Good morning everyone, to the Earnings Call for Q2 of LION E-Mobility. A warm welcome from us to you. The call is recorded as usual. However, the last AGM call was not recorded. I explained this in this call, now we repeat with, or now we continue with the recording. This morning on the panel are Alessio Basteri, Ian Mukherjee, and also Winfried Buss. I would like to pass over to Ian for some opening remarks. Please, Ian.
Thanks, Frank. At the beginning, I'll, I'll speak a bit later. I've only got one point at the beginning, that we are reporting LION Smart and LION Smart Production today, where all our costs and revenues are. This is not what we plan to do going forward. We've had a lot of requests from investors, and we also agree that we should report AG down results like any normal company going forward. I think for many older investors who've been around for a year or longer, they will know that we used to report quarterly LION Smart, and then it became more complicated earlier this year when we had LION Smart and LION Smart Production.
We reported both of them, and we've been working with Jörg Peter Hahn to say, "Jorg, we wanna make sure that all of this is quarterly consolidated." Jorg tells me that's no easy task to make sure this is all done, not that it's impossible, but just we're a smaller company. But we would like to, as soon as we can, report consolidated results on a quarterly basis, rather than, if you like, subsidiary results on a quarterly basis. That makes sense. Sorry, we cannot do it today, but we are pressing hard to make sure we can do this as soon as possible, because we all agree that that's the right thing to do. With that, I'll pass over to Winfried.
Okay. Thank you, Ian, for the introduction. Can you hear me all well?
Yes, we can, Winfried.
Okay. Thank you very much. Frank, let's get down to the numbers. Yesterday evening, the numbers have been published. Before we go into the numbers again, 3 bullet points. I think point number 1, Ian already addressed, I will skip over that. For this comparison, for Q2, we have done a quarter-over-quarter comparison with the LION Smart and LION Smart Production. In the 1st year, year-over-year comparison, we compared it with LION Smart only, since we did not disclose last year any consolidation on the LION Smart Production and LION Smart.
Like we stated in, in the last call, Q2 sales is a mix of, of still inventory packs and build packs, where we start shipping in May the first products towards our customers. If you go to the next page, please. Here, at a glance, the numbers from the company, we see first column, the 2023 Q2 consolidated LION Smart and LION Smart Production, which is LS and LSP. In comparison, the 2023 Q1 consolidated numbers and the consolidated first half year, and with a comparison, like we stated on the previous slide, with the first year half, sorry, the first half year in LION Smart in 2023.
When we look on the quarter-over-quarter, we have increased the revenue as expected by 40%. With that, we still have achieved a gross profit in total of EUR 4.1 million, compared to EUR 3.5 from the previous period. At the end of the day, we managed to get a small positive OI, about EUR 100,000 out of that revenue, compared to a loss in the first quarter, where we had some startup costs. Next slide, please. If we go a little bit more into the numbers, sales of EUR 11.3 million in the first half of the year.
Unfortunately, some customers still use stock from their own, or from the previous, from their own stock. We started sales for products produced from LION Smart Production. Our rate to sales stayed the same, 80%, with roughly the same number compared to the first quarter. A gross profit up to EUR 2.6 million in Q2 versus EUR 1.6 million in Q1. That gives us some kind of indication that the business is generating a positive and a good operational gross profit. Next slide, please. At the operating, sorry, I'm just getting here some technical issues.
So from the EUR 2.5 million gross profit, we have EUR 1.3 million people cost, which is probably the same as in the quarter before, so that's quite stable. Operational cost is going up since the plant is up and running, and so we have also a slightly higher operating cost with a fully operated plant. EBIT compared in Q2, compared to the previous, is positive now, EUR 0.3 million versus a negative EUR 0.5 million in the first quarter. Next slide, please.
When we go down from EBIT, we have a financial result with respectively interest and similar expenses, which are probably in the same ballpark as the quarter before, ending up with earning before tax is about EUR 100,000. Next page, please. If we, if we jump on the balance sheet, our intangible assets are increasing due to production line, factory and facilities. Bank is up from EUR 5.7 to EUR 8.3, mainly due to the loan on the parent company. Next page, please. Equity is going up from more or less the same, from EUR 5.3 to EUR 5.4.
