PowerCell Sweden AB (publ)

Welcome to the PowerCell Group Q2 2025 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now, I will hand the conference over to the CEO, Richard Berkling, and CFO, Anders Doering. Please go ahead.

A warm welcome to this summer presentation of the Q2 report. As presented, it's myself, Richard Berkling, and our CFO, Anders Dering, making the presentation. So let's dig into this Q2 result. The headline is that we We say that we're going from milestone to momentum. And we see that the numbers are confirming this. We have a stable growth and a rather strong order intake. Record result in quarter two with 130 million SEC. And for the first time in Parasol history, above 400 million SEC roll in 12 months, which is quite encouraging. We see that the order intake remain high, that we are averaging 150 million SEC per quarter for the first half of the year. For the first time, we can also present a positive EBITDA for rolling 12 months. This is an important milestone. There's a confirmation of the momentum. We can also now conclude that the sustainable break-even level for Powercell is around 400 to 450 million SEC, depending on the product mix. This is no confirmation that we will continue to report positive EBITDA quarter by quarter yet because this is still a difficult market out there. We are pioneering in a technology shift but it's very encouraging to see that we can reach this milestone as a company in 2025. Highlights in quarter two when it comes to orders is that we received the first OEM order in power generation from the long-lasting partnership with Hitachi, where they are now sold high flex to the industry. We also had a first IP revenue since 2023. This is part of the product mix of Powercell selling IP. But it's been a difficult market to be able to get paid for intellectual property. Now we see that easing up. This was an extension of the Bosch automotive license that we've had since 2019. We also saw, which is very encouraging, the first OEM order and commitment on the next generation fuel cell stack. which is indicating not only a quite strong commitment from the marine industry to decarbonize and use fuel cells as a solution for that, but also that innovation is paying off. We're now balancing both the ongoing business and short-term growth with the existing generation, the S3 platform, but we're now starting to see the first revenues and commitments on the next generation as well, which is highly encouraging. How we managed to do this is of course through being very disciplined in execution of a rather clear strategy. We are staying in the course. We have remained focused on real demand and practical application rather than just chasing subsidies. We have avoided destructions and built around a common platform logic that takes a lot of courage and that we also need to extend gratitude to the board who has supported us throughout the years but it's also a step-by-step process positive EBITDA on low volumes is showing that we can leverage the growth which is quite encouraging we don't need to scale to mass market to be able to show profit so the operational model remains very lean cost discipline and with the flexibility without overreaching our structure and critical mass We also see early signs of commercial consistency, not to be confused or mixed up with traditional business where you can see recurring revenues quarter by quarter. Now we see the orders from the right customers, OEMs like Hitachi, Bosch and the Italian OEM that we have built prior business with. It's also to see encouraging repeat interest around our core systems and not just that we need to develop new solutions all the time. So this was an overall summary of how the numbers were created. And now over to Anders to present the numbers in detail.

Thank you, Richard. I think when it gets to the details here, really, the way they are spelled out here and in the report is, to some extent, quite self-explanatory. What I would like to share with you are some reflections, I think, once you do reading the report. And Richard already touched one, saying that, yes, we had an IP transaction in this particular quarter that, of course, boost both revenue and profit. And like Richard said, that is nothing one can expect at that level for every quarter. However, that is part of the business model and the product mix moving forward. And I think that is important to just make sure that we all understand when we read report and the future of PowerCell. On that matter, it's also important for us to see that the underlying business, when I say underlying business, that is everything else but royalties and IP. And if we look into the quarter in particular, you'll see that we have added growth in that area as well. And we've had an increased gross profit margin on that account as well, which is very encouraging. As like Richard said, this is not promising anything by the future, but it's about making sure that we have a stable underlying business as well. I think that we can move on to the next picture and go on the aggregated numbers for the half year from there. And conclude that the same thing really is applied for the accumulated 2025. I think one needs also to recognize when I say that we had a stable gross profit margin on the underlying business, you that were around a year ago and even more than a year ago, you recognize that in the first quarter, 24, we had a very hefty positive FX effect. We have been able to keep the gross profit margin at approximately the same level, despite the fact that like you now know in 25, the positive effects in 24 for us having predominantly euros as a revenue currency have been in the other way around. From that standpoint, we feel very comfortable with the underlying business, the gross profit margin. And I think that's important when you read this report, particularly when you have such a large item being an IP item. Also, and I know Richard will get back to that later on, it's about the operating leverage. He already mentioned it, but he will get back to that. We now have a very stable platform. We can stand and we can see growth from that. And I will not take away the opportunity for Richard to share the future of that one on coming slides. So I stay with that. and then of course looking into the cash flow that's important I mean a growing company with a lot of stress on working capital what are the items that have affected the cash flow during the first half year I think one thing that is very important to remember is that we amortize the loan we had and we now have a traditional Swedish check credit instead which was unutilized by the end of the second quarter and we feel comfortable with the liquidity that we sit on for the current moment and that is to make sure that there's no misunderstanding that's the 72 million we have in cash on top on that the unutilized facility of 50 million. Let's move on to the next page. And only to basically underline what we are just been talking about so far. We see a good trend. We're not promising things for the future, but we have established a platform for around 450 million where we can make operating profit or EBDA profitability. And that has been the primary objective for 25. And it's very encouraging to see that we, given the product mix that we have and that we believe is the long-term product mix, we can keep that level. With that, I will leave it back to Richard to continue the presentation.

