During the last year Imagine transitioned from being a start up company focused on manufacturing graphene into an applications business leveraging the extraordinary attributes of graphene to deliver sensing and communications capability to large scale surfaces.
We expanded our shareholder register and became an unlisted public company. We now have almost 170 shareholders, many of whom became shareholders as a result of the recent capital raising in Finland.
We have shareholders from Australia, Finland, the USA, Singapore and Hong Kong.
We also established a company in Finland, Imagine Intelligent Materials Oy. This Finnish subsidiary company gives us a foothold in Europe. Having a base in Finland means that we will be able to access EU grants relating to graphene research. It also means that we will be able to more easily develop commercial relationships with research organisations like the European research organisation, CERN. However, there were two more important reasons: to be geographically close to our customers, and to build a world class signal processing engineering team.
Australia produces some of the best materials scientists in the world. Finland produces some of the best signal processing engineers. To build our Company we need to recruit the best people. This is what we have started doing and will continue to do.
It is not easy to run a small company that operates globally. However, the benefits of being able to deal directly face to face with customers outweighs the problems.
As you look at the line-up of people working at Imagine now you will see a growing number of Finnish names, all of whom are, not surprisingly, alumni of Nokia. I will shortly introduce you to one of them, whose role in Imagine has grown rapidly since he joined us earlier this year. Jaakko Kaidesoja, is now the President of Imagine Intelligent Materials. Jaakko has a background in finance and management and was with Nokia for about 17 years, and then managed logistics for Posti Group, Finland’s postal service.
Jaakko has a great grasp of the Imagine business and aside from his financial skills brings the experience of managing very large and diversified teams of people spread across wide regions – a very important skill as Imagine grows.
Jaakko is on a conference line, and available to take questions from the floor.
Moving on to our business activities.
The first commercial product we released was imgne X3. We licensed the solution to Geofabrics (Australasia), the largest geosynthetic manufacturer in Australia and the product they launched using imgne X3 is bidim C. The sales trajectory for bidim C has not been as fast or as substantial as either of us would have liked. During the last year we received orders from Geofabrics for coating material for 220,000 square metres of bidim C. We had projected sales of well above that amount.
However, encouragingly we started to see the first green shoots of market potential in the last month. This is as a result of the South Australian government’s EPA issuing new guidelines for containment ponds that require owners to undertake leak detection of the facilities before commissioning. This appears to already have caused new orders to come from geographies that have up until now been somewhat reluctant to adopt our solution.
The relationship we have built with Geofabrics is much more important than just providing coatings for bidim C. The materials that are manufactured by Geofabrics are very similar to materials that are in common use in every industry that we want to impact.
We are now working toward developing an off- take agreement with Geofabrics to acquire materials from them that we will be treating and using to deliver prototype sensing products for Sensing Floors, Leak Detection Roofs, Smart Car Seats, and other sectors.
These materials will enable us to develop and deliver the disruptive proof of concept products that we are focused on.
As you would know from the shareholders newsletters, we have for a while been in negotiations with companies that are the leaders in the flooring, roofing, and automotive seating market verticals. Negotiating with these companies takes time, particularly if we are to maintain control of the valuable intellectual property (IP) that we are continuing to develop.
Equally important are the relationships we have built with Swinburne University and ARENA2036, the automotive research facility in Stuttgart.
After this AGM I will be going to Geelong to host a visit from the executive team from ARENA2036, with whom we are currently discussing a project to build a prototype smart road. I hope to be able to report to you soon that an agreement has been reached for us to install this Proof of Concept road at ARENA2036. A project of this kind will be invaluable to us in terms of the visibility that it will provide. ARENA2036 is on the Stuttgart university campus and Stuttgart is of course the city where the internal combustion engine was born almost 200 years ago.
In parallel with this we are continuing to develop and grow a commercial relationship with Daimler. As you know we developed a proof of concept “smart seat” human machine interface for Daimler earlier this year, which we successfully delivered in July. Since then we have been workshopping several product concepts with Daimler’s R&D team in Germany.
