PowerCell Sweden AB (publ)

Good morning and thank you very much for joining us. Also today we have our CTO of Paracel Andreas Bodén joining in to give you a presentation and an in-depth look at the technology of Paracel. But before going to the quarter, let me briefly frame the environment that we're operating in at the moment. We are now seeing an increasing demand of energy in society and in the world, both when it comes to energy resilience, but also the fact that the energy demand in society is accelerating quite drastically. So we see interesting surge in the industry that we're operating in. But at the same time, we are operating in a very uncertain time. Geopolitic issues that we are all affected by, we see capital discipline, but also some lack of infrastructure that is creating a headwind towards the increased demand that we see in energy. For Powercell, this is the reality that we're navigating in. Our commitment as management is to make sure that we have an action readiness and we're prepared for a variety of outcomes because we are going to navigate in uncertain waters for quite some time going forward. Today we will keep this presentation focused and structured because we have a lot to share. We will start with the technical foundation of our systems, giving you an update on what we have spent the last three years doing here at Powercell, both internally at Powercell but also with our industrial partners around the world. We are also giving comments to the quarter, the numbers from Anders, and then an outlook on what is happening in the marketplace and how we are framing Paracels opportunity going forward. But first, let me say for quarter one, for me as the CEO, the quarter one did not meet the expectations. At the same time, this is in line with the volatility that we predicted in quarter four report. We have said previously that 2025 was somewhat of an anomaly with more stable revenue over the quarters, where 2026 most likely more will resemble 2024 and 2023, where we have a more project-driven sales, which will give volatility and uncertainty over the quarters. More on that when we go into the technical or the financial side and also the market prediction. But before we go into the financial, I would like to start then with the foundation of our business, and also, I would say, the heart and soul of Powercell. Over the past years, we have invested in industrializing our technology, strengthening our product portfolio, and also building the process required to deliver demanding real-world applications. Everything we do, both commercially, strategically, and financially, is built on this foundation. And to give you an in-depth view on that one, I hand over the word to Andreas Bodén. Let me now change the slide.

Here we go. Thank you, Richard. So PowerCell builds on different layers to build reliability in real application. And the foundation of our company and technology products are the FuelCell stack. And I think we have talked about this over the years. And the last six years we have matured this stack and industrialized this together with Bosch. If you look on the bottom section, you can see that the cycle for a stack development is between five to seven years from start to full validation before we go to an application. This is the key. It takes a long time, and we want the stack to be mature and predictable. Because on top of the stack and around it we build a system architecture with pumps, fans, sensors etc. To both protect the stack from the application but also to create the environment for the stack so it can perform and operate over time in the application as good as possible. and then of course on top of that in a system we now have a control system and software that we can frequently update to recalibrate depending on application and recalibrate depending on live experience from the real application this is the three layers that build our foundation in our system product development and it's the core And as you can see, they have different cycle time. For the system, we spend one to two years for an iteration, and software we can do between weeks and months. So in real application, when we have a defined hardware, we can update them continuously to improve performance and enhance durability over time. So if you take the next slide, we go a little bit deeper into technology and lifetime. So lifetime is determined by the operating profile, how the system is used in the application and not by a single test by itself. And what affects the fuel cell is basically how it's operated, like load transients, if we cycle it, start to stop it a lot, and also the load level for the fuel cell. If we operate it on half load or 70% load, and in some applications we even run it a lot on the max load. So in this graph, which is a little bit technical, you can see degradation rates on the y-axis and operating hours in the x-axis. And the key thing here is it's not the single test result to determine how long a lifetime, it's the combination of experience and how we have designed the system, but how it's operated. And we have tests that have been running over time that show in the marine environment with different operating profile, we can have between 24 and 43,000 hours of operating. Before we need to change stack, mostly due to it has lost performance or the hydrogen consumption is increased. So it makes financial sense to swap the stack to lower the hydrogen consumption. The stack is full, you know, fully operational still, but less, yes, on a lower efficiency.

And this resembles degradation in batteries for electric vehicles, etc.

