full year presentation. With me, Richard Berkling, CEO of PowerCell, and
Torbjörn Gustafsson, CFO.
Hopefully we're now familiar faces, since we've been doing this for a number of times. We're here to present the quarter that has been quite interesting, and also give you an outlook on 2024, the market conditions going forward. Short about PowerCell, we claim to be a leader in hydrogen electric solutions, having leading technology and a product offering that is fairly strong in the market, which we also see now in the numbers. Fairly experienced entity in hydrogen electrification, with over now actually 28 years of innovation in this field. Strong technology portfolio, validated not only by ourselves, but the industrial partner of Bosch. Our products are unique in its high power density, which means that they're quite efficient in their applications.
What we do is that we provide electricity with no emission other than water. We are an unusually seasoned player in an emerging market, and that is something that we pride ourselves in and also think is a very competitive advantage in the market that is now growing. 151 employees, headquartered in Gothenburg, with a presence both in Sweden, Norway, Germany, and the U.S. Our growth and value, I think, is based on a very strong technology and IP portfolio, but also now a product portfolio and customer portfolio that we will elaborate on in this presentation. Our industrial footprint is not just the internal of PowerCell, it's also from the manufacturing partnership and global partnership with Robert Bosch GmbH. News in the market, we see now a commercial market growing.
We are moving away from the earlier project phases and product sales. That was the characteristic of the previous market, and now it's more a commercial market growth with OEM customers, which means slightly new requirements, but also new opportunities. We see more demand for larger orders and, and long-term contracts, but also slightly longer integration times, because we now enter into a phase where technology is integrated into commercial offering, rather than just selling product sales. Much more sustainable from a growth perspective and also industrial perspective of PowerCell, but it's a different condition.
It's also higher requirements, because now we enter into a phase where products needs to provide value over a life cycle, not just, initial value as a tech exploration, solution, but as a commercial entity, which we think is a very interesting time in the market, because it's mature in the market. We have prepared ourselves quite well for this for the last three years, investing into our product offering, investing into our, internal abilities and capabilities, both in manufacturing, but also the whole supply chain and product offering. Investing into the productivity and internal efficiency together with both Bosch and PowerCell internally. Of course, the industrial stability and capacity, as we talked about. We now have a manufacturing footprint that would support PowerCell in the growth journey ahead.
But most, I would say, is the product offering and the ability to provide value for our customers, which is why we have a strong growth in all different segments that we're active in. And we see that what we managed to do now, which is a difference from the previous years, is that we have a strong growth, a sustainable growth, but we also have a strong operational leverage. We have a leverage on every sold new krona or euro is rippling down to bottom line and improving the operational performance, which Torbjörn will talk more about. We have been on a growth journey for a number of years. In quarter four, we saw that there were slightly more rough conditions, and it is a softer market because of consequences to the financial market, where we see investment.
The cost of investment is, cost of funding is, is starting to affect part of the customer, portfolio. But this is where it's so important that we see the OEM customers coming in, that, that is basing the growth on their actual business, real market demand, rather than just tech exploration and product sales. We have an industrialized product portfolio and industrialized, production in, in place. During quarter four, we started serial deliveries from, Bosch into our factory, building the fuel cell systems.
For a couple of years now, we have had a concept that we call industrialized innovation, that we think is really competitive offering to the market, where we base our offering to the market on the industrial core component of PowerCell, but then we make adaptations to the specific OEM needs for different applications and different installations, which means that we are integrating our technology into the offering of different customers. For instance, ZeroAvia in aviation, and Hitachi when it comes to power generation. Hitachi introduced their HyFlex hydrogen generator in quarter four, public introduction here at PowerCell in Gothenburg, which is a really important OEM customer for us and a market channel that will drive growth going forward.
We have been building a first mover advantage by being active in many different segments, building application knowledge, which means that in an innovation market like the energy transition is, it's not just about having the best technology, but making sure that your technology is integrated in a way that it creates value at the customer operational process. So this is where our application knowledge is equally important to our IP portfolio, I would say. We see the growth is coming from commercial order rather than the project orders that we had in the past, which is encouraging because it gives us a more sustainable product portfolio and order stock.