Okay, very good. Thank you. Just for clarity, we have a small technical issue on this presentation where I cannot hear Anders. It's not an analogy that I'm not listening to my CFO, but some technical issues where Anders can hear me and I don't hear him. So if we repeat ourselves, please bear with us. So if we then break down the segment highlights in marine, we see a strong commercial pull. We received type approval for our 225 kilowatt system, which was according to plan. And the commercial pool is also then clearly linked to the OEM demand, where we see well articulated value propositions. We see now different actors in the value chain going out and not just claiming that they want to decarbonize by using fuel cells, but they have a valid business case behind it. And that is really strong testament to the transition and will help accelerate growth going forward. We also see increased competition in the segment which we welcome because that is also a sign that things are maturing and others are trying now to go to the market where we see the best accelerated growth. In power generation, of course, the first Hyflex order from Hitachi was quite important. Internally, we call that a trigger event when some large OEM like Hitachi is putting a stick in the sand and saying, now we do this. We also see now an additional off-grid potential being built up in the industry. Aviation, in the quarter we continue to support Serabia certification process and going according to plan. This is breaking new ground because nobody has yet to certify a fuel cell driveline but Serabia is well positioned to be the first one to do this together with Powercell. And then of course we have the development in the newborn project where we see the next generation heavy duty platform which we now have a commercial order in marine. But the interesting application of aviation is of course very strong because we have a strong demand to get that next generation that is taking our technology from the current low temperature PEM to the intermediate temperature or mid temperature, which is creating a lot of advantages, especially for the aviation sector. So strong interest in that development as well. Looking then at the commercial progress to the right, you can see a number of crates. These are 70 parcels, the largest shipment of goods to a customer yet in parcel history, something we're very proud of. We have mentioned Hitachi and Bosch. We have mentioned the next generation marine system to the European OEM in marine. All in all, last time we talked about steady pace through rough waters. Now we can conclude that we are doing steady pace through improving waters. It is still choppy waters out there, but we have a good pace and a very clear direction. So internally, we continue to prioritize control over speed, which we have done now for the last four years. We also see that every order matters. We are building now trust with customer by customer, project by project and delivery by delivery. We are entering into a phase where it's not enough to just be innovative and creative anymore. You need to be industrially stable and credible over a 10-15 year life cycle, which is quite encouraging for a company like Powercell. I also want to emphasize the operational leverage, which is one reason why we can break even at the rather low volumes that we see. We now have been growing quite well without inflation of the cost base. So we actually have lower operating expenses first half of 2025 compared to 2024. We can also see that the operating share of revenue is down from 41 percent to 28 percent two years which is the development you want to see in a company like Paracel. Fast growing companies in technology shifts tend to have a one-to-one ratio of cost development and revenue development. Companies like Paracel need to break this to prove that we have a sustainable business model not just to the financial market but also to the customers because customers needs to have a supplier that will be there in five years time, ten years time and have the ability to continue to innovate and this indicator is extremely important to do that. And the strategy that we have been working on for the last years is to have a very asset light operational model. We have a very strong fiscal diligence, thanks to Andersen and his team in the financial department, and also a good cost consciousness throughout the company, but also a clear product offering where we can protect the margin and be very clear in the value creation we have with the customer. So if we look at the market signal, it's been a bit ambiguous and it continues to be a difficult market where you always need to work for your orders. But we see now the OEM driven growth that we have been working for the last years. We are also strengthened by the fact that IMO is updating stricter rules on especially particle emissions and greenhouse gases. Also encouraging to see that the US section 45V, which is an extension of the existing support to hydrogen and fuel cells in the US, which is clarifying that the current investments will get funding for at least two years, which has been an uncertainty that has been dampering growth in the US. We see the more clear path we have to do that. We have still the best validated fuel cell technology in the industry, which is a strong enabler. That was validated in the two trade shows in Marine that we participated in in June, the North Shipping and Electric Hybrid Expo. very clear and strong industry interest. We also see firm commitments to the industry, not just to Powercell, where large OEMs are taking a stand with a focused effort and are deploying products with a clear business case, not just from greenwashing or for tech exploration. Especially in marine, we see that the cruise, defense and offshore customers are moving now from demonstrators to commercial deployment, which is encouraging. Looking then at what we do internally and how we're going to build growth going forward. Of course, the marine system 2025, which now is type approved and in delivery to the customers, is a very important building block. Having something that is a standard component that is industrialized with a short time from order to delivery is a backbone for any growing company. You need to have those bread and butter components. But we also have the more high value products like the methanol reform fuel cell installation. Strong interest from across segments, still just one order but with a very high value and we look forward to increase those orders and build value from that one. Once again, strong interest in what we do for the next generation, both on stack level, but now also on system level, where we have the first order from the marine industry. So balancing a strategy where you need to be very competitive and have a high value creation on your existing generation of product platforms, but also being innovative and building the future revenue streams, that is equally important for PowerZone. So if we then look at where we are and how we have built this, Going forward, we need to work with a clear strategic focus. We have a platform mentality on technology, on systems and on products. That is what is giving us the record revenue and a strong positive EBITDA. What we need to do going forward with this is of course have a strong delivery, being trustworthy as an industrial partner to our customers. And those industrial partnerships have been in strategic focus. We have been working quite hard to get the OEM orders. Of course, we have a number of proof points. What we need to do with those is to go even deeper, really get into their business model and be a part of their offering to the market. And then of course, scale with control and deliver with precision. But then equally important is the fiscal discipline that Anders is safeguarding and that I think is a strong culture throughout the company. That is what allows us to make breakeven on low volumes. And we need to continue to focus on that going forward on protecting our margins and be able to show leverage growth as we move along. Now focus for the second half. I need to stress that the market remains complex, but we see that it is improving. We see that from the orders and the tenders that we are receiving, that the maturity is much higher, that we see a clear path of deployment, and they have financing to a higher degree than we saw two, three years ago. So final investment decision, the ratio is higher now than we saw 12, 24, 36 months ago. Strategic focus for PowerCell is to be able to work with some of the rather boring stuff of being an innovative company, delivery precision, have commercial repeatability, cost discipline and working with mature product platforms once again. We need to balance both innovation and creativity while still being industrially stable. And that is equally important in the face that we are at. So concluding once again, we see steady pace through improving waters. We will continue to grow, but we will grow with control and not necessarily just with speed. And we're going to build this on one order by order, one delivery to the other. So with that, we conclude this section and we open up for questions. And then please bear in mind the communication or lack of communication between Anders and myself, and we'll try to guide you through this Q&A. Thank you.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad.