Liabilities is going up from 17 to 41, which is a surplus of EUR 24 million. This is due to a stock ramp up for production and the purchase of the final purchase payment of the BMW AG payment license and the additional loan from the AG in June. A part of that increase in inventory is due to the fact that there's a planned shutdown in August, where we have to pre-produce pack for shipping in that time frame. If you go to the next page, please. Overall, cash flow from operations is positive. I think that's the very good news here. The business itself is generating cash.
However, there are still investment activities which are due or which have been in line with the ramp up of the production, including the EUR 6 million financing activities. The companies generated a EUR 5.6 million positive cash flow in this quarter. Next page, please. Again, the 3 key messages that the company is prepared for growth. The plant is up and running and is able to produce and shipping. Deliveries within that quarter were a mixture of pre-produced pack inventory and own production. The bank funding is established and help us to back up our product roadmap and our sales strategy for the next year. Next page, please. Yeah, a little bit an update on the LION Smart Production.
The plant in Hildburghausen is up and running, like we said. We have here a summary of some pictures with the, let's say, highlights in the second quarter. We shipped first first pack to the customer in beginning of May. That was already announced. We have the participation of LION Smart, LION Smart Production at the smarter E. You see it on the left, lower side. We had quite a good booth in the fall, and we got a lot of interested companies and people passing by and having some good discussions.
Um, we also presented here our first prototype of the LFP, uh, module, uh, and, uh, uh, try to gain, uh, market interest for, for that product. On the right side, you see the, the opening, uh, uh, ceremony, where, uh, we, uh, made an, uh, official, uh, ceremony with, uh, interested stakeholders, um, including, uh, the state of, uh, representatives from the state of Thuringia, who committed, uh, future support in, in our, uh, let's say, uh, journey.... And, uh, we have been, uh, attracting some, uh, interest from, from regional and, uh, local presses. So, uh, whoever wants to, to see, there are, there are in the Mediatheks, there are, uh, some, uh, um, movies, uh, from this open ceremony available, so whoever's interested can may have a look on that. Next page, please.
Product strategy, we, like we announced, we are going to start the revised product strategy. Remember, we want to separate our product portfolio, or we want to extend our product portfolio with an LFP version, addressing more the stationary market and a higher energy product, which would be an alternative to the current SVOLT pack, featuring more energy in the same volume slash housing. One comment on the LION LIGHT battery. The sample battery pack is built and with customer testing, and as soon as there's any update, we'll going to let you guys know in a separate announcement. All right, with that, I'm done with my part of the presentation.
Thank you very much for your attention, and, maybe I hand back to you, Frank, that you can, give the, the, the microphone to, I think Ian wants to say some words. Thank you.
Yes, thank you very much, Winfried, outlining, the Q2 figures. You're right, I would like to hand over to Ian, for some personal remarks as well.
Yeah. Frank, can I go to slide, I think, five, please? 'Cause I just want to. As I, I obviously think very much as an investor here, so, we have lots of smart investors on the call, who I'm sure see this, but I want to point it out. Slide five. Thank you. actually, go forward.
Yeah, just a sec. This is slide 5, but maybe you mean this.
No, no, go down further. Well, wait, forward again. Hold it. No, forward. No, not, not balance sheet, I just wanna look at the income. I thought it was slide... Can you go back to slide five, and then just move forward slowly? Stop! Sorry, Frank.
No problem.
Go forward again.
This is slide 5. Sorry.
Yes, now go to 6.
You cannot see the numbers, so you can... Okay.
Go to six, please. Seven. Perfect. Stay there. Thank you very much.
You're welcome.
I just want to point what I look at here as an investor. When I look at first half of 2023, I want to try to get a sense of what our operational leverage is. Clearly, we see that in the first half of 2023, we were pretty much, let's call it break even. We were pretty much break even on EBIT in the first half of 2023. I look at this, and I, I say: What are the expense lines? The personnel expense line, we expect to be broadly similar in the second half of the year, and the other operating expense, we don't expect a huge amount of volatility here. The point is that our business has here a lot of operating leverage.
