PowerCell Sweden AB (publ)

Good morning and a warm welcome to our Q4 report for 2024. I am now joined with Anders for the first time, so a warm welcome to Anders. Thank you. Thank you. I've been now with the company for two months, working initially in parallel together with Tobin Gustavsson and taking over from January 1st. And it is with pleasure that we're now presenting the quarter four report and also giving you some introduction to the general status in our industry and where we're heading with Powercell. Quarter four, 2024 became a slight recovery compared to what was previously a rather soft year. We were able to report a 30% growth for quarter four, which gave us an 8% growth all for the full year, which was quite good in what was a rather soft market that we have reported starting from quarter three, quarter four in 2023 and carrying over. Also happy to be able to report a small positive result, although it's just for one quarter. It's still a good indicator of the potential we have to leverage growth in Parasol. Other significant events in the quarter is of course the memorandum of understanding we signed with Serabia to explore the next generation aviation fuel cell. We are in the process of certifying the first part of the business for the smaller aircraft propulsion unit. where Zeravia last week received a G1 certificate from FAA in the US and Powercell this week reported that we completed certification of AS9100 which is the aviation certificate for designing and manufacturing for aviation which is indicating that the certification process and commercialization of the first part of the business with Zeravia is progressing well. The fact then that we add a collaboration or evaluation of a potential collaboration for the next part where we go for larger aircrafts is of course encouraging and a good indication of a very healthy joint development that we do with them. Also completed the direct issuance of share in December which we were happy about bringing in new stronger owners and of course fresh capital for the company strengthening the balance sheet and giving us more room to maneuver and accelerate our development because we think that we are in a very good position strategically. This gives us even more potential to act on what could be a potentially interesting market. Also positive cash flow that we improved. Anders will explore more about this because we have one time effect that is positive this time where we had some negative cut-offs effect last year. So really good underlying cash flow but something we need to continue to monitor and work on going forward. All in all, for us, it's been a robust market. The fundamentals is there for us. And we talked about this in previous calls as well. After summer in 2024, we saw a change in the market where we saw OEM orders coming in. First half of 2024, it was difficult to have any signed orders. Second half, the market accelerated and it's doing it with the OEM customers that we have been positioned and trying to establish contracts with for quite some time. The change is that previously the turnover time from initial negotiation to completion of delivery and an invoice was roughly five years. Now it's down to 18 months, which is a significant change in our industry. And that is not just from the Italian shipyard that we communicate, but that was in general the order intake of the second half of last year. Powercell have continued to focus on OEM business and commercial integration, which is important. Because in this market where you see a lot of uncertainty related to policy changes and regulations, working with OEMs that are doing this because it makes business sense and it's critical for them in the future competitiveness in their industry, I think gives us a bit more robustness to these fluctuations that we see in subsidies and policies. The segments that are driving growth at the moment are marine and power generation development. We see increased demand with really strong customers with a specific purpose to what they do, which is also very encouraging. If we then summarize 2024, it was a soft market, but we saw good improvement in the second half of 2024, driven by OEM orders to power us up. The order intake for the second half was about 50 milliseconds per month. And once again, with rather short turnover time from order to complete the delivery and after that, the invoicing. So a good progress in the market, not just in numbers, but in the characteristics of the orders. We were happy to introduce Marine System 225 and also the M2 power methanol power plants, which is adding to our competitive strength. And we saw with the introduction of Marine System 225, which was the upgraded version, we immediately received more than 75 orders or system orders, which is now the wrap up we do with serial production of this one, which is also a first for Powercell. And then, as I said, complete certification of the AS9100, which is a very important milestone for Powercell, because this is also one of these indicators how we are maturing as a company. And although this certificate is specific for the aviation deliveries, It is, of course, a very important fundamental for all our segments because it gives us a step of approval on the industrial stability and ability to provide quality and safety for our customers, which is really important. So when we exit 2024, we do it as a strong company. We have updated the product portfolio. We have an updated technology portfolio with the next generation fuel cell stack, which we were running for the first time in December as a full stack. This is the building block that we can configure between 300 kilowatt up to one megawatt of power, which will be a very important building block going forward. Even though we claim that we have the best energy density and thereby performance in the industry, this new generation, which is on TRL level 5 at the moment, it gives us a 55% improvement in performance, which is significant because it brings down weight, size and thereby also cost. So a very important part of our future development. The fact that we are now in start of production of serial delivery in quarter four and wrapping up in quarter one this year is really encouraging. We have a proven business model and we have also proven ability to leverage growth. And Anders will show this because we are managing to report a small profit, but we do it on also rather low levels of revenue. We have a very interesting business model which we have claimed previously to be asset-light and it's proving now to have a strong leverage in its growth. We also entered 2025 or exit 2024 with improved financial stability and we have strengthened the balance sheet which was a focus for us in the later part of 2024. So with that Anders give you an introduction to the numbers.