We see that we're now ramping up production for serial deliveries with Bosch as a supplier, which gives us a much stronger footprint than just the internal capabilities of PowerCell, even though we're proud of our industrialization and production capability. Standing on the foundation of an industrial giant as Bosch is giving us much more stability than we would have as an independent company. We are supported by really strong market drivers, initiatives, I would say globally. IRA in the U.S., EU Green Deal is starting to have an effect on customer investments in this area, but also the whole emerging value chain that is supporting our industry to accelerate. We also see a number of companies accelerating their commitments towards zero emissions, especially with 2030 as a deadline.
What is interesting to see is that 2030 is actually just around the corner. Since we are all working with industrial processes, the integration into new technology needs to happen long before 2030 if it's going to have an effect there. We see that the, the underlying growth and underlying market is, is growing from this, commitment towards 2030. And also, hydrogen has now, for the last couple of years, been recognized as being a central part of the emerging, energy system and energy transition. The whole energy is maturing, although it is still, with some challenges, having access to green hydrogen.
The trend over 2023 was to combine green hydrogen with different sources of hydrogen, from ammonia, methanol, making sure that we have more access to hydrogen, although not being the perfect solution of green hydrogen that is completely CO2 net neutral, but good enough solutions, making sure that the whole value chain is starting to accelerate. Looking at the key events in quarter four was an increased product sales, which we are happy to report. We are continuing to see a strong gross margin. Torbjörn will elaborate more on that. Slightly down, but still on a very good, sustainable level. A very good sales development in aviation and marine segment, with the introduction of HyFlex from Hitachi in quarter four. We also now see the first OEM customer in power generation, which is quite encouraging.
But then, of course, quarter four was affected by the relisting of the NASDAQ Stock Exchange, which is something we're quite proud of because we did it in record time and passing with flying colors. But of course, we are a small company, so it affected us internally to some extent, burdening the ongoing operation. So now we're out of the woods on that one and can focus even more on developing the company and business going forward. In quarter four, we also had important deliveries or strong deliveries to important projects. Both ZeroAvia and the marine integration project with SEAM towards Torghatten accelerated in quarter four, and we see that going into quarter two to 2024 as well.
We are entering into more deployment of technology and products into commercial applications, which is a very important step for us to becoming a mature player in an emerging market. Torbjörn, more about the numbers.
Thank you, Richard. On the sales side, we can see that for the fourth quarter, we were growing with 25% versus last year, and for the full year with 27%. And as you can see on the graph there, on the bars, quarter four is an important quarter for us. It stands for about 40% of our full year sales, and that's in line with what we saw last year as well, and also in 2021. So fourth quarter, quite visible on this slide, is an important quarter and a lot have happened. We have also royalty increased to SEK 19 million in 2023, versus SEK 15 million in 2022.
As Richard was mentioning, on what focus areas in fourth quarter, it was a lot about the projects towards the aviation and also in the marine that really is being seen here in fourth quarter sales. Coming to Gross Margin, we are at good Gross Margin. It's going down a little bit versus last year. Looking at the fourth quarter, we had a margin of about 37% versus 57% last year. We will see those kind of variations, maybe not to that extent, but there will be variations since we are affected still a small company, and we will be affected depending on the product mix and so on.
But it will even out over time as we are growing, and we will safeguard the gross margin over time. And as we can see here, still being on 40%, on the full year. And that's really something that we are safeguarding in the sense that we want to scale up with good gross margin, going forward.
This is also where we see a benefit of optimizing with different revenue streams. Not just being a product company, but also developing engineering services, sales of aftermarket service, et cetera, the royalty from Bosch. That mix of product, project, product revenues is giving us a balance to mitigate if certain areas of the market is changing. And when we talk about the future in 2024, where we see the product sales might be slightly delayed because of integration and funding at customer sites, we have different revenue streams to accelerate. So it gives us a balance in both top line, but also in gross margin.