That work in turn has helped lift the profile of the Company with a number of the companies in the automotive supply chain, and we are now in the early stages of commercial discussions with two of them.
Automotive design cycles are long and the path to market is slow and the margins can be tight, so it is not a fast path to commercial success. But, Daimler as a brand delivers considerable validation for us, and, as a result it helps open a lot of doors.
Where we believe we will get significant early commercial traction is in one of the largest market opportunities. It is the smart cities space: smart roofing that tells you where leaks are; smart floors that can monitor foot traffic; and also smart logistics. We believe that we will have agreements in place and products in market by the first quarter of 2021 that will deliver smart sensing flooring and smart leak detection in roofs.
In a moment I am going to ask Jaakko to talk about our revenue forecasts for these market verticals.
I am sure you are keen to hear what our plans are for both continued capital raising and also a future liquidity event for the company.
Our plan is first to close Technology Demonstrator agreements for smart floor and smart roof prototypes and to use these as milestones to put in place a Series A round that will enable us to raise about $10-15 million. There is a history of companies that develop smart surface technologies raising in the region of US$25 million in Series A rounds based on similar milestones having been met and therefore I do not believe that this is overly optimistic target. A Series A round will provide us with the necessary runway to ramp up productization, including further development of signal processing devices, testing and manufacture, and building out a supply chain.
The question that always arises is, “what is the likely horizon for a liquidity event?” I, along with all shareholders are, understandably, keen to see a return on our investment. We are investigating a number of possibilities including a stock market listing and the possibility of a trade sale or merger at some point in the future.
However, a considerable amount of work is required first, and I believe that the Company needs to focus on delivering PoC agreements, which in turn should help us trigger closing a Series A that sees a further uplift in the Company’s value.
Before I ask Jaakko Kaidesoja to talk to you about revenue projections I would like to you to join me in thanking our non-executive directors for their contribution. I appreciate their counsel and support and genuine commitment to helping realise the vision of this Company. Each Board member has purchased shares in Imagine, and they, like me, have done so in each capital raising round. So too have all of the employees. Every one of us has personal skin in the game. I don’t believe that there are many companies where employees make the kinds of commitment that this team has made. I would like to thank the Company’s management and staff for their unwavering dedication, commitment and belief in what we are working to achieve.
On the topic of skin in the game, last Friday a series of A$1.50 options fell due for exercise. These together totalled 754,537 options. I am delighted to report that 637,837 of these options were exercised bringing just over $1 million of new cash into the Company. We now have a total of 6,627,855 shares on issue.
We also anticipate continuing to be able to access funds from the R&D Grant Scheme which is so helpful to companies such as Imagine, which is R&D intensive and are in the process of applying for a Commercialisation Australia grant.
Lastly my thanks to all shareholders for the trust that you have placed in me and the team and for attending this AGM.
I now would like to introduce you to Jaakko Kaidesoja.
– Chris Gilbey, CEO
I would like to briefly cover our current financials, the target markets, our solutions, revenue projections and then go into a bit more detail about our business plan.
The Company made total sales revenue of $181,954 during the last fiscal year. This was predominantly imgne X3 sales, other income amounted $979,646. The sales of imgne X3 was not quite as we had hoped but as discussed earlier there are signs of demand picking up and the fact that we have a commercial product to use for customer testing in other application areas is of value in and of itself. Total operating expenses were approximately $3M mostly related to research and development and company administration. Currently we have a cash balance of $230K and anticipate to further fund our operations with the cash coming in from the options (approximately $1M), R&D loans and grants in Australia and in Finland and revenue from proof-of-concept projects with our customers. We estimate the current funding to last until end of Q1 2019.