We did not lose a lot of money in the first half, despite all the expenses and despite the fact that we, you know, were shipping some packs from inventory and some packs from production. Personally, I think it's great that we had... You know, one option we could have faced is to have no sales all the way through till we started production. We didn't want to do that, so we've maintained some sales in the first half, despite no production of these SE09 packs being available. I think we've set ourself up with a lot of operating leverage here. And that EBIT number, I think is quite important because it shows the leverage in the business as the sales pick up. That's point number one. The other things that I wanted to point out is that we are...
You know, our sales guidance remains the same, no change from us. We took in a lot of SDAs at the beginning of the year. I think it's important for people to understand that these SDAs are legally binding between us and the customer because we have to order from suppliers and do all this kind of stuff. These are legally binding. However, the customer chooses when to call off the SDA, and clearly, customers were not gonna call off SDAs until kind of more or less after the end of May. The reason why is, no point calling it off if we can't really deliver what the customer wants, and the customer has the right to call off whenever is appropriate.
The other thing that I think it's important to note, and I know we had some inquiry on this, is that metal prices, the principal ingredients in the packs, whether it's sort of lithium or nickel or whatever, have been trending lower. Another question was: Why have we not received more orders in the first half of the year? I'd say our inquiry is really, really good, but we have not seen further SDAs signed in the first half of the year. I think the simple answer is, if you're trading to some extent, and you see that these prices are going lower, you will delay the point where you come in. You delay the point where you come in, or you delay your call-off.
You know what you need, but you buy it later because, I think we, we did get one question where somebody observed that battery or cell prices seem to have moved lower by mid-teens since the beginning of the year, and I think that's probably about right, and that might continue further. Overall, this has two effects for us. If pack prices do come down, then that has some interference with our revenues. However, we welcome lower pack prices. Lower pack prices for us is really good for our customers. We know that the lower the pack prices go, in general, the customers will order more packs. The ingredient prices are coming down.
Hopefully, the energy prices will, will move lower for the cell producers as well, given where we were a year ago, which was not good for either commodity or energy prices, but this is a very, very healthy thing for us to, to see. I think as well, we've had a decent amount of internal debate recently, the board with Winfried and also our head of sales, Michael Reich, on product development, and I think it's an important milestone. We indicated that we need new product development. Just to explain, we want to keep the overall i3 pack the same, but we want to improve it.
To explain that, the easiest way to improve it, as we've talked about before, is to find a cell supplier that can provide cells identical in shape to the ones in the current i3 pack, but either LFP or a high-energy cell. What Winfried alluded to is this is likely the route that we will take. I say likely, because until we sign the agreements with the cell supplier and get lined up, we're not going to make a full announcement to the market that we are on plan. That is what we want to do, and we want to do this because we can then offer, hopefully, perhaps in the second half of next year, both an LFP solution and also a high-energy solution. That's what we're going to try to set up over the next...
Well, between now and the end of the year, effectively. This means when you think about the evolution of our business, which is, "Ah, where are you gonna get i3 packs from?" Well, we make them. "Ah, but the i3 pack maybe isn't as current as it was before." Well, actually, we can change it, and it's really important conversation for our customers. For our customers to sign SDAs over multiple years, they don't want to sign necessarily a five-year SDA for an old i3 pack, which is about 43 kilowatt hours. They want to say, "What is your plan to give us better packs in the future?" We need to deliver that.
That's something that I know Winfried and team in Hildburghausen are working on now, and this is exactly what Michael Reich, our head of sales, would tell us if he's on the call. I think that's really important. The way I think about the business now is sales are clearly critically important going forward. If you look at page seven, and my apologies for getting confused, if you look at page seven, you can see the operating leverage in the business. The higher our sales goes, the higher our profitability will be, obviously. It is remarkable that we produced flat EBITDA effectively in the first half of the year. I think we should think about that. Big focus on sales going forward. We've got good inquiry, good pipeline. We've had no order cancellations or cancellations that I know of.
I think the metal prices, whilst it will delay and push stuff out into the second half, net net is a very good thing for us because it means that we can, we can reflect that in the prices that we offer to clients, and we all know the laws of economics, prices go down, demand picks up. To summarize, I think we feel pretty positive. I think we should remember that there was some nervousness as to whether, not from us, by the way, but from investors, will we get the factory open? Will it be qualified? Because if it's not qualified, then the packs are useless. We have achieved all those goals in the first half of the year. We also, very importantly, have raised money. That's critically important. We all know that.