Exactly. It's the natural behavior of when a fuel cellar battery is used in an application. It loses performance. So how do we test, how do we stress our technology? We have in EU funded project with industrial partners and institutes developed a stress test which finds the key spots where the fuel cell is not treated as well to provoke that this performance degradation can happen. And this cycle was developed in this project, and this is the cycle that we use to do our testing, both of stacks and system. But this is far more harsh and aggressive than any few system will see a real application. So all the test results that we get from this test has then a lot of margin in the real application because there are more softer in transient and also the load levels are normally not as high. And we don't do aggressive start and stop like the peak you can see at the end of the cycle. So we have conducted a power cell marine durability test according to this accelerated stress test. For the first test was 20,000 hours on the old generation stack and the latest stack generation now which we have industrial together with Bosch we have done over 5,000 hours of testing and what we can see is that the performance of the old stack generation and now the new industrialized stack generation with Bosch are the same which gives you we can also rely on old data when predicting performance and durability in application. But on top of that, together with Bosch, we have over 200,000 hours of test data in total with different operating cycles in different environments, giving us a solid foundation on how our stacks behave in different conditions, which then we can use to build a system around it and predict the durability and performance over time in real application. And on top of that there is also half a million hours of field data available for stacks together with Bosch.

So just to reiterate then, the 20,000 hours of accelerated stress test that is done on one individual test object to really found the boundaries and prediction of performance.

And we could actually run the test longer afterwards, it was not finished. Then we go to how do we build the system architecture. So as I said initially the system is there first to make the performance as high as possible for the stack. So it's predictable both initially but also over time. But also there to protect the fuel cell stack from the application. So we don't get events that affects the stack over time. By the system then we control temperature, pressure, flows and humidity, which is important for the stack to perform as good as possible. And it also defines the operating window that we don't need to load the fuel cell too quick, up and down, it's smoothing it out. And on individual system we have over 1600 hours of accelerated stress test according to the same cycle as we had for the stack. where we can see that the performance and aging properties are the same as when we do the stack test in a single stack test. So which means then we can rely on this system testing and the stack testing because they are compatible with each other. We have also built a lot of systems over the last years. So we have over 1300 hours of total test time here on multiple objects to see if we can have a really stable performance from system to system. Which is also important in the application to have that they are repeatable. And this is due to the industrialization we have done over the last years. And on top of that then we have developed over the last year a software layer. So we have two layers of software. The first layer is the one that controls the individual components in the system. Matching the airflow with the hydrogen flow and cooling flow. And then we use different calibrations for different applications to enhance performance and predict performance over time. And this is really important because it's not a static calibration that will be the optimal over time. So we don't just do one calibration from start, but we need to update it continuously over a lifecycle of the system, which is key here. The other thing we need to do is also that we can balance the load between individual systems. So in an installation where we have 10 to 20 systems, some systems will perform better over time and some will be fresh because they are maintained and then this distributed master controller that we have developed balance then the load sharing between these systems so they are always operating at their best. And this means we can predict performance and durability over time by individuals, even though we have updated and maintained individual systems in an installation. So this is also really important because by doing that, we don't stress systems that are close to maintenance more than necessary by by onboarding them for for the fresh systems. So summarizing this, we have a really solid foundation of over 200,000 hours of in-stack testing together with Bosch. We have individuals that we have operated over 20,000 hours. We can by Using all this data we have gained predict that in marine operating environment we have somewhere between 20 to 43,000 hours in real operation using this accelerated stress test as the foundation. So we have predictable performance and predictable durability in our application but most of all it depends really on how the fuel cell system is used and not by a single test in the lab.

