Itaconix : Annual Report & Accounts 2021

Diluted loss per share (¢)

$(0.001)+80.0%

1 Adjusted for interest, tax, depreciation, amortization, and exceptional items

Polymers for Better Living™

2021 was a year of marked and important progress for Itaconix. We retained our current customers, added new customers, found new applications for our products, expanded our technology platform, and built a broader base of recurring revenues.

These advances continue to strengthen our ability to contribute meaningfully to the decarbonization of consumer products. Our polymers' commercial base is now well‐established, and they are currently used in over 130 consumer products. Our patent‐protected processes, used to produce the plant‐based polymers we sell, are unique and valuable. In simple terms: they use and sequester carbon dioxide. Through our large technology platform, we continue to monetize our intellectual property in three core areas: cleaning, hygiene, and beauty.

Our progress on these many fronts, however, did not translate into higher revenues and our financial results did not meet our plans for 2021. As detailed in our Chief Executive Officer's statement, cleaning customer ordering patterns in late 2020 and early 2021 responded to the Covid‐19 pandemic, creating high demand and overstocking, followed in the middle of 2021 by rebalancing of inventories and consequently low order volumes. Although volumes did recover and are continuing to grow nicely, this temporary decline in cleaning revenues caused a 21.1% decline in revenues overall.

As our technology platform and polymers lead to new generations of more sustainable everyday products, our efforts are recognised by the London Stock Exchange. Itaconix was awarded the LSE's Green Economy Mark in May 2021, which identifies companies that are contributing to environmental objectives. We are very proud of this achievement, and this pride is shared by all our employees. I would like to extend special thanks to them for their valuable work and devotion to our mission of decarbonising the planet with proprietary plant‐based products that enhance consumer products.

In 2021, we continued to strengthen the foundation of our business through new customers, applications, and products. This progress is already manifesting itself in the current financial year and we look forward to the rest of the year and beyond with continued confidence and optimism. Thank you to all our stakeholders for your ongoing support. Together we are making a real difference.

James Barber

Chairman

7 June 2022

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Overview

Itaconix has a deep, diverse IP‐protected technology platform that enables new generations of consumer products which are more environmentally sustainable without compromising on performance or cost. Our core business model is to use the competitive value of our technology platform to build a broad base of recurring revenues from brands that rely on our ingredients for the success of their products. We are currently focused on three key retail areas with large and growing market potential: cleaning, hygiene, and beauty.

We added major new customers and retained existing customers to expand our commercial base in 2021. With new successes across all applications in North American and Europe, our plant‐based polymers are now essential ingredients in an estimated 130 brands around the world. Most of the largest brands that we work with are growing as they expand into more retailers. Brands that rely on our ingredients are found in many of the largest retail groups across North America and Europe.

2021 was a challenging year for translating this momentum in our customer base into growth in revenues. While our hygiene revenues grew substantially, lower cleaning and beauty sales resulted in a 21.1% decline in overall revenues. While we believe underlying consumer demand grew, customers ordered substantial volumes of our cleaning polymers in late 2020 and early 2021 to ensure supply during the Covid‐19 pandemic and restock depleted retail shelves, then followed with lower monthly volumes from July through October 2021 as they rebalanced their inventories. Despite these months of lower volumes, we continued to add new customers and expand our base of recurring revenues as brands looked to us to improve the competitive position of their products with new performance and sustainability claims.

As we grow our customer base with our existing products, we are selectively reaching into and expanding our proprietary technology platform in response to new customer needs. We completed a production trial for our plant‐based superabsorbent (SAP) in 2021 and supplied a customer with materials in early 2022 for an initial consumer product trial and testing. Additionally, we filed two patent applications for new plant‐based ingredients. One is for a new biodegradable hair care ingredient that we expect to launch in 2022. The other is to increase the plant‐based content in composites. This product is early stage and will take several years of further development and testing. We believe these initiatives increase our potential addressable market from $750 million to $2.3 billion, and that significant opportunity exists within our technology platform to further expand our addressable market.

We were extremely proud that our work at decarbonising everyday products is acknowledged by the London Stock Exchange, who awarded us its Green Economy Mark in May 2021 to recognise our contributions to the global green economy with over 95% of our 2021 revenues derived from plant‐based products. The Green Mark, first introduced in 2019, was created to highlight companies and investment funds listed on all segments of the London Stock Exchange's Main Market and AIM, that are driving the global green economy. We are just starting to tap into the potential of our proprietary plant‐based technologies to accelerate the transition of brands and consumers to a low carbon economy. The Green Economy Mark is an important recognition for our work and will support our efforts to communicate our green credentials to investors and other stakeholders. It is a real honour and achievement for Itaconix to be recognised as an early leader for the Mark in the Advanced Materials industry sector.

