LIQTECH INTERNATIONAL YEAR END CONFERENCE CALL

Transcription

1 LIQTECH INTERNATIONAL YEAR END CONFERENCE CALL Ladies & Gentlemen, welcome to the year end and 4 th Quarter conference call From a financial perspective, 2013 was a challenging year for LiqTech but the Company continues to make good progress in developing its liquid membrane filtration business. As a state of the art technology company that is introducing new, disruptive technology to very large companies in markets like Oil & Gas, Fracking, Clean Water, Desalination and Ballast Water, we are experiencing very extensive customer tests of our technology, and it sometimes takes more than three years of testing before our customers start to use our technology in their integrated systems. For the full year, DPF sales were down 43% in 2013 but importantly, 4 th quarter DPF revenues increased sequentially over the 3rd quarter, with orders from California, China, and Europe. Our two largest DPF customers in California are experiencing an increase in order flow and we have renewed optimism towards CARB and its fulfillment in 2014 and Additionally, China has started DPF programs in Beijing and is evaluating similar programs in Shanghai and other large industrial cities, with environmental issues high on the political agenda. Our representation in Singapore and our partnership model in China will allow LiqTech to take advantage of developing the important China market. Further, DPF opportunities in the boating industry are growing, evidenced by our receipt of a large order of USD this month. Overall, we expect to see revenue growth in our DPF segment in In 2013, we made excellent progress in our membrane technology business segment and we are working hard to develop the many market opportunities for liquid membranes. In addition, recent manufacturing process developments in our Denmark facility are expected to enable us to cut production times in half, with higher product yields and improved quality. These breakthrough developments are now resulting in more stable production and higher yields. During 2013 we introduced several new membrane technologies. Flat Sheet and Disc Membranes are two new membrane products that are focused on large growth areas in drinking water and desalination. We believe that the combination of our improved production technology and new products that are focused on the replacement market should enable an acceleration of revenue growth in our liquid membranes business segment. As an example, customers such as Provital are using LiqTech membranes as the core technology in their systems our Provital sales grew 500% in 2013 and we are expecting to see continued growth this year. In 2013, we established a number of strategic partnerships in very important industries and markets: In Fracking, we are working closely together with FMC Technologies and are comfortable that we will see higher revenues in that industry in 2014 and 2015.

2 In the Oil industry, we are working with some of the largest oil companies in the world. Although this is a very conservative industry characterized by very long lead times for entering into production of new systems based on new technologies, we chose to dedicate significant resources in 2013 to develop the many longer term opportunities. We believe working with the system integrators that support the major integrated oil companies such as Shell, Total, Chevron, Sinopec in China, and the national oil companies in Colombia and Venezuela, will allow us to grow in this industry in the future. Clean water applications are expanding and our Flat Sheet Membranes have been well received in the growth market of the Middle East, where we have already seen orders from Dubai and Saudi Arabia. Our entrance into China has been successful and we already have strategic alliances with customers in Protein Recovery and Oil & Gas, and are looking for growth there as well. As a reminder, LiqTech is a small company and the nature of our business today results in a certain lumpiness in our order flow and sales revenues. We delivered a comparatively stronger fourth quarter in 2013 in regards to revenues but expect a sequentially slower start in the first quarter of However, we believe we will make good progress for the full year 2014, as we further develop our membrane business and as our DPF revenues recover. Our cash situation is good and we expect to be cash flow positive at revenues of about 20 million USD. Our investor base is strong and in 2013 we have added institutions as well as wealthy individuals as 5% shareholders in the company. The company is now familiar with more than 80% of its investor base. And finally, we announced earlier that the founder of LiqTech, Mr. Lasse Andreassen, who successfully nurtured the business and who has provided a strong foundation for future growth, has chosen to retire from the Board. Lasse will continue to act as an advisor to LiqTech. I will now hand the call over to our CEO Finn Helmer, for a more detailed discussion of the progress in the 4 th quarter and the year 2013 Finn: Financially the 4 th quarter was the best quarter in the last 6 quarters, both the US and Denmark performed very well. Although the year 2013 has not performed as expected we saw that DPF reversed the declining trend changed in the 4 th quarter. Membranes 2013 bookings were 82% better than in 2012 and we budgeted a doubling of the booking in We are working on securing more smaller