So then looking at the technical foundation and how we have been working there are some elements that are worth highlighting one is actually the design philosophy because the decoupling strategy is extremely important when you work in a technology shift because you will have layers of technology that are updated both internally in our r d and innovation but also from suppliers and and and other parts of the value chain that are upgrading performance, quality, and price. So you need to decouple in order to get stability. Just reiterating, the Stack platform, we have massive testing, both at Powercell and together with Bosch. And the Stack is the core component giving performance, it gives robustness and also reliability over time. When you have that one, you have a very solid foundation and we are sharing technology with Bosch that they are using in their applications for automotive purposes. The automotive test cycle is also more aggressive than our primary segments in marine power generation because you have much more load transients from the increased start to stop that you have in our more stable environment. And then on system architecture, both individual testing on test objects to get reliability testing and then broad testing on the fleet to see that we have a repeatable behavior also in production. But then on top, we build margin from the software and control. So we know that when we introduce the products to the market and we do the commissioning and integration with the customer, there will be adaptations because we are creating installations that are system of systems, which means that you need to optimize when you do the installation. You need to find the right balance point between the installation of fuel cells, the battery part and the power management system. That is just part of doing technology development. But when you operate in a technology shift, you need to have risk margin. And the fact that we have tested and accelerated stress testing beyond the life expectancy is the margin that we have for our customers. Does this mean that we will have no issues when we go to market and we introduce this? No, of course, because technology always comes with risk of having quality issues, disturbances and issues with integration. But we're well prepared for that one. We have also selected partners and customers that have a readiness for this and have redundancy in their DNA. So we feel that we have a very strong offering to the market. that we are standing on very solid ground and we're quite proud over the achievements done at PowerCell over the last year and also the collaboration we have with Bosch as our really solid industrial partner. So with that, thank you, Andreas. We now hand over to Anders for the financial update. Thank you, Richard.

I think the numbers in this report is quite a bit flavored of the heading. I mean, it has been slow, and we have had a conversion situation that should go into further discussion. on in the presentation. But if we look at the quarter as such, I think there are at least two things I'd like to highlight for you. Part of the reason why the decline from last year is obviously the decline in IP and royalties in this quarter, which has a direct impact not only on top line, but on the bottom line as well. You also read if you have so far in the report that there are some effects, but those we have all the time and they are different nature at different point in time. But the most important underlying difference from last year is the difference in IP and royalty revenues in this quarter. Then when we go to the next page, Let me support you with this. Then I have the rolling 12 number. You may find out here that the sales are about the same level. Gross margin is higher at this point in time for the reason of the deal we had in June 25 with Bosch on EIP. But then when we go to the net profit and loss, you see there are small differences. Then you need to remember that in the second quarter of 25, we had a conversion of a loan into revenues. That has been explained before. But I just want you to remember that when you look at that from that standpoint, because that obviously tweaked the numbers from a rolling standing position. That was 30 million for those that didn't remember. Apart from that, I think it's for me important as a CFO to underline what Richard said, that if he mentioned and in the light of the presentation from Andreas, that we have a strong technical platform at this point in time, I'd like to also share with you that we feel comfortable with the balance sheet we have. We feel comfortable with the revenue streams we see ahead of us. And we have at this point a very high trust in that we are a robust company also from a debt standpoint. I think you've recognized that in this quarter for the first time we had a project financing of 28 million that we have been reported. That is the only debt we had which is directly connected to a particular project. with the revenue stream and gross margin that will well cover to repay or amortize that debt. Other than that we have the check credit or the check facility that has been unused so far during the first quarter of 50 million in case that wasn't clear. With that, I think a brief, but in this case, the first quarter is from a financial standpoint, a brief quarter. So I'll leave it over to you again, Richard.

