Good afternoon, everybody, and welcome to the presentation of the interim report for the Q2 , a quarter that has been a very intense quarter for PowerCell Group, and also a lot of activity in the general market that we hope to be able to share with you in this presentation. Joining me today is Torbjörn Gustafsson, the CFO, who will make the financial part of the presentation and then, of course, be participating in the Q&A in the end there. PowerCell, for those of you who don't know us, a very brief introduction. We are a world leader in hydrogen electric solutions. We make that claim based on the fact that we have been doing research and development in the area of hydrogen electric solutions and fuel cells for over 25 years.
We have the best validated fuel cell technology in the industry, and together with the partnership with Bosch, that we will come back to, we also have the best validated and industrialized technology in the industry. We come with an offering that is not just a promising technology, but a proven technology. That is also what we now see in the market, where we see the growth coming from product deliveries to really demanding customer in demanding applications and commercial application, and not just the R&D feasibility studies that was the case a couple of years ago.
In short, we have now grown to 142 employees to be able to support the industrialization phase of PowerCell, but also to continue to develop the competitiveness of PowerCell, both from an innovation perspective, but also production and the market presence perspective. The headquarter is in Gothenburg, but we now have presence in Norway, Germany, and China, with establishment in the U.S. in 2023, and U.K. from 2024. We serve customers in really large industries, and now also larger and larger customers in the aviation, marine, power generation, and off-road segment. Together with the collaboration and partnership with Bosch, we also serve the on-road segment, where we have a royalty-based business that is starting to show promising growth going forward.
We say that we're continuing on a strong growth journey, although the growth in the specific quarter of Q2 was only 9% for the full year. Or the H2 of the year is 30%, and rolling 12 months, 42%. We still have a very strong drive in the growth journey that we have. We've had production, industrialized and ready since 2021, so we now see the benefit of that. The concept that we launched in 2022, when we talk about industrialized innovation, where the concept is bringing really high-end value, very close to the customer application, but it's based on a core industrial product portfolio, both the technology from PowerCell and then industrialized together with Bosch.
That combination is what we call industrialized innovation. It's proven to be a very strong driver for value to our customers. I think this is also one reason why we have been able to secure the really large orders that we did in Q1 and Q2 this year. Being present in different applications and segments is giving us a lot of application knowledge, refining the offering, and making us even more competitive and value-creating close to the customer. We are still in a phase in this industry where it is about supporting our customer through a transition towards a decarbonization solution. Fuel cells and hydrogen electrification is not a commodity yet. It will not be for quite some time. Being able to base our adaptation to support the customer on an industrial, industrialized footprint is really, really strong.
That is now giving the growth that we see in commercial orders. It started in Q1 with the Torghatten Nord deal up in Norway. 13 megawatt of marine power, followed up by an interesting order in auxiliary power for light vehicles here in Q2, which is why we now ramp up production for serial delivery, where we go into more larger series and repeating business. The reason why we are that is because we see now really strong market drivers. I don't think I need to convince any about anyone here about the necessity of decarbonization, but the PowerCell offering of decarbonization is becoming more clear and more appreciated in the market. It is supported by the supranational initiatives, where you see the Inflation Reduction Act in the U.S.
We have the European Green Deal and Fit for 55. Really strong drivers to support the transition. Companies like PowerCell, where we have a very strong, mature offering, industrialized offering, ready to be transferred into our customer's operational process, that is a very strong mix, and this is why these initiatives are supporting the growth that we see. We have more or less in all our segments, we see customers with very strong commitment to decarbonize, clear patterns and paths towards 2030 and beyond. What is also obvious is that many of them are late and struggle with their ability to decarbonize their ongoing process. This is where the proposal and delivery from PowerCell is gaining more and more traction.
Because we see an increased demand for electrification in society, we need more electricity and not less. That, in combination with a rather rapid expansion of the volatile energy sources like wind and solar, and require a demand for some stability, and that's where the hydrogen and fuel cell combination is giving that stability. This is why hydrogen is viewed to have a central role in the energy supply going forward. We now see an industry where the whole value chain is maturing quite rapidly.
