships in short order, further grant support to support the automotive road map that we've got. And then early revenue actually from those [ enamp ] MVP sales. So that's really important, really, I think, to demonstrate the commercial traction of this technology. And then, of course, at the end of this, the first option to license with an OEM or a Tier 1 counterparty. So what does the deal structure look like? Well, look, we've already kicked off the foothills of this particular commercialization model where we've already sold prototypes to companies who are interested in evaluating the batteries. The reason that we don't give these batteries away is that we want to make sure that the people who are taking them for testing have some skin in the game. So by charging a small amount towards the cost of making them, we make sure that people value the prototypes when they receive them. Sometimes that results in an engineering collaboration. We have such a collaboration in place with Agratas, which is the sister company to JLR, of course, both owned by Tata Sons. And Agratas, of course, is the company that's building the U.K.'s largest what will be the U.K.'s largest gigafactory in Bridgewater in Somerset, not too far away from where Ilika is bases. And we expect that relationships like that will then lead to an option to license through the scale-up process. And then when that goes well, an upfront license payment and ultimately, royalties on the revenue from the sale of those cells. So I probably don't need to convince you as an audience that EVs are here to stay. But of course, if you read the media, sometimes you might doubt that. Here's a bit of data from the International Energy Agency. And actually, this is global electric vehicle sales. That's historical data up to last year. And for this year, it is a forecast. Of course, we're halfway through this year already. So plenty of evidence. You see that China remains the country that has adopted the largest number of electric vehicles and continues to buy new EVs. But Europe has also shown significant growth. Actually, in Europe in 2025, we've got 27% growth of EV sales. The U.S. has shown a drop actually in the number of new EV sales. That's a bit of an outlier globally, largely due to the removal of incentives that are still in place in many other jurisdictions around the world. Although, of course, in China, they've been removed and there's still strong growth there. The U.K. is very much in line with the rest of Europe with the larger economies here in Europe and is also showing strong growth. And in fact, if you look at this chart on the right, this is from the OBR, so the Office of Budget Responsibility here in the U.K. And at the end of 2025, they were still expecting that by 2035 that the total car stock on the road, so not just new purchases, but all of the cars, all of the vehicles that are on the road, the majority of them would be electric. In the first half of 2026, we've actually seen a bit of an acceleration of new vehicle registrations as EVs as a result of higher oil prices, so petrol and diesel prices at the pump through the war in Iran. That's impacted fuel prices this year. But let's see if that's sustained through the rest of the year. Most analysts think that actually that demand will continue to grow very strongly this year. So part of the feedback, part of the validation that we got as our 10 Mpower batteries were tested was a piece of testing that we hadn't done before. And this probably wouldn't surprise you, but it was actually a Ministry of Defense Advisory agency that took ourselves and shot them to bits on a firing range. And of course, that's not part of the standard test that you would put an automotive battery through. So we haven't done that before. And we actually saw that there was a series of results that were very positive. Our batteries, as you know, are used increasingly on the battlefield because of the large amount of electronics that soldiers carry for communication and location determination and intelligence gathering. And you can see actually in that picture a battery pack that soldiers got there, a conformal battery pack really that the soldiers wearing on the vest. And these have become a bit of a target because normal lithium-ion batteries when they're hit tend to go up with a small explosion, so they can cause more injury than even being shot by a bullet. So having ones that are safer and improved in their resistance to being penetrated is a real advantage. So this is the type of early commercialization opportunity that we're looking at. And also, there's a sovereignty angle here where a lot of defense spending is being accelerated, particularly here in Europe, and countries are wanting to use it to stimulate their own economies and not be reliant on long supply chains from other jurisdictions. I also wanted to mention the e-bike opportunity with Brompton. So this is a piece of grant funding that we've just recently received from the battery innovation program. And this is really supporting integration of those 10 Mpower cells onto Brompton e-bikes, Brompton being the biggest bike manufacturer in the U.K., the biggest e-bike manufacturer as well and the biggest exporter of e-bikes from the U.K. And there is some real advantages to using Goliath batteries, increased energy density and enhanced safety. So we're very excited about this application. And yes, there's obviously a lot of demand really for improved e-bike safety. You do read about incidents where people have got e-bikes on charge at home and perhaps it's a poor quality battery that ends up causing a fire. So there's a lot of scrutiny of e-bikes. And also, of course, you're not allowed to currently put them on aircraft. So if you can come up with a safer battery that gives the regulator more comfort that it wouldn't trigger an incident, then there are commercial advantages to that. So these are our annual results. At this point, I'm going to let Jason talk you through the financials.