Thank you. And then you have the calendar for the remaining year, the AGM May 11th and then the quarter two report on July 16th. So if we then look at the market development, we have seen commercial progress with signed agreements in port one, accruing to roughly 50 million SEK, activity both across marine and power generation, which is also what we see in the pipeline. We see also progress in the marine sector for existing customers where we are delivering according to contract and progressing well in that sense. We also have signed agreements on engineering projects for the next generation, which is also good because we see that we have a value also long term for industrial partners, which is actually a very good sign because this industry, it is a marathon. So being part also actively in the next generation of technology systems is really valuable to PowerZone. And then in Power generation, we are completing the first, we completed the first customer deliveries of the new 190 system. which is a very attractive proposal to the market. It fits really well into the increasing demand in power generation, primarily driven on, we hear a lot about data centers, but also auxiliary power and backup power in society, construction sites, etc. I will come more over to that. So if we then look at the different segments, I will give you a brief update on what we see. Marine is still the growth driver for us. There is interesting activity in the market because the notion from the industry is that fuel prices will not come down. Over the coming years, there will be an increase. And we reported last time that from 2024 to 2030, fuel prices in marine will double. And then the increase from 2030 2030 to 2035 will be an additional 50%. So the underlying driver is there. We also see a pipeline of discussions that is stronger than we have seen before, but it takes time to make a decision. And that is also related to the uncertainty that we see in society, because when we sign an order with a marine customer, that is part of a much larger investment decision. They're building a ship, they're finding an operator. We see a delay in those, but the underlying trend is strong, both when it comes to passenger vessels, ferries, but also then bulk carriers, which are operating on defined routes where you can have bunkering and infrastructure for refueling, which creates a very solid pattern for them. So interesting activity in marine. We hope to come back and report on progress on that one. But the new segment for us, Power Generation, has been really interesting since we made the product launch in Q4. We immediately signed a number of orders, although small. But the interest and the timing for this one was quite strong because, as we said before, demand in society for energy is just increasing drastically. 3% year-over-year from IAEA, which is a massive increase. And also we see in certain markets, especially driven by the data centre, that availability of energy is very limited. So far, when it comes to fuel cells, it's been the technology of SOFC because they're running on natural gas, which is an advantage for them. What we see right now is a strong interest of using natural gas with steam reformers to produce hydrogen on site. That is, if you have a carbon capture, that is blue hydrogen. If you don't have it, it's grey hydrogen. Not as good from an environmental perspective on CO2 emissions, but it's better than running on conventional fuels. And also it gives availability of energy that is not there otherwise. It can also build in the US on existing infrastructure where you have pipelines of natural gas. So while SOFC technology in fuel cells was the dominating force in especially data centers so far, we now see a rising interest and we have ongoing dialogues that are quite interesting. Also by the sheer fact that delivery time for SAFC fuel cells to data centers are right now around three years. And also if you want to have a gas turbine, the supply time is between three and four years. So when others can't deliver, they go for alternative solutions. And the PEM fuel cell that we are operating is very good for peak shaving and backup power because you have a dynamic characteristic of it. So although SOFC will be more prevalent in primary power we see that the PEM fuels that we are representing is really really good compliments when you are setting up your facility where you might have grid power for part of your operation but then you have additional power sources like conventional IC combustion engines, but also green solutions. Off-road is something that we're following. We see initiatives, but that is primarily regulatory driven. In London, they have a huge investment around the new highway where they have demanded that part of the operation is done by hydrogen. So we know that there will be both excavators, wheel loaders, haulers and other equipment that will be running on high gen. They will also use backup power units, power gen sets with fuel cells to power battery driven excavators and haulers. So where you see that regulatory push, off-road is still a potential market, but it's not a segment that we see as a primary segment. And then aviation, we have a lot of engineering projects together with customers there. We see an increasing demand in that one as well. Longer time to market, some interest in specific applications like drones, also driven by the new geopolitical environment. But aviation, as we said before, it is our innovation segment. We use it to push boundaries, to secure and validate technology, to build robustness and safety knowledge, because aviation is the most demanding segment that you can be operating in. But it's also funding a lot of the activities that we then transfer to different segments. I will actually go through this quite rapidly now. So if we look at the general market dynamics, we see some really, really strong drivers. Energy resilience in society is becoming more and more a hot topic for both companies and governments. We see energy demand where data center is actually crowding out and is capacity hoarding, which is affecting society in general. The geopolitical uncertainty is actually a driver, but as you can see on the opposite side, it's also a constraint. So the uncertainty that we're operating in is the new normal that we need to adapt to. We still have a strong driver and demand to get rid of pollutions and emissions, and then the regulatory side of things is creating some push for us. But then the constraints and the headwind, a lot of capital discipline. We don't see investments in general. People are waiting on decisions and the decisions made are quite often in the same way as you did before. You don't take risk at the moment, which is affecting us. And then infrastructure is still not in our favor. We have not built out the refueling system. We saw both Daimler and Volvo commenting this. We saw the chairperson of Bosch go out and comment that Europe needs to invest much more in infrastructure. In China, that is a different story. They are investing heavily into hydrogen infrastructure, and there we also see that they are improving their deployment. If we then summarize, PowerCell, we're quite proud of the company that we have established. We are structurally a much stronger company than we have been before. We have really competitive industrialized product portfolios, purposely designed for both marine and power generation. But we've also built a resilient company. We are prepared for a wide variety of outcomes. Our obligation as CEO and CFO is to defend breakeven, even if we see a lower scenario going forward. But at the same time, we need to have the ability to act and deliver on the high-end scenarios. And that is the balance point that we need to control every day. We have created a company that we have said before is asset light. So we can scale up without significant investment. And the fact that we are debt free when it comes to our operations and industrialization means that we are not burdened by the same investment that needs to be depreciated in the same way that some of our colleagues in the industry. So we have had a very disciplined execution and we can continue to do that on the current activity levels. Focus is cost control, it is to leverage the existing product portfolio but at the same time do the investment and timing on where the next generation of innovation will be industrialized and introduced to the market. We are also positioned to scale when demand converse, but we will also, as we said, protect bottom line. So that is the balance point. We think, we're convinced, that's why we do this, that hydrogen will be part of the energy mix going forward. We know that energy demand is increasing in society. None of us can really predict with precision if the growth in hydrogen and offtake in society will happen in 2026 or 2027. But we are prepared for both an outcome where demand is increasing, but also to defend profitability and the power cell at lower levels. So with that, we conclude the presentation. We know it was long. This time we don't have too much time for questions. But it was important for us to convey the situation and the company we are right now. So we then go to questions. One question from Albin is why is the Bosch royalty so low when they have seemed to start up with China with some deliveries and starting serial production? China is an interesting market. Hydrogen was part of the new five-year plan from the government. We see massive investment, but we also know that part of the value chain have stocked up on inventory. So although we know that Bosch is deploying more installations and Bosch customers are deploying more trucks and other vehicles to the market, that doesn't necessarily translate to new orders every quarter. So there will be delays and some volatility between the quarters but China is a really interesting market and to some extent they are inspiring us but also frightening us because what they do is going to shift I think the power balance in also this technology sector like they did with batteries if we don't really protect ourselves in Europe and US. Do you have any information on how large your customers that are operating in the defense sector? At the moment we have no customers operating in the defense sector. We know that there is a demand from the geopolitical situation. But so far we have not had any dialogues or ongoing customer discussions with that. That was actually all the questions that we have seen so far. With that, we conclude. Let me see here. We got a very specific question from Kenny again. We mentioned myosin payment being in most in quarter one, but cash arriving in April. Roughly how large are these payments? I'm not sure if you can comment on those details.