Thank you very much Richard. I will walk through the numbers. I will do that in a more reflective mood as the numbers are quite well described in the report itself and there are some elaborated texts associated to them. But I will try to highlight some of the things that I think either could be elaborating on what Richard has been saying and what I think is important to remember as you read the numbers. Starting with the sales number. Obviously, we see the quarterly differences here with a very strong fourth quarter compared to the previous three quarters. And if we would have looked at the year before, we would have seen the same trend. I think indication report gives at hand that we might see a more smooth ride here between quarters moving forward without having said anything about forecasts or anything like that. But this is the trend, and we had a very healthy Q4 with that respect. We can change slide, Richard, to the next. Then looking at the Q4 P&L, I think the obvious thing here is that we had some order intake that we accounted for as a stage of completion that generated a strong outcome of the top line. Although we have been to some extent conservative, this is one of the first real large such orders when it comes to the profitability on such a contract. But we still see that the fundamentals in Q4 came out very strong and we are happy to be able to leverage off that going forward. We can go on to the next page. For the year and the P&L, I think it's important to remember the one-time effect or the extraordinary effect that were taken in the previous quarters this year. That is a 30 million grant that was given to us, basically relieved. That is a 30 million plus to the P&L and you see that as a non-recurrent item for this year. although there were no such things in Q4 for comparison reasons. But I think that's the real key thing to notice here. So with that having said, I think we can go to the next one. The balance sheet, like Richard said, I mean, the focus for the company in the last half of the last year was basically to have a more stable balance sheet, including equity. And we have a successful round of bringing in equity. The other things that have changed that is obviously different from 2023 is that we do have capitalized a bit more of the research and development activities as we are moving into a more aggressive phase on those things and taking on more tasks. We also at the year end had the situation of that we had a lot of purchases following the order that we received in Q4. And we also had some prepayments for the funded projects that we're doing internally. those things together generated a very high level of current liabilities part of that is the payables of course and it's important for me to say here that as much as a negative cutover effect that had last year when going into 24 We might see a bit of a positive turnover effect here when we go into 2025. So the differences that I will share with you in a while will, yes, they are differences. And they are, like Richard said, there's a fundamental improved cash flow. But obviously, it has had some periodization effects when it cut over from last year to this and from this year to next, 2024-2025. So let's move on. And the outcome of what I just mentioned is quite well viewed here on this chart. There was a very negative operating cash flow by the end of last year or 23. And this year we have a positive operating cash flow. And I just want to make sure that everyone understand that there are cutoff effects that works in the opposite direction in the two different cutoff points. But underlying cash flow is positive. I think I'll leave it with Richard and potentially pick up questions after having finalized with some KPIs. I think these KPIs are fine in the report. I think it's for us extremely important that we follow the EBITDA as a result measure and of course the total cash flow. And talking total cash flow in this case, obviously we've had a significant improvement following both the the loan that we had from our funders and the share issue. Having said so, Richard, I'll leave it to you.