We still have a bottleneck in the way of availability of green hydrogen. The bottleneck is getting wider because now we see number of initiatives and investments going into production of green hydrogen and supply, but also green hydrogen coming from different sources like reformed green ammonia and reformed green methanol. Things are starting to open up in that sense, but I still expect to see availability of hydrogen as a bottleneck for the upcoming years. As I said, the bottleneck is getting wider. If we look at some of the key achievements and key events in Q2, we saw that a significant part of the growth was coming from product sales, which is really encouraging.
This is once again, a testament to the fact that we have a strong order intake and actual serious deliveries to customers. We can protect the high gross margin that we have worked so hard to raise over the last 2 years. Torbjörn will mention more about the differences in presentation of gross margin, but when we compare it to the same methodology we had last year, we are on par with a really high gross margin from last year, which is a really strong achievement because that is indicating that we can leverage growth. The fact that we have a positive operating cash flow for the first six months is also a very strong testament that we have leverage in our business. Now when we see growth coming, we will be able to provide more value also bottom line.
From the business side, we had an agreement signed with Vantastic Group for sale deliveries to light commercial vehicles. That is auxiliary power for heating and cooling of food being delivered in the UK. A framework order with the potential of sales to SEK 200 million. We also signed the agreement with Bosch of production supply of our own technology, our own PowerCell S3 stack, but being produced at the Bosch facility in Stuttgart, and with also sourcing ability from China and North America, giving us a global presence. That is opening up a very strong industrial footprint for us, because now we can scale our operation together with Bosch and focus the PowerCell effort on the assembly and manufacturing of the more high-margin systems.
For PowerCell, this was a very significant agreement being signed in the Q2. With that, I will hand over to Torbjörn, and you can guide us through the numbers of the Q2 and the H1 of 2023.
Thank you very much, Richard, I will start with the strong growth, and especially then mentioning product sales, as you have brought up previously in this presentation. We are up with 9% versus Q2 last year. Rolling 12-month, we are up 43%. Especially worth noticing is the product sales that increases with 97%. I think that mirrors that we have had large orders coming in, but also that we have a broadened customer base, and that we have deliveries going out to a higher extent than what we've had before. That's also mirroring a more mature and industrial operational system that has matured, but is also on the way to mature even more going forward.
Looking at the gross margin side, we have a gross profit of SEK 21.8 million, which is down versus Q2 last year. One thing here, which Richard also was mentioning, is the changed presentation of cost. That impacts gross profit negatively by SEK 5.5 million and 8.8 percentage points. If to have a comparable number, we would be at 43.7% in gross margin, comparing with the 44.6% that we had last year. It's not really up to that same level, but still, we would like to claim that we are on high gross margin.
This, although we have had a higher % of product sales within, in the product mix for the Q2 , it's also an indicator of that we are scaling up and industrializing our production. We are doing that, and we are keeping the gross margin at high levels. Regarding operating leverage, we had OPEX in Q2 of SEK 53.1 million. Looking at the graph there, we can see that it's rather flat, we have highlighted before, and we would like to stress it once again, that we are focusing on leverage, but we are really balancing. What's happening here, it's on the 4th bullet point, is that we have, versus last year, increased employees with 42%.
That increase really mirrors that we are building capabilities, and we're also still focusing on having a high degree of research and development resources, preparing for the future growth and future leverage. We are keeping flat here. We are keeping a close eye on this, and we are really focusing on still deliver on those development areas. The final bullet there is that we have, we are now in the 2nd version of our PS 200 System that we're investing in, and for second quarter, we have capitalized SEK 5.6 million that is being seen here.
Mm-hmm.
The final financial slide here on cash flow. We had a negative operating cash flow for Q2 but the rolling 6 month is 5 million SEK plus. This is affected by elements from the Norwegian ferry project, but also ZeroAvia, that we have mentioned before. With that said, those are our positive effects coming in, but we're also building the inventory side to match the order backlog. In total, we would really highlight that this is of course, of importance to us and to you listening as well, that we are safeguarding cash flow, and we are very happy to present this H1 year with these positive numbers.