I think we'll do predictions on Q2, so you'll wait and see.

Yeah. Then also a follow-up question from David Kenny. We mentioned measures to improve efficiency and control and flexibility. Can you specify what actions have been initiated and where you see the largest saving potential? Should we expect that these cost measures result in invisible OPEX reductions already in Q2 or is the impact more weighted towards second half of 2026? We don't comment to that detail. What I can share with you is that the fact that we have Manufacturing also outsourced to Bosch. We have not the same exposure on a fixed cost like many others have or we could have. In essence, I would say that the primary value that we can do is to smoothen out the the investment in innovation we have a core technology that andreas presented based on the s3 stack that is a very very competitive and potent component we are now doing new tests on pushing the boundaries that see that we actually have performance that is better than we thought in aviation we can operate on higher temperature which means that some of the investment in next generation might be postponed because we can work and live on the existing technology longer that balance point is something we evaluate and that will also be part of it because then you can postpone some investment both in equipment in machinery etc so we will come back to you uh when we have a more clear picture on this one and also where we know what we want to share So we have one question on election. We have election in Sweden this year. And do we see that countries and societies are vulnerable and dependent on fossil fuels? We try to stay out of politics. I don't think that there is a government anywhere in the world that is not affected by what is happening at the moment. Energy and availability of energy will become an even more important security issue. We see strategies to have more local production of energy. Solar will be the dominant source of power in a few years because it gives availability of locally produced power. That is a trend that we think will continue. And regardless of government in Sweden, I think that we will see more focus on energy, more focus on energy resilience and more focus on energy independence. And that will be in all countries. So with that, we need to conclude. And thank you very much for this one. You can always reach out with questions or if you want to come and visit us, we can arrange that. So thank you very much for this and see you next time.