The Company has been working on developing opportunities in the mining market for some time and despite the fact that “smart mining” is a smaller market segment than the others that Chris has mentioned, mining continues to be an important segment for us to focus on and develop products for. Smart mining, including geotextiles, grids and advanced services is a $15B market today and is expected to double in the next five years. Our path to revenue has already started with the imgne X3 product and we anticipate closing an agreement to deliver a Smart Sensing Technology Demonstrator for one of the global leaders in mining. I am afraid we are under a strict NDA and not permitted to discuss the details of the product nor the name of the company.
We project that smart mining related revenues will start growing during 2020 by which time we expect to have a new commercial sensing product in the market. Growth will be gradual and linked to the regulatory developments. It will not form the largest revenue stream for us but will offer a fast path to market and a natural expansion from our current offering.
The largest target market for us is Smart Cities, which are closely linked to smart mobility and smart infrastructure. The global flooring and roofing market combined with smart building and facility management markets amounts to US$500B today and is expected to grow by 3% year on year, with the fastest growing sectors being smart buildings (13%) and facility management (8%). Our solutions for smart flooring and roofing will produce valuable data for smart building and facility management. Our go-to-market strategy is to sign exclusive deals for Technology Demonstrators with global leaders companies in specific market verticals with whom we will then develop product solutions and take them to market jointly. We expect to be market ready by mid-2020 but prior to that we will generate small amounts of revenue as a result of the Technology Demonstrators.
The smart City market segment is expected to generate revenues relatively fast but as the market is very fragmented exclusive contracts will limit our market coverage. However, it is critically important for us to be able to develop and mature solutions together with customers before scaling them regionally and working on other customers. Our strategy is to focus on a few market niches and working to build relevance in a specific user segment first. Our goal is to create a leading market position, which will then help us to adapt our solution to impact other market verticals.
The automotive industry is a difficult and challenging market segment but provides us with credibility and is already generating modest revenues. The combined value of car seat and interior materials, knobs, switches and sensors is approximately $50B today and expected to grow 6% annually. Furthermore, the car industry is going through a dramatic change as a result of the convergence of the megatrends of electrification, mobility-as-a-service and self-driving technologies. This provides us with an excellent opportunity to develop novel solutions and to work with other market entrants, which we are currently exploiting. The path to revenue will be long (3-4 year), in the auto industry, and the testing of new materials and solutions will be rigorous. Therefore, we do not expect significant revenues from this market vertical to start flowing until about 2022.
The opportunity will be relatively narrow to start with. We will need to close agreements with several vehicles companies and the participants in their supply chains. This will provide us with fast revenue growth, but only if our solution meets the needs of the customer. Thus, there will be several PoC projects to prove our technology before we will be able to secure a commercial agreement.
There are also subsegments in auto industry which will offer faster route to revenue and where we can apply similar technologies across different markets, E.g smart flooring in truck containers and buses. Similarly, smart roads are tightly linked to automotive and smart cities and hence will be one of our focus markets. We anticipate slower development due to the fact that many road construction projects are driven by governmental budgets.
Knowing all of this, our revenue plan is really focused on getting the first solutions out to the market in 2020 and then building a strong solution portfolio which we can scale. We anticipate delivering on growth from today until 2021 by targeting doubling of our revenues annually. 2022 will become a tipping point for Smart City related solutions and the Company will then achieve a faster growing revenue trajectory. This, combined with a successful entry into the auto industry, would produce a break even in 2023 with revenue targeted to exceed $60M.
The plan is based on our current business model, where we will charge technology licensing royalties, material revenues and SaaS revenue from data services from our customers. The business model is likely to be different across the industries, for example the auto industry has a long history of not having a licensing or SaaS models, but the industry is experiencing a massive change, and it is possible therefore that the business models may also change. However, that is not a basis of our revenue projection, but rather an additional opportunity.
Once we move towards commercial contract discussions it is certain that some of the assumptions will be adjusted and some verified. Based on my previous experience at Nokia, to develop and grow new businesses, it is important to keep the business plan continually updated and build different types of scenarios based on the market and customer response. This is what we plan to do.
– Jaakko Kaidesoja, President