If, if, you know, if we can't raise funding and fund the business till it generates a lot of its own cash flow, that's really important. Our hope is that we'll be pretty cash flow generative in the second half as the sales come through, so we're not totally dependent on the bank loans that we set up, although, we all sleep well knowing that we have them. I think the picture looks good, and the focus from here is very much gonna be on sales. You can be sure that the board, in its entirety, is gonna be wholly focused on sales, wholly focused on growth of the sales force, and making sure we convert all the inquiries into sales. I think, you know, we have a good product.
I think you, or I think most of our investors know that we have a really good product, and we're going to have a roadmap to develop the product further, and I think that's also really important. We've come an awfully long way. The great news is that actually our business in some, I mean, it's always gonna be complicated, but in some ways becomes a little bit simpler. It's about the sales numbers. It's about how we're doing week by week, month by month, what are the inquiries, and what are we setting up for next year? Which big clients can we bring on board? As and when we do, and any changes that we need to report will be straight back to investors with any significant updates.
I think, Frank, I've probably said enough there and, and should pass on to Alessio, and then Q&A after that, right?
Yeah, thank you so much, Ian. Yeah, Alessio, if you would like to add something as the closing remarks, you're more than free to do, of course.
Yes. Thank you so much, Frank. Can you hear me?
Yeah, we can hear you very well.
Okay. Thank you. I will skip very quickly in order to shift directly to the Q&A, having not so much to add about what Winfried and Ian said. As our journey continue, we are now entering in a phase, as we have heard today, and our focus is on sales and product development. These one are going to be the next main pillars in our strategy. For mainly for a reason, funding, we raised money, good. We had from banks credit, first time in our history. It was an important milestone, and also the plant is finished in Thuringia in mid-May. As Winfried indicated, our product development path for LFP and higher energy, higher energy i3 packs, we have to must be current with our technology.
As Ian underlined in his, in his statement, is that we are want to offer a broader range of product and solution to our clients in order to anticipate the next demands. On this, I would like to underline that the board now is really focused on the sales, and I'm really sure that you have heard a few times now, AGM, other calls, other, in, in any other occasion. In another call, also later in the year, our idea is to invite Michael Reich, the new Global Head of Sales, to talk about the state of play, including hopefully good news on growth and the structure of the sales team, where we are focused. For me, today, it's just a matter to confirm that we are very keen on the...
that the board is very keen and paying our attention on these particular topics. I thank you, everybody, for the time, and the commitment so far. Thank you, Frank.
Thank you very much, Alessio, for your remarks. Before we open the interactive session for everyone who is in this call right now live, I would like to ask a couple of questions that we have received prior to the call. Some of those might have been also covered during the presentation, for completeness reasons, I would like to ask it again. The first one is a question regarding the LION LIGHT battery. Here the question is about whether the prototype is being tested already and what the further procedures are. For instance, what happens to the LION LIGHT battery if the current OEM drops out? Winfried, maybe this is a question for you, and maybe a second question, additionally to it, is what is about the BMS update?
Is there any update you can give?
Yeah, thanks, Frank, for, for passing the question on to me. Let me, let me start with the, the, the light battery. I think we mentioned this, this in the presentation, that we say the, the, the light battery has been built and is awaiting a customer testing. So far, we have not received any test results back, and we're going to keep the investors updated on what's going here in this product line. The second question is a what if question. So we have, let's say, we're putting a lot of thought right now into this project with this OEM that we can, let's say, deliver a hopefully good, convincing product, which then has a future in, within this OEM.
However, if, if that doesn't work out, and there is always the, the, the risk, to be honest, if you have a prototype, stadium, that the customer says, "Thank you very much, we'll go a different direction," then for sure, we have to, to, see who else could be a, a potential target customer for, for that, that product line.
Thank you, Winfried. The question on the BMS, is there any update you can share?
Yeah, thank you. On the BMS, to be honest, we're right now evaluating this with respect to the new product strategy, to which extent BMS can support our product strategy. Hereby, I would like to ask for a little bit of patience to the investors. Once we have that clarified, we will give a more precise update on BMS.