Funding

We continued to strengthen our balance sheet and broaden our shareholder base. In June 2021 we announced a successful placing to raise $1.6 million by way of direct subscription with a new institutional investor together with existing institutional shareholder, IP Group plc.

Recently, and after the reporting period, we announced the placement of new ordinary shares to raise approximately $0.4 million by way of a direct subscription with IP Group plc and our management. The proceeds of the fundraise are being used for general growth working capital, predominantly to strengthen finished goods inventories held in the EU to assure reliable and ready delivery times to our expanding base of EU customers.

Financial Overview

Revenues for the year were $2.6m, representing a compound annual growth rate of 43.4% over the last 4 years. These revenues were a 21.1% decrease year over year from 2020, mainly due to large stocking orders for our cleaning and beauty products in late 2020 combined with slow reorders in the middle of 2021. We believe this

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order pattern reflected customer and retailer uncertainty in managing inventories during the pandemic. We retained current customers and added new customers while underlying consumer demand remained strong.

Despite a rise in our operating expenses and raw material costs, we managed to maintain an overall gross margin of 27.0% (2020: 35.1%). The increase in operating expenses was mainly due to growing our executive team as we positioned the Company for broader revenue potential and growth from our proprietary technology platform. While these additional costs had a direct impact on adjusted EBITDA, we believe the operating losses of the business remain manageable and that development spending on new revenue potential will deliver attractive returns and profitability in the future.

Net cash balances as at year end were $0.7m. As noted above, the Group successfully completed a placing of $1.6m during the year.

Although the Company did not experience overall revenue growth in 2021, the Group is well positioned for its next phase of growth with an expanded customer base, a sizeable pipeline of customer projects, and key personnel in place.

Operating Review

Growing our customer base and developing new applications for our technology platform were essential in 2021. We were successful at retaining our current customers, adding significant new customers, and increasing our addressable market with new products and applications. This expansion in our customer base did not immediately translate into overall revenue growth due to the specific order cycle conditions described above. Overall revenues were $2.6m in 2021 compared to $3.3m in 2020 and $1.3m in 2019.

Cleaning

Cleaning revenues were $1.8 million in 2021 compared to $2.6 million in 2020, representing a 29.5% decline.

As previously discussed, orders were strong in late 2020 and early 2021 to ensure supply and build customer and retailer inventories. Volumes declined from July through October as customers and retailers adjusted their inventories as previous uncertainties around the Covid‐19 pandemic receded. In addition, some customers delayed deliveries on their orders while they overcame supply disruptions for other needed detergent ingredients, such as surfactants.

We did add new brands to our profitable base of recurring revenues and made significant progress in establishing Itaconix® TSI™ 322 polymer as the new standard for performance, cost, and sustainability in non‐phosphate dishwashing detergents. In early 2021, a major North American brand launched a new dishwashing detergent that drew attention to the potential to have high bio‐based content without compromising on performance. By late 2021, we added two additional North American dishwashing detergent brands. We expect this momentum to continue into Europe in 2022. In September, we announced our first European order for Itaconix® TSI™ 322 with an established and well‐respected European brand that is recognized by both the dishwashing detergent industry and consumers as a leader in product innovation, performance, and sustainability. The new product is expected to be on retail shelves in H2 2022.

We completed development of our new Itaconix® ONZ 075 product by combining the cleaning performance of our Itaconix® DSP 2K™ polymer with our odour neutralising technology. We are launching this product in 2022 for use in laundry applications.

Order volumes for our cleaning polymers recovered in late 2021 and have continued to grow in the first half of 2022.

Hygiene

Hygiene revenues were $0.5 million in 2021 compared to $0.3 million in 2020, representing a 70.2% increase.

Order volumes were particularly strong and ahead of expectations from new odour control customers and applications in North America, Europe, and Asia. We have placed an emphasis on expanding usage into new applications, including development work with a major North American pulp and paper company.

In homecare odour control, our ZINADOR™ polymers, sold through Croda the global specialty chemicals leader, continue to be used widely. Building on the progress we reported last year, demand for this product has continued to grow with expanding adoption in existing brands and initial usage by new brands. We continue to see increased focus on home odour control and growing demand.

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