3 customers so we can get a more consistent revenue, as the larger projects we are getting is creating a lot of variability in revenues. Since August 2013 we have worked on an improvement of the membrane technology. The improvements are needed so we can effectively compete in certain markets where the product performance is borderline for certain applications. We have also been looking for a way to improve the cost at the same time. Just before Christmas, we achieved a break through on the first test membranes, and in the first quarter we have refined the process so it is production ready. This breakthrough is placing LiqTech on the forefront of technology worldwide, an important and giant step forward. Now it is up to the Company to utilize this over the coming years to sell more membranes. This development work improved the performance of our tubular membranes, the flat sheet membranes and the disk membranes. We have successfully developed test size of both 10 nm and 4 nm membranes. We are currently moving the developed membranes into production, a process we expect to finish by end of the second quarter. This will open several new markets for our standard membranes; markets that have a higher price point. Regarding the 4 nm membrane, we have been working on improving the membrane consistency. The project has shown very promising results. Here we have manufactured the first production unit so we expect to go into production during the next quarter. This will open markets in the pharmaceutical industry where we have a group of customers waiting for the new improved membranes. On the development of the disk membranes, we have solved some of the biggest issues before volume production. Only a few issues remain before we can release the product to the market where we have orders waiting for the production. So again, we expect to commence production here in Q2. DPF In respect of our DPF business segment, the market in 4 th quarter did firm up and the US did have growth over the 3 rd quarter, and we also saw a growing interest in Europe, and several of the companies that are selling retrofit solutions appear to be coming out of their financial problems and are growing their businesses. The DPF filters for China have been installed and are currently in test, if it works as expected then we will have nice growth opportunities there as well. As of first of January, Berlin has implemented rules for off road vehicles. The retrofit segment of off road vehicles is somewhat regulated and the need is expected to grow over the coming years. The solution is likely to be based on silicon carbide because there is a lower integration with the engine control unit than normally for trucks and this is in favor of SiC. We have not seen any business yet, however, we have four of our partners bidding for contracts related to Berlin and it is expected there will be 5,000 to 7,000 vehicles that will need filters.

4 We received a $450,000 order from a shipyard for DPF to be used on one ship. There are typically hundreds of ships built in a year. Three of our partners are working in this market segment and we expect this segment to generate a significant part of our 2014 DPF revenue. LiqTech has been chosen for a DPF bus test in Europe. The test will run for one year and if successful then the final order could be for 850 buses and several million dollars. Membranes: Moving on to our liquid membrane business segment, the Chinese partner who signed up in the 3rd quarter started tests on several oil rigs in the south china sea beginning with five different major projects. The results from the first two test projects were very very good and we expect to get the first bigger system in The test confirms that SiC is a superior technology for the oil market. A similar test was performed on a land based oil rig in Europe which gave similar positive results; here we were measured against polymeric membranes. The customer expects to have the first system order by 4th quarter LiqTech was selected and invited (as the only membrane supplier) to participate in the ISPT water cluster, the goal for the cluster is to develop systems for the oil and gas industry using new and promising technologies. The work in the cluster has started and we expect to see the first results before the end of The current members of this dedicated cluster are: Gaz de France, Shell, EBN (dutch government oil company), Frames (system provider), Vito (Belgisk technological institute), ISPT (institute for sustainable process technology) and LiqTech. We are working with seven power plants and the results have been very good, so we are initiating a sales campaign to all power plants in Europe were it is relevant for the power plant to clean the scrubber water. FMC is expecting to order the first membranes for a production system in the second quarter, and this will mark a start of production units for their new system. We have tested the tubular membrane with algae in cooperation with several universities, and we have been able to make systems that can concentrate the algae without harming the algae. This has resulted in a sale of one system and four rental agreements. We have outstanding bids for nine systems with a total of more than 6 million for If we were able to obtain all these orders, this would exceed the total membrane orders for all of 2013.

5 Flat sheet Membranes: The membrane production process enhancements improved the performance of the flat sheet membrane. Several customers were asking for a finer pore size for their projects that we can now achieve this with the new technology that I described in the beginning of my presentation. We received the first order for a production system in the Middle East. This system is under production and has to be delivered in the 2 nd quarter. The size is 250 m2 so it is a good size to start with. We now have more than 40 test sites, and the product has only been on the market for the last four months and we are striving to gear up the volume up to meet demand. We have been assured by a customer of getting at least one big project this year. The value of the projects we are involved in is more than 40 mill divided amongst more than 25 projects ranging from m3/day to m3/day of water to be treated. While we are not expecting to win all of the projects, we believe that we have an exciting business opportunity with our flat sheet membranes in the Middle East. Disk Membranes The Disk membranes are getting close to production, and the disks have been shown to a select group of customers, and the performance from test units has been extremely good. We have been told that orders are very likely from the first five end users as soon as we have the disk membranes ready and the production units are proved out. Q1 Expectations As mentioned by Aldo, we expect to see a softer first quarter of 2014 with lower revenues sequentially as compared to the fourth quarter of The sales level in first quarter is below the fourth quarter sales however, we are working on several larger opportunities. We have never had a stronger opportunity list in our history Outlook We believe that with a strengthening DPF outlook in the US, Berlin and China, that the DPF business has a brighter future than we have seen in the last year or two. In addition, we believe that the new membrane production process should meaningfully increase our production capacity and yields plus create additional market opportunities. With strong opportunities in fracking, algae, desalination, and disk membranes, we believe that we should see good revenue growth in membranes in 2014 and beyond.