Thank you very much, Winfried. We received a question about the sales since February and some concerns whether there are no new customers. I believe that you have covered that intensively, Ian, during your remarks. Is there anything you would like to add? The question was about there seem to be no new customers or sales since February. What is going on on that front? I think you covered it, right?
... Yeah, I think so, Frank. I think that it's not of great concern to me, and I think I explained that, you know, it is important that metal prices or commodity prices have been moving lower. If you think about yourself as a buyer, yeah, if prices are moving lower, you tend to wait before committing, to the extent that you obviously have a product on the other side, so you can't wait too long. But I think we've seen some of that. However, what we don't talk about, for obvious reason, is we don't talk about what inquiry we have or who we are talking to. We will never do that because it's legally inappropriate. We can only announce it when we sign an SDA, providing it's meaningful.
We would come out and say, "Yeah, look, we've signed more." Some of these do take time to get negotiated, get signed, either because of issues on the customer's side or our side, but we are having a reasonable number of these conversations. We cannot go public, and we will not go public until we've signed an SDA. Only then it will be appropriate.
I think everyone will understand that, Ian. Thank you so much. We received a question from someone asking about how many working days we have. In our Q1 call, I think, Winfried, you mentioned that we have 220 working days in 2023. The question is, how many working days are in the second half of this year? Do you know it, or do you have to calculate it?
Well, typically, let's say the, the, the second half has a half of working days, so if we should deduct a little bit, let's say the, the, the bank holidays of, of Christmas and, the, reunion day and stuff like that. I would expect in, in the range of 200, sorry, 100 to 210, working days in the second half.
Yeah, I think that's a fair assessment. I think, yeah, I, I just checking my list, these were the questions we have received prior to the call. So thank for your patience, who is in the call. So, now I can also open the lines for you. So is there any question? Let me check whether you have put some in, in the, in the questionnaire. No, there weren't. So if you could raise your hand, please, that I can see whether you have a question or not. Yeah, here's one from Christian Salzer . I will unmute you. Here you go. You should be unmuted, Christian. Please.
Oh, now, sorry. Maybe a follow-up question.
Yes.
Can you give us an idea how many battery packs you have produced and, and shipped in the second quarter? Yeah.
Ian, is this something you would like to answer?
Yeah, I, I want to take that. Christian. I hear your question, and there's clearly a mix of, of production and some delivery, of other packs. We have had some questions about packs versus sales numbers, and we've been a little reticent to give answers to both. There is a commercial reason for that, which is, we, we don't really want a reporting of average pack prices being done, for the reason that, you know, we, not all customers get the same price, dependent on volume, et cetera.
For commercial reasons, we would rather, and people can speculate on average pack prices, but we really don't want to declare it for the obvious reason that each negotiation with a client is individual, and, you know, prices can vary dependent on what the particular client's requirements are. Some require a small reworking of packs. We, we charge a bit extra for that, but we want to try to avoid the speculation on average pack prices for commercial reasons. We have been lighter in terms of transparency for how many packs versus the sales revenues, 'cause it's very simple for our business. If you know how many packs we make, what our sales is, you're 'gonna come out with an average pack number. We would rather be vaguer about that for hardened commercial reasons.
I hope that's okay.
Yes, I understand. Could you then provide us an idea of how much of the Q2 sales were coming still from inventory, so from the former BMW packs?
Yeah. I mean, I, I, I would assume something like half and half, perhaps something like that.
Okay.
Thank you. We have another question from Carsten Kindler . I just unmute you, so now your mic is open, so you can ask your question, please.
Yes, good morning, everyone. First of all, congratulations for your Q2 results, successfully backward integrating your own battery factory now and ramping it up and getting it certified. At the same time, already producing positive EBIT. Now my question would be, what is your visibility for order backlog, or based on order backlog for the second half? How much month are covered with your order backlog of the SDAs you have received? Secondly, you elaborated on your margins, and mentioned operational leverage, and input costs coming down. What would be an EBIT margin corridor you see the business going to the next 6 to 12 months?