Very good. So if we then look at the strategic focus for 2025, we have a very strong focus on reaching breakeven. That should not be misinterpreted as a forecast, but it is a strong focus. And I think that this is why we talk so much about leveraging growth. and continue our top line growth, we need to focus on the OEM contracts because that is what is giving us a repetitive, sustainable business. We have now a number where we have designed in our technology into both marine OEMs and also part generation OEMs, which means that when they are out selling their core offering, we are part of that, which is a very, very good business model for Power Cell. That is giving us an opportunity also to scale by selling more of the existing product generation, which is very important and able to drive towards break even and a very good and balanced cash flow. But then at the same time, we are accelerating the next generation of products. And this is where I'm always coming back to where I'm most proud of PowerSell. The ability to actually have a growth that is one of the best in the industry, the ability to leverage growth while we're still investing into current offering on the product portfolio and into the future earning, because this is so important. We are not running PowerCell only to show short-term growth and short-term profitability. We are investing into the future ability to also generate money in the upcoming technology portfolios. And that is, as I said, really proud of that balance. We are continuing to work with the industrialized innovation concept where we are adding more and more product features. Last year we had two major releases of new technology and new offerings. In 2025 we will continue because this is still an innovation driven market. And we need to add more and more value to our customers which is part of the industrialized innovation concept. And as I said, I'm really proud of our ability to balance innovation, industrial stability and leverage growth with a clear path towards break-even. And I will be happy to explore more of that in the question section. We have said this before, we are now in a new phase in the market where we see a commercial market growth from OEM business, which is posing new requirements on companies like Paracel, where you need to have your technology, product and operation in order. We are now entering into a market where more traditional competitive perspectives are being We need to have delivery on time. We need to have good quality and good safety in our products. We need to focus on uptime in the application for the customer, etc. Which is really, really interesting because that's also proving PowerCell as an industrial company, not just a technology startup. So this also poses new opportunities because not everyone in the industry, they're not up for this. So we think that we are well positioned to capture this and we have prepared for doing this by investing into the product offering, investing into internal abilities and capabilities. We have focus on productivity in our operation and on internal efficiency. All of these quite, if I may say, boring characteristics of running a company, but that is what's creating value long term. Everybody can invest in new technology and in your brand and marketing, but you also need to invest in the fundamentals of being an industrial company. And that is something that PowerCell have been preparing for and hopefully can benefit from in the upcoming years. So if we look at the market, we now see what I call a bit of an ambiguous market characteristic. We see solid OEM driven growth rather than the subsidy driven growth. But we also have an uncertainty around policy and regulatory aspects. For Powercell, I am convinced that the energy transition, it is happening. We see more action in the market than we have seen ever before. We see more investments and actual deployment of hydrogen availability, hydrogen value chain and supply chain. So we see more actual progress, but we also see more questions and more negative sentiments around the whole energy transition. But to me, as I said, and I think that it could be a bit of a challenge sometimes, but we have not been chasing the subsidies. We have been trying to focus on OEMs that are doing this because they need it in their business model. Hopefully that can give us a bit more of a robust situation where the when you have some uncertainty on the policy side and subsidy side. So we are working with a clear commitment from OEMs where they have a focused effort and a clear, secure deployment plan. So we will come back to this in the quarter one report on how the market is developing. But for PowerCell, we are bit positive but not over enthusiastic when you have uncertainty in the market is affecting everybody but we're trying to navigate with our offering as we have done in the past and we do that with having leading technology and actually going into real commercial deliveries which is quite important for us So with that, we will come back and talk to you with interim reporting for quarter one on April 24th. Then we have the AGM in Gothenburg, where you're all invited to visit us. Most likely this time we will be at PowerZone, which gives you an opportunity to come and see production and meet the people and see the products firsthand. So with that, we open up for questions from the audience.

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Good. Then we enter into questions. One of the most obvious one is the ones that we can touched upon. Do we have any concerns about tariffs from future U.S. deliveries or to the U.S.? Of course, we have concern because we don't really know where this will play out. On the other hand, we also see a lot of opportunity. We have been preparing to have assembly in the U.S. if we have customers that are giving us enough critical mass. But If this happens and materializes, I think that everybody will be affected. And we have a very strong offering. We have a good think price point and value point. So most likely we will be able to navigate through this. But we will focus on this and come back and report how it is affecting us. But this is not a great concern to PowerCell at the moment. Any comments on that from your side, Anders?

I think you're right. I think there will be a very strong drive from many companies and will be part of that action list that will be taken. And I think, as you mentioned, that we are well prepared for it.