What could be seen here as well then, is really this 5.6 million SEK that was capitalized as intangible assets, also in Q2. With that, I need go back to you, Richard.
Yep, perfect. Then trying to connect what we now present and what is leading up to that one. Just to give a quick brief on the difference between the combustion energy and the battery and fuel cell, because we are constantly questioning where will the fuel cell fit in compared to a battery solution and a combustion engine, et cetera. We need, I mean, batteries and fuel cells are not mutually exclusive. We need both. We think that we will see a mix and hybrid of different solutions, depending on the characteristic of the application and the technical demands. To simplify things that we are replacing traditional fossil fuels, both batteries and hydrogen.
Of course, one benefit of the traditional fossil fuels is that you get a long range, you get operational performance, which is really, really important. If we listen to, I spent 25 years within automotive industry. We were struggling all the time to get uptime. That was the main value that we created to the customers. Of course, the benefit of long range is important. That is one area where the hydrogen fuel cell is superior to battery electric solutions, because you get distance, or you get performance, or you get the ability to take load with you. You can refuel in a very short cycle, very comparable to the fossil fuel and combustion engine. Of course, without the greenhouse gases and that emission.
One value that we can build on from the combustion engine is, of course, operational performance. As you know, the combustion engine is starting to be at its downturn. Quite many OEMs, regardless of the industry, it's both in automotive and in power generation, are now moving away from the combustion engine and are replacing that with different electrification solutions. Batteries will have a significant role to play initially in the automotive industry, and vehicles where you drive in a city where you don't have that long distance. The operational usage of a modern car in a city is around 4% of the time. That's an application where battery electric is really, really strong.
When you go for the more demanding applications, commercial applications, where you need to have operational performance, then the hydrogen fuel cell is providing a different value. With the distance, with the ability to have operational cycles that are close to the combustion engine, and with the fact that you can refuel without losing any uptime, that is an area where you see strong value. One benefit of electrification is also related to the aftermarket and service agreement, because with fewer moving parts, there will be less breakdown and also less issues during the life cycle. We are entering into a new era, which is why sometimes this transition take time, because we have a value chain out there that is populated with for a business model that is quite valuable to many.
Sometimes we see that it's not just about the decarbonization. There are other values in that process that we are challenging with our offering. We are now with the Torghatten agreement up in Norway, we will be signing the first larger service agreement, which will be a milestone business, indicating that we now also go into an era where we support the customer during a life cycle, and that is also a revenue for PowerCell. It is a very interesting point in time for this industry, where we now move away from feasibility studies to the early stages of just a traditional business. As we said before, we are approaching and serving aviation, marine, power generation, and off-road.
In this presentation, what is happy to see is that we still have a very strong footprint in aviation and marine, which we have indicated before, is the growth segments for PowerCell. What was encouraging to see is that power generation is finally starting to rev up. A couple of years ago, when I entered into office of PowerCell, power generation was supposed to be the growth driver. It's been a bit of a disappointment as a segment in general, but now we see a very strong growth, and I think that for the H1 , I think we have reported 75% or 80%. Torbjörn can correct me here if I'm wrong.
Off-road, we have indicated that that is a segment where we see a slightly slower transition phase because the OEMs in that industry are still evaluating other solutions. Battery electric is the shorter time to do an electrification driveline. As we said before, it will come with a downturn that you do not get the same load because the batteries are quite heavy, and you don't get the same operational cycle because you need to start and stop and recharge for a long period of time compared to the hydrogen electric solution. What we see as an initiative in this segment is also that they are running combustion engines with hydrogen, which is a good intermediate step.
It will bring some decarbonization, but not the same energy efficiency, and you will still get some greenhouse gases in the form of NOx. That is a segment where it's taking a slightly longer time, which we have been quite, we understand why they do it. But we think that once you see an OEM making an initiative and going for a full fuel cell electric installation, that will be a trigger for the rest of the industry. On road, our collaboration with Bosch is giving us the revenue deal that we have reported.