Mm-hmm. And it should be highlighted just as sort of a last bullet there on gross margin, that we did a change of presentation of cost that impacted with 2.8 percentage points then. Operating leverage, I think you were onto this, Richard, earlier on, and just to highlight in numbers and in the graph, that we are down at 61% when we talk about OpEx in relation to net sales. And I should say, in this context, OpEx will also include other operating income and other operating costs. And in other operating income, that's where we also see the funding from EU projects. And those are in the fourth quarter. It's SEK 30 million versus SEK 5 million last year for the full year.
Then we are down from 77% last year in December to then 61% right now. This is also being done, although we are increasing with 35% in number of FTEs versus last year. So we're building capabilities, and we are continue to leverage on those as we're going forward. One bullet point here as well is regarding capitalization of product development expenditures. For the fourth quarter, we have 6.8 million SEK, and that's also sort of a key item in terms of PowerCell maturing into going from research-driven to development-driven, where we also are now looking at the next generation of products that we already have, and that's a maturity item in that. Then last slide on the financial side, looking at the cash flow.
We had a cash flow in the fourth quarter of SEK -48.7 million, and for the full year, SEK -95.6 million. This was quite big effects from this is really a cut-off effect in timings of payments between 2023 and 2024. That affected quite a lot. Then, as you can see, there is also a capitalization then being seen here, as we haven't seen the years before. So those are effects on cash flow. Then handing over to Richard for the final slides.
Yep. One comment also on the financial performance is that our EBIT is improving from -30 SEK to -21 SEK, although we have a number of non-recurring costs affecting the result in quarter four. So we see that we are on a trajectory towards break even when we have a growth, and this is... The ability to leverage growth is extremely important for a company like PowerCell, because as Torbjörn was saying, we are investing heavily into the next generation of technology, into the product portfolio, as well as the current infrastructure and supply chain. With that said, we're still making a leverage on the revenue increase and growth, which is important to us because we want to make sure that we can show the industry that we are a sustainable company from a financial perspective.
So looking at then the proposition, we are now active in 5 different segments. On-road, together with Bosch, where we see the royalty revenue increasing. We also know that Bosch publicly informed that they are in start of production in quarter three, quarter four last year, with serial deliveries to a number of disclosed customers. So we see that segment is maturing and starting to pick up. We are approaching 4 segments by ourselves. Aviation, Marine are the drivers in our growth at the moment, where we have, in aviation, somewhere around 18 projects with customers, and we have the first commercial orders. We are also experiencing interest in the next-generation stack technology with OEMs. So there is a strong demand in aviation segment.
Marine, we also have a number of commercial orders that we have reported, and we're now deploying technology into that segment, where we put product into commercial use. Power generation has been a segment that we had expected more growth from in the past, but with the introduction together with Hitachi in quarter four, we now see a potential to grow that area. And we think that that is an area that we will see a lot of interest in 2024 and 2025, where a hydrogen fuel cell generator is a very good example of balancing the grid in areas where you don't have grid access or where you need to balance the grid stability.
We see a demand for hydrogen fuel cell generators to power electric vehicles in areas where you don't have grid access, for instance, construction equipment, et cetera. We will have a joint demonstrator together with Hitachi, Skanska, and other Swedish OEMs at the harbor of Gothenburg week 10 showcasing this example where you use the hydrogen generator to power commercial vehicles that are electrical. So all in all, very interesting growth in all areas, but they are growing at different speeds depending on specific market conditions. What we see now is that we are accelerating our growth journey. We see an accelerated transition towards emission-free energy solutions. Strong interest globally, I would say, with some regional differences, where you see a lot of investment both in Asia and the U.S.
We are expanding into the U.S. market with our own subsidiary and a local entity, local presence as well. Then, having a really good technology offering is important, but equal to having good technology is the application knowledge, knowing how to deploy these technologies so it works throughout the complete life cycle, and not just good technology at the test facility here in Gothenburg. And the fact that we are starting to see serial deliveries to commercial application is also important indicator that this is now starting to become a mature market. An industry can live on project sales and governmental funding only so long. Eventually, you need to start, prove yourself and create value in a commercial application, and PowerCell and the industry is at that point at the moment.