And then we have a question whether or not the Norwegian ferry order is fully delivered and invoiced. And that is no, we're still in the deployment phase. We will be shipping components to be commissioned into the ship during 2025. So we still have some revenues and also cash flow coming in from that project and order. So we have a question on the collaboration with Bosch and the royalty. And we see now that the royalties in Q4 were improving, primarily driven by a growth in the Chinese market for Bosch. And that is a quite interesting indicator to the energy transition in general. China is developing really rapidly in this area. And that is driven by a very clear policy from the government to electrify a large part of their commercial transportation sector. They have now in quarter three, I think it was, deemed grey hydrogen as green, as long as it's a byproduct of previous industrial processes, enabling access to massive amounts of hydrogen and really being a catalyst towards the whole energy transition in China related to fuel cells. So we expect China to continue to grow for Bosch. We saw stable income on royalty. I'm not sure about the numbers for 2024. But it was a good growth and hopefully that can continue to be a stable income. Unfortunately, this is nothing that Powercell can affect. We're just reporting what is sold by Bosch. But we think that Bosch are doing quite well, especially on the Chinese market. Let me see, I have additional questions here. So a question that we saw a good development and a positive result, quarter four for Powercell. What is the most important to focus on in 2025 to keep the positive momentum? I think that that's a good question. I think that if we scale down to what is the growth strategy for PowerCell on the fuel cell market, it is quite simple. The growth strategy in any technology shift, you need to grow number of installations, penetration in the market. Then you also need to grow your own value creation per installation. So when you do that, you get an exponential growth. The marine system 225 was an investment in that by improving performance, more power from the same output and the same product. Really important and we saw good progress in that one with the orders coming in. and then the methanol power plant is of course a very important one where you actually get both of these perspectives you will expand number of installations because with the methanol power plant especially for marine you lower the threshold for the customers you take a lot of this responsibility and complexity of integration away from your end customer So you shorten time to market, you minimize technical risk and technical investment for the customer. That is driving number of installations. And then, of course, when you do that and you incorporate and integrate more into your offering, you also increase your value per installation. So instead of just selling the fuel cell, we're selling a more abundant offering, which is doubling the revenue per installation. That is one of the key important aspects of driving growth in this market. But then focusing on your cost position, cost of goods is really, really important. Having a healthy gross margin so we continue to leverage growth. That will also be a very important part of what we focus on in 2025. Sorry. One question is, if we have any activity in the train market, Ballard seems to be successful in this area. Yes, and they are. And we're quite happy about that because we need to have strong colleagues in the industry. Ballard, they have been approaching the train market for, I think, three years and it's now paying off. We have decided this year to enter into the train segment. because we think now we have an offering that is quite good for trains. Unfortunately, the train segment is heavily driven by subsidies because it's quite often either public transportation tenders that you're quoting and or public operators. That is a market that is a bit more affected by changes in policy and regulation, but we still see an interesting development in this area. Let me see here. With your order book giving you the possibility to enter serial production in 25, do you expect another growth year? And how should we think about the bottom line development for 25? This question is from our good friend, Konstantin Hess at Jefferies. And as always, I'm disappointing Konstantin because he wants me to give forecasts and I am a boring CEO saying that we're not giving forecasts, we're just reporting what's happening. But of course, what we said in the quarterly report is that with the OEM orders, we see an opportunity to even out some of the variances between the quarters, a bit more stable. That shouldn't be misinterpreted as a solid high, high number growth. But of course, we are viewing ourselves as a growth company. We managed to report an 8% growth in what was a very soft market in 2024. We now see that we have a good position with the updated product portfolio, with our strategic positioning, with our offering. So of course, we are expecting to be a growth company. but how that plays out in 2025, or if it's going to be over 26, that needs to be, that's just, the proof is in the numbers that we're reporting. But we are going to focus on protecting bottom line, protecting the gross margin, driving towards breakeven, and hopefully we can come back quarter by quarter and have good progress to report. But thank you for your patience, Konstantin. Overview of what is in our order book for 2025. Well, we are contemplating this together with the Board of Power and our financial advisors, how to start with more forward-looking information, slightly better guidance, not necessarily a forecast. And we will come back to that one in quarter one, because we see the need to give you more guidance, especially the order book. So thank you for that question and I hope we can come back and have a bit more of a positive response. Then we have from Carnegie if we have any updates on Hyflex and Hitachi. Hitachi participated in the Big Hydrogen trade show in Paris in last week of January. HyFlex was one of the important pieces of their presentation. It was also noted that the HyFlex product and team around it received the Hitachi Group Innovation Award for 2024. So this is becoming a prioritized area within Hitachi. Hopefully, we can come back with some information and actual orders. But before that, we can just point in the direction of communication and activities that are being done in the market from Hitachi and together with Powercell. And we think that that segment has a very promising future. If it happens in 2025 or 2026, we don't really know. But the demand for electricity in society is just increasing. I think that the report from IAE was 4% year over year in 2023-2024, which is a massive growth when we're talking about public grids that are already crammed today. So the demand for decentralized solutions or complementary solutions where you have green energy solutions, green energy sources that are volatile in its nature. Of course, having technology and solutions to balance that, to have backup solutions or energy storage, that demand is going to increase. But if we see that growth in 2025 or 2026, we don't actually know. But as soon as we know, we will come back and report back to you. We have a question whether or not we will have an off-grid package for private houses. That was a focus in the industry in 2018-2019 and I think that that could in the future be a very interesting technology proposal. But at the moment the cost of technology and cost of investment is too high for the consumer market. And our technology and products and technical solutions and infrastructure is more suited for commercial applications where you can have a clear analysis and return on investment calculation. So, no, I don't think that we will see anything for the consumer market in a fairly long time. So, With that, I think that we have covered most of the questions. Let me see if I have something more.