Slightly slower growth in that area, but with good indications by Bosch yesterday, made a market presentation on their efforts and ambitions in the hydrogen electric value chain, indicating really strong growth up until 2030, which is encouraging for PowerCell as well. Going back then to the agreement with Bosch and why this has such a significance for PowerCell. Going back 2 years, PowerCell was acknowledged having the best technology in the industry, an energy density and performance that was unmatched. With the collaboration and joint development together with Bosch, we now have industrialized this to an extent that is also leading from an industrialization perspective. We think that we, together with Bosch, have a very solid foundation for future growth.
What this agreement give us is also then the increased production capacity, where we now can scale up the production and deliveries to support the growth that we see going forward. Bosch will deliver our own technology, according to our specification and our IP, tested and activated, so that we then manufacture them and assemble them into the more high-margin system deliveries that we do to our customers in our segments. We can then focus on the assembly and delivery of the systems and also the growth of that area.
We think that we now have an industrial footprint that is quite interesting because with this framework agreement, we get scale of economy and the benefits from the full Bosch volume, and then we can focus on the assembly of systems, and also, as in the case with ZeroAvia in U.K., initiate final assembly very close to the end customer because of the very low CapEx investment needed to do that kind of a final assembly close to the customer. We get a very nimble footprint that can support us in our growth, not just from a volume perspective, but also geographically. A recent key win was announced today, where we got the follow-up order from a European aviation startup that is not disclosed.
We will deliver fuel cells up until 1.8 megawatt in combination with engineering services and test capacity. This will be delivered in 2023 and 2024, and the order value is roughly SEK 40 million. Of course, this is really encouraging to see, not just the fact that the aviation industry is continuing to lead the way and lead this transition, but the fact that we get recurring revenues from customers that are not just using our technology, but is growing with it. We're quite happy to be able to report this also today. We also signed the OEM agreement with Vantastec, a UK-based operation that are doing retrofitting and special vehicle applications, where we will be providing an auxiliary power for their heating and cooling solutions.
The 1st deliveries will start in the Q1 of 2024 when it comes to the serial delivery, but we will have a continued development program and continued revenues also during 2023 and start of 2024. The framework order has a potential amount of approximately SEK 200 million, which is, of course, a significant order for PowerCell, and also, once again, creating this serial delivery, an OEM customer that is so valuable for PowerCell and the whole industry because it is growing and maturing the market. We, we're quite happy with the development. We see that we are accelerating our growth journey, and we are accelerating in a way that is sustainable. We are not just driving top-line growth, but we are able to leverage that growth to, both EBIT and then cash flow.
We do that while we still invest into and expand our industrial capacity, our innovation capacity with the programs of the new heavy-duty and medium-duty fuel cell platform that we have communicated before, which are in development collaborations, both with the European partners. We have accelerated the transition towards the energy, emission-free energy solutions in many different segments, and we see that it has an operational validity. We see now, and we see the benefit of having not just superior technology, but industrialized technology, because the customers are now putting it into commercial applications. It is a reliable, high power density solution with a very compact format. We state this over and over because it has a relevance.
In every segment that we're active in, weight and size is of the essence. You can carry more hydrogen storage if you have a more light footprint, that gives you longer operational cycles, which gives you the uptime that the whole industry has been working on for 30 years, regardless of the energy source. Capturing the value creation of the old technology, also with our new technology and new solutions, which is, I think, a strong competitive advantage for PowerCell. We are now starting commercial deliveries, and we have commercial demand in all our segments at the moment, which is really encouraging. Finally, we now see also the power generation segment starting to pick up, which has been a long time coming.
Having a production footprint and the production partner in Robert Bosch GmbH is very encouraging and gives us a stability that is unmatched for a company of the partial size. We have the upcoming reports in October 19th, and then the year-end report in February 8th, 2024. With this, Torbjörn and I open up for questions and comments from the listening audience.
If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Henrik Alveskog from Redeye AB. Please go ahead.
