Zions Bancorporation N.A.

Warm welcome to Impact Coatings presentation for the third quarter of 2025. With us today is CEO Jonas Nilsson and CFO Lena Åberg. After presentation the company holds a Q&A. If you have a question please press star 9 to raise your hand and star 6 to unmute. Jonas, the audience is yours.

Hi everyone, welcome to this presentation of the third quarter 2025 financial report. Today I'm at the Hydro-Rent Technology World Expo in Hamburg in Germany to meet customers. So I hope that my internet connection will work all through this presentation. As you have probably seen, we announced today a rights issue in a press release. There are regulations governing how we can communicate about such a transaction. So we will not go into further details about it during this webcast. Instead, I would like to refer you to our website for more information. However, I will start by talking a bit more about the company in general today. So here is the agenda for today's webcast. First some words about the company and our market segments. Q3 highlights. Our CFO Lena Åberg will do the financial update. Summary and outlook and a Q&A session at the end. Impact Coatings is an advanced material science company specialized in PVD. We address material science challenges found among other areas in the energy sector. We deliver complete solutions including proprietary and non-proprietary coatings, equipment, coating services and coating expertise. We target a number of growth markets. I will come back to these on the next slides. We have operations in Linköping and Shanghai and sales offices in Korea, Germany and the US. In Linköping, we manufacture machines and provide coating as a service for customers. In Shanghai, we operate volume production with coating as a service. In recent years, China has been a major market for us, including deliveries from Sweden, it has accounted for 70 to 80% of our revenues in the recent years. So PVD is a horizontal technology that can be used across many industrial segments. We have shown some market verticals where our machines are well suited and where advanced functional multi-layer coatings are required. Areas where we can apply our expertise. I will give a few examples. Energy. Here we work with components for electrolyzers and fuel cells, flat components that require advanced coatings, ceramic materials and precious metals. Automotive. Many of you drive cars with emblems or other design elements produced using machines that we have delivered. Electronics. For example, radar antennas, waveguide antennas are actually made of plastic coated with metal. We enable adhesion, solderability and antenna performance. Luxury goods. Here we provide scratch resistant decorative finishes for eyewear and watches, for example. What these market verticals have in common is that we see a strong product market fit. And at the bottom you see examples of industrial projects where impact coatings has been involved over time. In the energy sector, we primarily deliver solutions for coating for fuel cells and electrolyzer components. Our solutions help global customers meet needs for energy resilience and energy supply, whether they are using hydrogen extracted from fossil fuels like natural gas, from ammonia, or pure hydrogen made using a variety of methods. An electrolyzer uses electricity to separate water into hydrogen and oxygen, and a fuel cell does the opposite, converting hydrogen and oxygen into electricity and water. The reactions that make electrolyzers and fuel cells work depend on flat components. You see that on the left. where robust but very thin coatings are critical because they protect against corrosion and decrease electrical resistance. Our customers require these coatings to make their systems last for many years and drive economy for their customers. Our secret sauce is a machine design that is optimal for coating these types of components, along with expertise and experience that we use to help our customers develop the right coatings for their specific commercial needs. Our solutions are used for stationary power. Here we are talking about natural gas driven solid oxide fuel cell systems used to power AI data centers, microgrids or households. More on this shortly. Mobility. Heavy duty transport powered by fuel cells. Customers and volume production are primarily in China. Outside China, we also have customers in aviation where fuel cell systems are promising because they are lightweight compared to batteries. Electrolyzers. Electrolyzers that produce hydrogen for storage and transport, enabling energy to be used where and when it's needed rather than wasted or sold into the grid below production cost. We have world leading customers and ongoing volume production in this application. Here we also see new opportunities in innovative solutions using iridium oxide. So our unique combination of coating materials and coating machines is mission critical to our customers for system performance, lifetime and economy. Next slide, please. So, the commercial weakness of green hydrogen for mobility applications, especially passenger vehicles, has negatively affected impact coatings and also our global peer companies. You can see the pain in stock prices for many companies from 2021 forward, including ours. We are adapting to the market and pivoting our strategy to where the opportunities are greatest, where there is growth, capital and return on investment for customers. Fortunately, our hydrogen-related work has great relevance and value in adjacent and emerging applications. In our Q1 2025 webcast, we mentioned SOFC, which has been a low-level R&D effort for several years. In early 25, we started seeing increasing customer interest and a clear product market fit and the need to broaden our offering beyond PAM. Today, the major players in the SOFC market, our potential high volume customers, have made big move forward. I'm talking about companies like Bloom Energy in the US, Cirrus Power in the UK, Doosan in Korea and Delta Electronics in Taiwan. These companies describe a rapidly expanding market driven by two key trends. First, the massive growth of AI data center and second, the global push for energy independence. in a world where importing energy from other countries is risky and also expensive. These companies, they do not talk about the green transition in the traditional sense. They talk about commercially driven projects, real business opportunities, but with technology that is still a step forward toward a greener future. Most commercial SOFC systems today run on natural gas, but they are hydrogen ready, and so are we. To our coatings, the fuel source doesn't matter much since hydrogen is sort of the active ingredient for power generation, whether it's pumped in as pure hydrogen or extracted from natural gas like methane. If you look at natural gas, it has four very useful hydrogen atoms and one carbon atom. To go back to the market, to give an example, Bloom