Thanks, Graeme. So just picking up the highlights from the financial reports that published out this morning. Revenue was flat year-on-year against the numbers published last year at GBP 1.1 million. Although it's important to note from within that, as Graham has already touched on, we've got GBP 100,000 of the first revenue starting to come through from [indiscernible]. And those [indiscernible] of you that have been watching the RNS announcements that come out would have noticed that, that came at the end of February, beginning of March. So really, in the year to the end of April, we only just managed to get a couple of months of that in at the end of this financial period. So we would expect that to build through this financial year as we go forward. That's really the start of revenue coming. And it's a great inflection point for the company. So really starting to get revenue from the wafers. Now as Graeme has said, we'll look to see the actual factories being delivered into that development activity at the customer end Grant income continued on, so GBP 1 million from grant income. And we would expect to see that continue into future years. As Graeme has already said, we've got the Brompton activity, and there are other applications we have in process. Grants are not just a great way for us to get nondilutive funding, but they're also a fantastic opportunity for us to work with people in the commercial sector. So as a battery developer, you want to have access to people who are either further up the supply chain and closer to the end-use products or the end-use product themselves. So Brompton is a prime example of doing that. And the previous grant funded projects, primes being the main one that we had in this financial year was a great opportunity to work in the automotive industry with both partners and oversight people. EBITDA loss was GBP 6.2 million versus GBP 5.2 million, and that's excluding the share-based payments. The reason for that increase was really a ramp of materials. So as we move from 2P batteries that we were making a year ago up to 10p batteries on the Goliath side, really, we're consuming a significant increase in material as we're feeding into the larger batteries and producing more batteries that are then going into the test and evaluation program, both for us and for those customer partners that we provided those batteries to. So it really takes an increase in material coming through to be able to do that. And also for anyone who's eagle eyed and looked through the accounts, you'll have seen that up until this year, we have been capitalizing some of the development costs of the Stereax -- so that's the final stages of development as we move from an A sample through to a B sample. We were capitalizing that to create an intangible asset. Once we started generating that revenue, we brought that asset into its useful life. So that means that we no longer capitalize costs to that. So any of those costs from February onwards that we were experiencing anyway, so no difference in cash now falls on to the P&L or the income statement. So no impact from a cash flow perspective, but you would see that on the income statement rather than the balance sheet and therefore, that makes that EBITDA loss a little bit larger. That reflects down into that loss per share of 4.02 versus 3.5 for the previous year. And the year-end cash balance was GBP 5.3 million at the end of the year -- but that doesn't reflect the fact that we've had the recent cash raise done in July, which was very well supported by both institutions and retail support. So we are very thankful and I'd like to take this opportunity again to thank those people who have the opportunity and chose to participate and continue to support us. So thank you very much.

Thanks, Jason. I have a final slide to wrap up with before we go and take a look at some of the questions that might have come in. So we have a really strong patented portfolio across multiple jurisdictions. In fact, we've got 88 granted patents now. We are diversified across multiple markets that we've been talking about during this presentation with some near-term opportunities for commercialization. So I believe that the company now has a reduced execution risk. We have got in-house fabrication facilities, which allow us really to supply batteries through to our partners and validate any scale-up plans that we have in place. We've already got a licensing and royalty agreement in place with Cirtec, which is set to deliver that economy of scale that we are chasing, and it provides us with the ability to rapidly ramp production of the batteries. And the Goliath prototypes have already been shipped to a series of OEMs and Tier 1s, very positive feedback on that in commercially sponsored evaluation trials. Thank you very much. I'll just hand back to Lilly for a moment.

I'd like to remind you the recording of this presentation along with a copy of the slides and the published Q&A can be accessed by our investor dashboard. As you can see, we have received a number of questions throughout today's presentation. Can I please ask you to read out the questions and give response where appropriate to do so, and I'll pick up from you at the end.