So scaling our production with a strong industrial partner like Bosch is the best way of mitigating both the risk and acting on the opportunity to this market. Upcoming reports is as been presented before. We have the interim quarterly quarter one report in April 25 in conjunction with the general meeting. And then you can see the following report after this. So with this, we now open up for questions from the audience.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Henrik Alveskog from Redeye AB. Please go ahead.
Okay. Hello.
Hi.
Thanks for taking my question. Hi. Yes, first off, I read in the report that... Well, you mentioned that the market overall conditions are a bit softer now, and therefore you accelerate your focus on profitability and cash flow. I'm just trying to, if you could give us some color on, how this will be different from previously, when it comes to, well, mainly your focus on profitability? I mean, as you mentioned, you have very good leverage, and the best way of reaching good profitability is to continue to grow. So how should we understand this?
I think it's the combination and structure of different product offerings and the product mix. You optimize in one way if you see that the short-term market demand is just product offerings and product sales. You could optimize your operations slightly differently if you think that the perhaps shorter market demand on products is a bit softer, but then instead you optimize on having a lot of OEM development, because then you build short term. Now we hear ourselves echo.
Yeah, Henrik, can you mute?
Yeah. Thank you.
You want me to? I'm not sure if I can right now.
Okay. Okay.
Mm.
No, but then, in the market conditions, as we see in 2024, we think that the best way of leveraging the position of PowerCell is to work with the OEM customers, making sure we get short-term revenues from the engineering services, providing the adaptation and integration of our technology into their product offering, which builds both short-term revenues, but also then, a product portfolio and order book that is strong long term. So it is a different market condition, but this is what we see at the moment. We also see that the market condition is changing rapidly, so being agile and nimble in that way is important, and not just having production capacity as your only competitive advantage.
That we have together with Bosch, but we also have a strategic ability to adapt and act on short-term opportunities while building a long-term pipeline. So that is, I would say, the difference. But we also do that in order to safeguard our journey towards break-even, because that is really important short-term goal for us, and then, of course, defending our customers.
Okay, thanks. Could I have, could I ask you another question?
Yes.
Okay.
Okay.
Just regarding your current order backlog, could give us some more insight into that, and maybe how much is related to businesses that haven't been announced, that we don't really know anything about?
Well, the boring answer is that if we haven't announced it, I don't think that we will comment on it today either. We are looking into how do we communicate forecasts and order backlog, but we have not added that to this presentation yet. We will evaluate that going forward in 2024. We understand that we need to give you more guidance, forward guidance, and we will do that throughout this year. But since this one is the quarter four report for last year, we're remaining with the existing structure of information at the moment. But we enter into 2024 with a strong order than we ever had, which we should, because it's a growing market.
But the exact characteristic and structure of it is something that we need to come back to.
Mm-hmm. All right. Thank you.
It's a boring answer, I understand, but it... We will improve on that area.
Okay.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.
While we wait on more questions from online, we have questions issued here in the feed. From Roland, we have a question: "What is the progress with ZeroAvia and the large order and certification process?" The certification testing is ongoing. ZeroAvia completed the first phase of that certification testing in quarter three, conducting 10 test flights, passing with flying colors, no pun intended. And they're now entering into the next phase. So they are on track. If they are going to make the commercial introduction in 2025 or 2026, is something that ZeroAvia need to communicate, but we are seeing good activity in the area, and we're supporting them in a good way. So we have good, I would say good progress in that area.
Now, we have a question from, Nicholas about OEM customers, like-
The next question comes fromSofia von der Weid from Pareto Securities. Please go ahead.
Hi, thank you for taking my question. So my question is just around financial targets, but I'm assuming you don't really have any financial targets set yet, and or maybe you do, but you haven't communicated that to the public.
Yep, I, I think you answered our question, your own question. Of course, we have financial targets, and, and we're quite ambitious company. But, as we answered Henrik, since this call is about the quarter four, we're sticking with the, the previous way of just reporting what has happened and not giving you too much guidance on the forecast. We, we acknowledge the fact that we need to, to, add this to the, presentations going forward, and we will introduce that in the upcoming calls.
