I’ve been following the Swedish company Chromogenics for about four years and thought I’d open a thread about the company here, as I personally see a turnaround coming. The following text is based on my own experiences and memories of the company’s history, and I don’t guarantee that all facts are 100% accurate. I’ve also accumulated some shares in my portfolio and am eagerly awaiting what’s next.
General
The company’s roots trace back to research at Uppsala University in 2003, which studied the behavior of electrochromic materials. After 16 years of development, a product named ConverLight was launched on the market. The product is an intelligent glass film that automatically darkens a window in sunlight, thus preventing heat radiation from entering, without compromising the views from the window or the facade’s appearance, as curtains and window awnings currently do. In winter, when heat radiation is needed, the window does not prevent heat from entering. The glass can also be controlled remotely, for example, with a smartphone.
The product has a proven growing market and demand, especially in warm and sunny countries. I can only imagine how much the annual cooling costs are for a large, glass-paneled office skyscraper in sunny countries. With smart windows, property owners can achieve real savings in the long run.
Customers
The company’s current customers are large Nordic real estate companies, and products have been installed in several locations in Sweden and Norway, at least. School properties, commercial premises, and some private residential properties are among their references. The goal now is to get production up and running and scale globally through separate hubs.
The strategy is based on a roll-to-roll method, where the glass film is produced in Sweden and cost-effectively transported (compared to finished glass worldwide, damages, etc.) to hubs, where authorized glass shops then finish the window and deliver it to the construction site. This creates a significant scalability advantage over many competitors.
Competitors
There are other manufacturers of similar smart glass. View Inc. is the most well-known, with Softbank investing $1.1 billion a couple of years ago. Additionally, there’s SageGlass, for example, and more can be found by Googling. However, Chromogenics’ strategy of utilizing the aforementioned Roll-to-Roll process is significantly more cost-effective and scalable when the goal is growth.
Turnaround
Since the commercialization of the product, the company has traveled a long and rocky road. The company had a subcontractor who practically handled the entire manufacturing process of the product. The sales and marketing efforts in the early days of the product (2017-2019) were largely wasted during the first two years, as the products manufactured by the subcontractor repeatedly had significant quality and delivery problems. This meant that despite demand, the product could not be brought to market quickly and with sufficient quality, making sales difficult. The backlog from those quality issues is still being paid off.
In a difficult situation, the company decided to change its strategy in late 2019. The sensitive quality control of the product is paramount, and to keep it in check, the company must handle the manufacturing process from start to finish itself. To succeed in this, the company had to establish its own factory. A share issue was organized to raise money for production machines (Sputtering machines, 2 units), which, to my understanding, are perhaps, if not certainly, the only ones of their kind in Europe. The acquisition price for the machines was a total of €10M new, and they were purchased from a German bankruptcy estate. The condition of the deal was “both or nothing,” at a price of ~€5M. The intention is to change the production model so that the company itself produces glass film as a bulk product for several window manufacturers, thus achieving more efficient logistics globally.
Regarding machine capacity, it has been stated that the Sputter 1 machine has sufficient capacity to manufacture window film in very large volumes. The Sputter 2 machine is being tuned for other products, such as flexible printed circuit boards. The second machine enables entirely new areas of conquest by leveraging the company’s core expertise.
Below is a good article from last autumn regarding this turnaround! Google’s translated page in English:
Link to article: https://translate.google.com/translate?sl=sv\u0026tl=en\u0026u=https://etn.se/index.php/reportage/67298-egna-maskiner-ska-garantera-kvalitet.html
“ One idea is to make flexible printed circuit boards.
- Imagine that you have a lot of conductors, maybe a meter long, which you replace with a flexible printed circuit board. For example, it can reduce cabling in cars or other types of products
Other ideas are about making different types of materials for heaters in, for example, batteries, or co-materials for bactericidal surfaces in hospitals.
- There are very many customers. The solar cell industry can be one, where we can make passivation layers in the form of oxide or similar, says Leif Ljungqvist, and states:
- Right now we have an overcapacity. At the same time, there is a great demand, so I think we can also become an important player in that market for sputtered film for a long time.”
The machines arrived at the Uppsala factory premises in early 2020, and then this pandemic hit. Foreign installers were called home, and installation work was significantly delayed and complicated. The share price started to fall again. Now, in spring 2021, the company is in a situation where the final quality tests of the manufacturing process are underway, and confirmations of production readiness are expected around April-May. This information is based on the company’s latest interim report.
The proximity of production readiness is also reinforced by a Norwegian institution placing a €2.3M order for window film in early March. Immediately after the order, a Swedish construction and window company made a buy/share exchange offer for CG’s share capital, which the CG board recommended rejecting. Information on this can be found on the company’s website and in press releases. This indicates that management has confidence in the project’s success.
In summary, it can be stated that the company has been paying for the lessons learned from subcontracting and the importance of quality control for almost 2.5 years now. In my opinion, we are now close to production readiness, and based on the CEO’s statements and the latest reports, there seems to be considerable demand. There is still work to be done, but the direction is right. It is possible that setbacks will occur. In my opinion, these have already been priced into the company’s valuation; those who have owned for a long time likely already have gray hair and a frozen beard from the descent… The image below shows the history:
I recommend watching a fairly recent video from the latest funding round. The language is Swedish, but even if you don’t speak the language, the video has good slides on processes and business. A few other presentation videos can also be found on YouTube.
https://www.youtube.com/watch?v=xrqLV3_1s4c
Opinions and comments, please!
I also browsed the Avanza discussions through a translator. There were indeed many comments about overly academic key personnel, but IF the product’s valuation was initially so high and the dip was due to quality issues that could be fixed with their own production, I see this as very interesting. I personally can’t grasp the impact of these equipment acquisitions versus in-house expertise on quality management. Does anyone who has followed this longer have information on this?
[sarcasm]