Okay. Hello. Thank you.
Hi, Henrik.
Yeah, I have. Hi. Well, first off, I'm wondering about the agreement that you have with Bosch now for sourcing the stacks. How do you see this when you compare, well, manufacturing costs that you've had on your own and compare it to the sourcing agreement? How will this impact gross margins in the future?
I don't think that we will communicate the exact extent of that. Of course, one value that comes from having a partner like Robert Bosch, who have perfected manufacturing for 100 years, is the scale of economy. Their control of productivity and cost control is world-class. Although we are proud of our own internal efficiency, I think that we can learn a lot from the collaboration with Bosch. Of course, the supply from them will generate a strong value. We also draw benefits from the volumes that they have in their business, selling our technology to their field of use. Of course, it will have a positive impact on the cost of the fuel cell, but I'm not disclosing to what extent.
Okay. The way you see it, this, all else being equal, sourcing from Bosch gives you lower COGS?
Yeah. Of course. You can see me smiling, so it's answer enough.
Okay, great. Thanks. Just, if you could, talk a little bit about the capitalization of the development costs that you started now and just briefly, the reasoning, I mean, the criteria for this and if this is more like a one-off or, where this is possibly going in the future, what we should expect?
Yep. I can give you the initial, I think, rationale behind it. Then Torbjörn can go into the details. I think you should look at this as a sign of a maturing business in PowerCell, where we now see that what we do and the annual release that we do on the technology is both maturing internally at PowerCell, where we now have industrial product portfolios that have a kind of an annual release process, which is how industries are doing it, but also the fact that we now can connect it to an upcoming business. Then you are obliged to do that kind of capitalization. I think this is where Torbjörn can elaborate a bit more on why and how.
Exactly. Thank you, Richard. That's true. I mean, we are at a situation where we have a clear business case, and we have partly an order backlog that meets with this development work that we're doing. We will clearly see benefits going forward in the years to come from the work that we are now investing in development, in taking this new generation of the systems that we have. It's, of course, a lot of engineering resources, but it also is hardware that we bring in for having long-term testing of the system. So, this is. I mean, we are.
Maturing as a company, this is one step of that, and we don't see any other in the near future with similar. Of course, we will come to situations where we have new potential projects that are to be capitalized with the same kind of reasoning as this one.
Mm-hmm. Yeah. Great, thanks. Okay, well, just the final question from my side. I haven't heard or seen that much news from out the stack industry for some time, and I'm just wondering if you could give us an update on, well, the action and what to expect?
Yeah, I have to admit that I am also not fully updated on what has been communicated, but it is progressing well. That is the fuel cell stack technology that we call the medium-duty platform, that we have indicated from a PowerCell perspective, that is at TRL level 5, Technology Readiness Level 5, which indicates a time for industrialization, roughly 18 to 24 months before it could be introduced to the market. I don't think that we've communicated any more than that. From our perspective, that is a very valuable part of the ongoing innovation and the future competitiveness. Then, of course, it is about timing when you introduce new technology to the market, both from a market demand perspective, but also, of course, the industrialization phase of it.
It is part of our program going forward. I have to come back on what has been the more formal ASI communication.
Mm-hmm. Okay, great. Thanks. That's all from me.
Mm-hmm.
As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad.
We have a number of questions coming in through the app, and a number of them are related to Bosch and the collaboration. From Morten Johansson, we have a question where Bosch announced yesterday that they will start volume production on their fuel cell powertrain. Does PowerCell get revenue from that production, or is this developed by Bosch themselves? Yes, we will get revenue. This is the collaboration agreement that we signed in 2019, that is now being industrialized, and they have started production. That is the source of revenue that PowerCell will get from the automotive industry and the Bosch deliveries. The second question was if PowerCell is involved in the PEM electrolyzer business that Bosch is developing, and that's the answer is no to that one.