The next question comes from Henrik Alveskog from Read by AB. Please go ahead.

Okay. Hello, gentlemen. Do you hear me? Yes. Hi, Henrik. Hi. Great. Okay, well, you've covered most of my questions already, but I'm a little curious about the, well, your sourcing of stacks from Bosch. And since, well, the S3 stack production started at Bosch, I think, 2021 or 22. And You've been working with upgrades on your systems, et cetera, through these years. And I'm kind of wondering if, are they still producing the same stack as they did initially? And I'm just trying to figure out if the sourcing on your side might run into difficulties at some point.

Okay, good question. Just to go back in history and get the dates right. Startup production for Bosch was in 2023 with S3. And then one reason why we cherish and value the collaboration with Bosch is that when you have an industrial partner like that, with any industrial product, you make constant upgrades. You do upgrades because you see cost reduction possibilities, you see quality improvement. Bosch, they have a meticulous process to do that and do the kind of upgrades in a controlled manner. So when PowerCell or Bosch fight to improve the core technology, core product. That is incorporated, tested, validated before it's put into production. So when we scale something in that sense, we have full process control doing that. In parallel, PowerCell still have the ability to manufacture stock cells in Gothenburg, although the sourcing is from Bosch. now we we have an updated stack that is is s3 still just a revision update but what we do improvements on is on the system one reason why we can do so many improvements is because we have a very stable core product in the stack So it is a good question. We still have a very solid industrial partner in Bosch, which is our main supplier for stacks. But in parallel, of course, Parcel have maintained the ability to factor our own stacks if we, for some reason in the future, would be forced to or choose to manufacture in our own control instead. Yeah, great.

Thanks. And then a question on your partnership with HeroAvia. Well, the certification and everything is, I guess, going according to plan. So, well, production is getting closer. Previously, you talked about setting up assembly in the UK, and then I guess you've been considering maybe doing it in the US instead. I'm just wondering, since we're getting closer and closer, is there a plan now? Could you say something about it?

Yes, we have a plan. Once again, going back to the business model and industrial setup of PowerCell, we have an opportunity to select rather late where to initiate the final assembly. Once again, the core production will be together with Bosch or in the factory in Gothenburg, which are both already operating and up and running. But the final assembly will happen close to the customer. And as you point out, with some of the uncertainty in the industry, Syriavia have been talking about with UK assembly and also American where they have initiated their factory up in Washington state. If they would make any changes to that, that is something for ZeroAvia to communicate, of course. But we would, of course, then consider following them where they go. Because as we said before, we think it's very important to have a proximity to the customer when you have a zero production on that scale. So we will be able to follow them and support them wherever they go.

Okay great and then just finally you mentioned the methanol reformer in the presentation and did I understand correctly that it is already ready for launch?

It is ready for orders and we're selling it to the market but then a complex integration system like that will require a receiving customer so although if we have an order today it will not be commissioned before 18 to 24 months because it needs to be built into a vessel and that vessel is most likely a larger a larger installation so yes it is ready to to we're selling it to the market but deliveries it's not something you order as a component of the shelf and a commodity so there there will be quite an extensive period from order to delivery because it's such a complex industrial system right yeah thanks Well, that was all for me. Thank you. We don't want to build expensive inventory. I have a CFO focusing on that one. So that's why there is a slight kind of project phase as well. So did we have an additional question?

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Okay, with that, I think that we have completed this quarter four report of 2024 and can now fully focus on 2025. As always, if you want to stay in touch with us, you're more than welcome to reach out. You're more than welcome to visit us in Gothenburg, visit the factory and also see products and people talk to us. Otherwise, looking forward to see you here in April for the quarter one report and continue to push PowerCell forward and grow our significance in this market because the energy transition is happening. And PowerCell, we're a proud partner in that one. So thank you very much. Enjoy your rest of the week.

Thank you.