We are waiting for the audio questions. We have a number of issues online, but we're waiting for the audio ones. So, before getting those, we will go for the written questions that have come through the system. From Henrik Alberskog, Red Eye. Regarding the 165 million second order to Italian shipyard signing 2024 with delivery in 2025, is it running according to plan? Yes, it's running according to plan, both when it comes to production and deployment, and then also delivery to the customer in Italy. So yes, that is running according to plan. Then a follow-up question from Henrik regarding the Sierra Avia order. Is the 1.5 billion SEC order from 2022 still valid? Yes, it is. We have been very clear with that one. That is a condition that Sierra Avia is approved and certified with their ZA600 driveline, which is the driveline that is now in certification in Europe. Seravia in quarter one reported their first firm commercial orders from a smaller cargo. aircraft carrier in, I think it was in Great Britain. So that is from our perspective, running according to plan. But of course, for any growth of Sierra Avia, please look at the Sierra Avia communication. Your report note three states that royalty in quarter two were minus 4.7 million SEC. Can you clarify? Then I will look at Anders for that one. And when you're done with that answer, just smile and nod.

I will. That is... Going through the new contract with Bosch, many parts were in the discussion room. And one part was how we will treat the various business that we have. And we simply concluded that revenue recognized in Q1 was credited and was added into the new so basically this is something that is a I wouldn't say correction at the time was right but when looking into the contract that we signed this needed to happen in order to justify the bookkeeping as such so it's just something that went into the contract and needed to be managed from an accounting standpoint in this way so it's nothing special

And then since Anders, you're up and running from Munk, we had a question. What is the cash position after first half of 2025?

That is the cash, the available cash or the cash in the balance sheet is 72 million. And on top on that, the 50 million check facility that we have unutilized at that point in time.

Good. And then a follow up question from Munch was, are the Norwegian ferries fully delivered and invoice? And no, we are still delivering and deploying those. So they will both generate revenue, but especially positive cash flow later in 2025 and running over in 2026. So they are not completed. Let me see if we have any other questions, fairly detailed questions. Do we have any orders from Viking Line? No, we don't. But if you have any leads there, please pass them on to us. These are actually all the questions we have seen so far. Of course, we will wait for additional questions.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.

One question here. Any more preferred stocks being published? Anders, do you care to comment on that one?

No, I can't see the question. Can you repeat? I can't see the question, Richard.

It would be very interesting to listen to that answer afterwards.