We are not part of their electrolyzer program. We also had a question from Asko Ma about ZeroAvia, and the fact that they have communicated a development of a high-temperature power fuel cell to be used in aircrafts. Does this affect PowerCell ongoing or future business development with ZeroAvia? We don't know how it might affect the future. It's not affecting anything of the ongoing development, but the whole industry are looking for the high aviation, this is looking for the high-temperature solutions, and that's where PowerCell is active in the development of our heavy-duty platform that we do in the New Bolt project, which is an EU funded project, where the high temperature characteristic and capability is a very important part of that one.
If you have a high operational temperature, you don't need to have cooling. That means that you get lower drag of the aircraft, and that means that you get better fuel efficiency and lower operational costs. It is a very important driver. We are not concerned by other developments because we think it's important that the whole industry continues to invest into this one, and we feel very confident in our own ability and the fact that we now have our own program in this area. Any additional questions?
I think we also had a question related to that Bosch have declared Nikola as a pilot customer within its Class 8 hydrogen fuel cell electric truck. The question is if PowerCell is involved in Bosch's relationship with Nikola. Do we get license revenue from Bosch for the delivery to Nikola or any other revenue?
The same there as for the general Bosch fuel cell business, that we get the revenue. We're not involved in their customer collaborations, so it is strictly a revenue-based business model. Of course, it is encouraging for us to also read the news that you do, where we see more and more customers signing up and more and more communication from the Bosch side about sort of production and their ambition to scale up what they're doing in the hydrogen-electric solutions. As you pointed out, this goes also for electrolyzer and the fact that they're selling fuel cell components and fuel cell system components, which is very good because that means that we are maturing the full value chain. When a company like Bosch.
Move in this direction with their both size and commitment and expertise. It is a very important statement to the whole industry about where we are in the scale of maturity. It is encouraging. We have got.
There are no more questions from the telco at this time. I hand the conference back to the speakers for any closing remarks.
We actually got a question now from James Carmichael at Berenberg. Where do you see cash burn for this year, and how comfortable are you in the company's funding position? Once again, we are to some extent a bit boring, not giving out a forecast. We have stated over and over again that the cash position that we have at PowerCell is satisfying for us. We see that we will be able to fund the business plan that we have ahead of us, and that we will be able to fund our way to break even. We are restating that. The fact that we have improved the cash flow significantly and the runway we have with...
If you look at the rolling 12 months cash flow and the cash position we have, it gives a fairly good indication of the stability and the robustness of the PowerCell performance in this area. Any comments to that, Torbjörn?
I think you're right, Richard. I mean, we have proven ourselves so far for the last two quarters in this area. Of course, going forward, and I think we stated it goes for our income statement and profit, but also on the cash flow side, that there will be quarters. I mean, we will be volatile.
Yeah
In this area. We are trending in the direction, and we want to highlight, when this goes well, and that it is trending towards a good situation.
Yeah. If we are moving towards the final remarks, as the computer voice advised us to do, we think we are quite happy with how we manage these volatile markets, as Torbjörn was saying, because there will be a volatility. There are also seasonal effects, where we see the one characteristic of the H1 of the year and the different one for the H2 of the year, which you can see both in 2022 and 2021. The fact that we now have created a stability, both in the product mix, but also in the business model, where we can compensate for slightly lower royalty revenue growth with more product sales, et cetera.
Being able to establish a company which are growing in a volatile market, growing steadily, protecting the gross margin, leveraging the growth, and improving the EBIT margin to sales, is important. That, in combination with investment and expansion of the industrialization capacity and capability, as well as more innovation, that is a combination that I'm most proud of because it indicates a very robust company. Not necessarily the most flashing headlights, but the slow and steady approach, where you improve everything more and more day over day. That is something that will give a sustainable growth and a sustainable company. We are quite happy with the development. Although, as Torbjörn points out, there will be volatility in the market and also in what we report.
Overall, we're quite proud of the development and the kind of company PowerCell is at the moment. With that, we wish you a nice summer, hopefully some vacation ahead of you. We gather back in October for the Q3 report. As always, reach out to Torbjörn or I whenever you feel that you want to talk to us and get some clarification. We're always available. Thank you very much for participating, and talk to you.