Very good. Thank you, Lilly. So yes, we've received actually quite a few questions in advance of this session, which we have answered and they'll be published shortly once we've wrapped up this presentation. But we've seen some more come in actually as we've been speaking. So we will do our best to review and answer these and let's see what we've got. So the first one is what is the status of the Agratas development? So the status of that is that we have a technology collaboration agreement. And within that, we have a series of workshops and product deliveries. We have already delivered a number of prototypes as part of that relationship. And actually, we expect to deliver some further ones. And that's a close interaction, and we value the opportunity to work together with the Agratas team and exchange views on the competitiveness of our batteries as well as their needs in order to ensure that they have a battery production that is going to be compelling for their end customers. Got another question here. Can you inform us as the reason why the 50 watt hour cell is sidelined for the moment? Actually, it's a 50 ampower cell. It hasn't been sidelined, but what we have decided to do is optimize the performance at the 10 ampower prototype level. And actually, because we have limited resources, focus some of those resources on commercialization of that 10 ampower cell rather than have a full allocation of resource on further R&D. We realize that we want to make a strong and convincing return on investment. And when we've run the numbers, actually, we've convinced ourselves that it's better to deploy resources to commercialize what we have in hand rather than continue to develop a larger product. Next one.

Maybe if I take voice rest for a moment. So have you had any input on any aspects of the design of the new [ Agratas ] factory in Bridgewater? Understandably, no, we have had no impact or advice given to that. Really, that plays back to where we are looking to focus to our own strength. So we recognize that our skills are in that R&D sector, not in that mass manufacturing. And you can see that in our relationship with Cirtec. We chose a partner that was best placed to manufacture at scale for our Stereax partnership. So giving advice into Agratas and how they should set up the factory not really appropriate. However, what I would say is our choice of chemistry and cells has been designed around making it as applicable as possible to the standard gigafactories that are out there and also the model that Agratas are using so that the cost of change or the cost of implementation of the electric Goliath cells is much lower than maybe some of the other sulfide or lithium metal chemistries that are out there that might need changes away from the current manufacturing sites. And we've been able to prove that out and demonstrate that with some of the work that we've been able to do with the U.K. battery industrialization center, the U.K. big, where they have taken our design and run it on their larger giga scale type equipment to be able to prove that out. So no direct input there, but also we've worked very closely in those conversations, as Graeme said, with Agratas on that collaboration to make sure that our technology is applicable what they're doing within that factory.

What's the annual battery capacity of your pilot line? And how is it affected by battery applications for automotive, defense or consumer? So annual capacity broad brush is 1.5 megawatt hours per year. And that means that when you take into account yields that ultimately, we will be able to produce up to 20,000 10p batteries a year. So it is an interesting question because what we built as a pilot line for automotive is actually the right size to be a commercial manufacturing line for some of these other smaller applications. So low-volume, high-margin manufacturing is something that we are evaluating in order to deploy that pilot line, maybe we should call it a mega factory line instead of the gigafactory line more usefully in order to enhance our return on investment.

Next question here is, can you give us better clarity on what the future holds in terms of predicted sales figures within specific quarters? Unfortunately, we are tightly regulated as a market listed company and what we can and can't say. So we are not in a position to be able to give that. What I would do is point you towards our own website and the analyst section there, which is available for anyone to access. You have a couple of confirmations as you go into that. And that will give you a better understanding of where the analysts we've looked in depth at what we're doing in terms of this next financial year. And I think the C analyst goes a little bit further out than that and they give their own rationale for those calculations. So while we can't provide here, I'd point you in that direction, and hopefully, that will help answer your question.

Very good. Could defense become an earlier commercial opportunity than automotive? I think that's a really good question. We are seeing the defense sector radically reinvent itself. I think historically, time lines for new technology adoption in the defense sector were quite long. But we have learned a lot from the war in Ukraine. I think a lot of defense authorities in Europe are looking to reequip themselves with relevant technology as quickly as possible. And actually, from being one of the slowest moving sectors, it appears to be rapidly becoming one of the fastest-moving sectors with hybrid approaches to defense. For instance, in the Navy, not just large ships that take many years to build, large aircraft carriers and frigates, but actually a lot of marine autonomous uncrewed vehicles and some very sophisticated technology, state-of-the-art technology that's being deployed. So I actually think that there's a very exciting opportunity for us in that sector.

Next question we've got here, how does Trump's tariffs impact Ilika? Actually, we are relatively well placed to avoid any impact, and that goes back to that licensing model. So one of the main reasons for choosing Cirtec as our partner for the Stereax factory is obviously, they are in America for their main manufacturing process. And as they are using us for one of the stages of that manufacturing process, we have an ability to pass materials through with very little impact of that. And that really goes back to the U.S. looking to help themselves, but by choosing the right partner in the right market, we've been able to make sure we're in a position where we are not impacted by that. Obviously, as we scale up Goliath or the defense opportunities and look for any further partners, what the global situation is at the time, we'll try and position ourselves so that we are as protected as we possibly can, but we don't have a to understand what happens in the longer future, but we'll look for mitigations as we go forward.