Good question. Let me think. We do have Jörg Peter Hahn on the call on standby. We have not yet released, Carsten, EBIT guidance for the next 6 months to a year, partly because, you know, we want to see how everything progresses. I think I've shown on slide 7 that we have good operating leverage within the business, so... I'll come back to your sales question. As sales move up, that operating leverage should come through. You've seen, you know, our personnel costs. There are some other operating expenses, but, you know, who knows how the bill of materials will move, but we had a rough, you know, a gross margin of about, say, 20%, right? 20%-21%. That is our gross margin. I, I don't think we see that changing materially.
Winfried, you can correct me if I'm wrong. I don't think we see that changing materially, so we assume that gross margin continues. Maybe it improves if prices move down further, or maybe we have to negotiate some of that away in pack pricing, because we want to sell. You know, let's assume we operate roughly with that. Like we said, we don't expect personnel to, to change that much. There'll be some noise with further costs, which we want time to think through. Carsten, we, we, you may or may not have noticed that our intention is to try to do two things. Our initial idea was just get ready to bring out an LFP product. What we now want to do is to bring out an LFP and a high energy product at the same time.
That is somewhat ambitious. We are working on that and what impact it will have to our numbers. We believe that we can cover this from cash flow and funding, and that it will put us in a very good place for the second half of next year. In terms of development for the second half, as we said, we were transparent with SDAs at the beginning of the year. None of them, as yet, definitely, correct me if I'm wrong, Winfried, none of them have been canceled. We have good inquiry. These have not yet translated into SDAs. Some of them, Carsten, may not go necessarily into SDA to start with.
Some people might choose to do spot purchases for their business, so they'll say, "Rather than sign any kind of three-year contract, we would like, the following packs delivered over the course of this year." I think also the product development plan will help us with the longer term SDAs as well, but it is too early in our view, to start talking about, you know, what 2024 would look like. Definitely, as we move into closer to or in the final quarter in the year, we will want to do a bigger discussion on what we see. However, we know now that, from some of the technical questions on setting up the plant, some number questions, we know that there's going to be a bigger focus on sales, both from the board and also from investors.
As Alessio mentioned, I think it will be very useful at a future call or our next call, that we get the head of sales to give a presentation. Obviously, probably won't talk about specific customer names or quantities because they are proprietary, but I think we get the head of sales to run through all of this in as much detail as we are comfortable giving. Then hopefully, we can answer these questions on hopefully, you know, maybe the next call at the next quarter. Don't know whether that answers your question, Carsten, or still leaves you thinking.
Thank you very much. No, thank you very much. That's very helpful. Looking forward to see your next quarterly results and see the leverage coming in.
Thank you very much. I have a question to Christian and Carsten. Could you kindly put your hands down because I don't know whether you have another question or whether everything is covered. Thank you so much. Great. If I see it correctly, there are no other questions from the audience. I just also checked whether someone has asked some written questions here. No, that's not the case. I think we are done.
Okay, great.
Thank you very much indeed.
Great.
Is there anyone who wants to add something, Winfried, Alessio, Ian? Oh.
Yes, Frank, thank you. One more, one question on the number of working days. We just calculated it roughly by half. We need to be precise. We're going to make a plant shutdown in August, where we going to, let's say, shut the operations down for a dedicated time, which is quite usual in a producing company. So this will, let's say, take about 50 50 and 15 working days out. So probably we're going to end up somewhere in between 90 to 100 days. That's just as a clarification.
Thank you, Winfried. Just to be clear, this is not an unplanned shutdown of the production, it is the normal over-vacation holiday period shutdown.
Exactly
...which many production companies have in Germany. Correct?
Correct. This is, this is the, the, the planned shutdown because, you cannot run operations at, at, half of the staff.
Yeah, correct. All right, I think that's it. We are done. Thank you very much indeed, for, for, for your attention for, in this call. As I said, the, the call, has been recorded, we need a couple of, you know, hours to upload it on our website, but it will be there so you can see it. If you have any further questions, you can always reach us, from investor relations, we are more than happy to pass your questions along to the management and to, to get some answers. That's all so for me. Thank you very much again. I wish you a, very great rest of the day and a wonderful weekend, and talk to you in the next investors call.
Thank you. Bye-bye.
Bye.