If you're done, just... Well, if the question was whether we think about issuing any more stocks, I mean, we have the mandate for 10% and that is something we consider all the time as an opportunity, but not anything confirmed as that would have been given public attention to.

Good. So a very good question here, which I can elaborate on for quite a long time. What can we further expect from the Bosch deal and the Asia region? A very good deal. I would say that the IP sales to Bosch is quite diverse and interesting agreement that we signed. First and foremost, it solidifies the interest that Bosch have in PEM technology. They have a pullout on the SOFC, which is a complementary or in some aspects a competing fuel cell technology. And they're doubling down on the PEM fuel cells, which is the technology we have. They're also now extending their interest in the license around S3, further investing into that technology portfolio and technology platform, which is highly encouraging. And they do that because they see an increasing market in China. Quite similar to solar and batteries, China are now really pushing for hydrogen and fuel cells. They're doing it with incentives, they're doing it with legislation, they're doing it with investment. So China is now the fastest growing market when it comes to fuel cells and hydrogen. availability of hydrogen is improving which is also of course a very important driver for growth of fuel cell sales so we expect to see a positive growth in in china we have now seen in in quarter two a number of press releases from bosch and their industrial partners on where uh truck manufacturers have integrated the s3 fuel cell into their offering and starting to deploy an order So hopefully we can see a rather interesting growth in China. A benefit for power cells besides the royalty revenue is of course that the volume base on our core technology is increasing which gives us everything from of course better component costs but also validation of performance, technology, application knowledge etc. where the fact that we have this industrial collaboration with bosch both as our largest owner but also the ongoing operation performance or collaboration is highly valuable because it gives us access and knowledge to uh to a volume base that would otherwise be outside of powers to reach so i am extremely grateful for the collaboration we have with bosch and also need to stress the fact that even though we are quite small and bosch are they're one of the largest um automotive companies. They're treating us with great respect and a very strong collaboration spirit. So I'm regarding this as a very strong collaboration. From Carnegie we get a question, how does the potential aftermarket service look in the countries you are currently in place, especially in marine? Of course in marine the aftermarket revenue is something that we are quite interested in. In traditional combustion engine based products The aftermarket revenue is roughly 100% equal to the capex sales over a 10 year life cycle. It's still to be determined what the revenue will be for fuel cells because the service intervals are lower because we have fewer moving parts. That benefit, that cost benefit will of course ripple down also to the end customer in the sense of slightly lower service cost. But we are working quite hard with our colleagues and our partners in the value chain to make sure that we are safeguarding our position and revenue in that one. So we will come back when we have signed the first aftermarket contracts related to our larger installations. But that is still to be negotiated and signed. A question is what is our expectation for growth and the cadence in the US market following the 45V extension? I have to come back on that one. It's difficult to predict. The US market is a difficult market. It's still quite subsidy driven and also a bit scattered because you have the geographical differences with availability of different fuels. But I think that the diverse portfolio from PowerCell where we can run on both hydrogen and methanol gives us an opportunity to capture what we see. But we need to come back on that one when we have more firm orders and also a better understanding on how this will now be implemented because it's been a standstill in that region for quite some time. We had a question if we expect growth in royalties in the upcoming quarters. Since we don't comment forecasts I will pass on that one but I can also then give you an indication that especially China is seeing growth in hydrogen fuel cells and how much of that Bosch will be able to capture and how much will be transferred into royalties to parcel we'll be reporting quarter three and quarter four. We had a question on cash flow, if we will stay cash positive in the future or will the cash flow fluctuate to the negative side again? Anders, I think that one is for you and I think we want to be clear on that one.

Sure, I can be clear on two things here. First, we don't, as Richard said, have any predictions for the future. I think that the cash or the working capital position once in growth will always be stressed and we'll be in the same situation. There will be quarters where you can see a positive operating cash flow. there will be quarters where depending on the growth situation it might be negatives but i mean this is nothing that deviates from any other situation where a company like us will be in And I also think that I can pick up on the next question on that subject. I think the challenges we have when it comes to the cash situation, it's not regarding the capex as such, it's more regarding the working capital situation. And we do have a mandate. We may use the mandate, but it's discretionary for us to do when we think it's needed. But for the time being, we'll feel comfortable and then we'll see what happens.

Good. A follow up question to that one, which is quite interesting, is do we need to raise capital in the near to mid future if customer demand picks up due to the needed capex investment? Anders, you want to elaborate on that one where we distinguish a bit between the working capital and the ownership capital? I just did that, so we are fine. Okay, you have answered that one. Perfect, thank you. With that, I think that we have completed all the questions we see here. It's summertime. It's at 9.01. So from Paracel, we wish you a nice Thursday and also a nice summer. And as always, you are more than welcome to visit us in Gothenburg if you have time and interest. Also to reach out to either myself or Anders. Thank you very much and have a nice day!