Energy recently partnered with Oracle to deploy SOFC systems at selected Oracle Cloud Infrastructure data centers in the US. The goal is to power growing AI workloads with reliable low emission electricity that can be quickly deployed and easily scaled. There is a challenge in powering data center because it often takes three to four years to connect it to the high capacity power grid. The SOFC technology allows Oracle to deploy on-site power solutions that can run on natural gas or pure hydrogen, providing scalable energy with a smaller environmental footprint. We are not involved in this project, but it's a good illustration of where we are aiming. Another aspect of the SOFC market very relevant to us is that each system requires more coated plates than a PEM fuel cell system. Higher volumes will drive higher revenues, whether we are selling coating as a service or selling machines. If we continue to look at product market fit, it is a perfect match. SOFC components are flat panels, flat plates. And we are excellent with 2D objects. We also have solutions for 3D objects. SOFC needs advanced multi-layer coatings applied on both sides with different coatings on each side. The more advanced the customer's coating needs, the more they need impact coatings. The plates are also exactly the right size for our small IC500 and our large IC2000 machines. So we do not need to spend money on new machine development. And it is a dynamic growing market which suits our business model since our delivery model supports customers from prototype to services to enhance machines as the volumes grow. So what problem are we actually solving for our customers? A typical SOFC power plant is roughly the size of a 40-foot container. The core of the system are the SOFC stacks, but the system also includes reformers, heat exchangers, afterburners, compressors, cooling systems, power electronics and more. The lifetime of the stack depends heavily on the quality of its coatings and the stack itself wears out faster than the rest of the system. So it becomes a replaceable component, a bit like the brake pads in a car. So by using high quality advanced coatings, we help extend the lifetime and improve the performance of the entire stack. That's why coating quality isn't just important, it's critical to the economics of SOFC technology. So in terms of commercial progress, we already have strong relationships with several leading players in this space and we are well advanced in paid testing and evaluation with one major customer. So we expect to provide more concrete news about progress and commercial orders in the months and years ahead. As in previous quarterly presentations, we start with net sales for the rolling 12 months, which amounted to SEK 72 million. It is a departure from the upward trend, and this is due to the lack of system deliveries in the last three quarters. Our long-term growth ambition remains firm and we are actively working to broaden the revenue base and increase the stability of the business over time. The delays in machine sales is mainly due to external factors like uncertain market conditions, which are causing customers to postpone investments, awaiting policy clarity or internal approvals. One data point to support this statement is to look at the development of the business excluding machine sales. That is looking at only coating services and aftermarket that we have on the next slide. Here is a graph showing rolling 12 months net sales excluding machine sales. With an order backlog at the end of the quarter of more than 10 million SEC, we see that we are on a stable level with the rest of the business, excluding machine sales. And capital equipment sales is more sensitive to market uncertainties than services. And we clearly see that in the graph here if we compare it with the previous slide. So total Q3 net sales amounted to 13.7 million. It's down from 31.7 million last year. This is primarily due to absence of coating system delivers. A direct effect of slower customer decision making. It's not a lack of interest. We continue to see active dialogues and strong customer interest. But we see that both a turbulent world and uncertain market conditions are causing customers to postpone investments. If we exclude systems, net sales grew compared to 2024, primarily driven by higher activity in coating services. Net sales for coating services reached 10.6 million compared to 6.6 million SEC for the same period last year. China continues to run at a high pace with 24 hours a day, six days a week production. The China operation surpassed the 2024 annual volume record already in September this year. Looking at North America and Europe, we have the strongest order intake for coating services since Q2 2023. This is mainly, but not only, driven by our large American customer. Order backlog for coating services at period end exceeded 10 million SEC. Aftermarket reached 3 million SEC. The financial results for the quarter reflects a challenging market environment where delays in customer investment decisions have impacted both sales and cash flow. The Q3 operating profit after financial items was minus 12.1 million compared to minus 6.5 million last year. Cash at the end of the quarter was 12.9 million. We have today announced our intention to carry out a rights issue of shares of approximately 87 million SEK. And due to regulations governing how we can communicate about such transactions, we will avoid going into further details during this webcast. However, I do refer you to the press list and our website. We have and still are taking cost reduction actions to address the current financial challenges and lower the company's breakeven point. Over the past quarters, we have implemented cost reduction programs. We have secured favorable loans, local loans in China to support operations. and transition to a more generic inventory of precious metals which increases operating efficiency and also reduces capital employed. We have improved capital efficiency and reduced both cost and risk exposure especially as I said by improved noble metal handling. During the third quarter, we initiated further across the board cost savings, focus on costs for personnel, other expenses, and also COGS. In a total cost reduction programs, it has affected 19 employees and contractors, which has brought down the monthly run rate by over 12 million SEC compared to 2024. This includes both costs for personnel and other costs. However, especially with personnel, there are delays until the full effect of this materializes. With regards to COGS, it is our intention to substantially reduce material costs by local sourcing in China, combined with design changes in our machines that allow usage of lower cost components.

In 2024... We seem to have some problem with connecting Jonas. Are you here Jonas? I receive no sound. Jonas, if you can please, we lost you there for like 30 seconds. Could you please go through this page again, please?