Understood. I guess my second question here, and I think it's gonna be a similar answer, but it's also around just kind of CapEx, how you see that evolving in upcoming years or in, let's say, in the upcoming two years? Because if I understand correctly, the partnership with Bosch like kind of alleviates a lot of the spending on equipment and just, because as you say, Bosch supports you in the mass manufacturing, so that really kind of allows you to focus on other areas. But do you see yourself moving more into mass production and then spending more, or is that something you're also going to communicate with time?
Mm-hmm. Thank you. I mean, that's a good question. And regarding CapEx the coming years, I mean, as you yourself points out, our collaboration and partnership with Bosch enable us to focus on the system assembly and the assembly or production of the fuel cell stacks that we can then source from Bosch. That's a CapEx-intense production, whereas we can now then source the fuel cell stacks from Bosch, and then we focus on the assembly. It's a lot of value creation in making the systems and also the steering mechanisms of the system, but it requires less CapEx.
So what we foresee in the coming years here, we can grow without any large amount of CapEx investments, and that could also go for increasing volumes in our facility in Gothenburg. But also if we do expand into any other geographical areas, we could without any major CapEx investments, we could set up similar assemblies and be close to our customers. So that's what we foresee in the near future.
Yeah, and, and this has been a very, conscious and structured way of approaching the, capacity and capability build-up of, of PowerCell, is that we have a very strong partnership with Bosch, which makes us, us quite asset light compared to, to, many other in the industry. And the potential expansion into new markets with, fuel cell system assembly is, as Torbjörn is saying, it is quite, inexpensive compared to the, the, central and mass production of the fuel cell stack. So we have optimized, our industrial footprint in, in that way. Then, of course, we might enter into a different phase in the market if we see growth or a potential to expand PowerCell beyond the existing footprint.
But otherwise, it's a fairly asset-light growth journey that we are on, which is also why we feel confident on the cash position of PowerCell and the ability to generate a positive result for the upcoming years.
Okay, thank you. I guess last question, sorry for taking up-
No, please.
-a lot of time. But, last question is just, do you have, do you have some sort of, just to understand, like some sort of breakdown in terms of like, how much does it actually cost to build, one of these systems? Just to understand, like also, you know, what's the- what are the cost components and how much, how much of that is actually Bosch taking on, Bosch, sorry, taking on?
Mm-hmm.
Yeah, so just more like the fuel cell and the stacks, like all those components.
Mm-hmm.
Is that something that you would disclose, just like from a cost perspective?
No. Of course, we have good... I mean, we know that, but that would be a fairly strategic information to share with the industry and our colleagues. So, no, we will not disclose that. But of course, one benefit of working closely with Bosch is that you get a really good follow-up on all different aspects of production, everything from cost to quality to traceability, et cetera. So together with Bosch, we have a very mature manufacturing process, which gives us a lot of transparency and clarity and understanding of what is building up the cost. So, we know that fully, but we are not going to share that to the market.
And I think just to add on your answer there, Richard, it's of course the different components and the cost of it and how to assemble it. But of course, also our systems is based on knowledge and capabilities that we have built up over time.
Yeah.
That's also sort of an indirect cost that have been taken and that is now being put into the way that we are assembling the systems and the steering mechanisms and software around it. That is very indirect then, but also part of where we have our position at the moment.
... Okay, yeah, makes sense. Thank you.
So, we have one question from Nicholas here, whether or not or how the OEM customers like Hitachi are important for our growth and the way we view the growth in the upcoming years is that we need to have the OEM customers. As I said before, it is about getting our product designed into an industrial system, because that gives us a stability from a sales perspective, that we get repetitive and recurring orders. But we also have a very clear value proposition together with the customer, and I think that we will see even more integrated solutions in the upcoming years because it is about simplifying the transition for the customers in the industrial system. Taking away some of the issues with handling hydrogen, the certification processes, et cetera. This is an emerging market, so knowledge out there is quite limited.
The more you can integrate solution, the higher the value creation and simplicity is for the end user. OEM is going to be a very important growth enabler for PowerCell. They're also coming with a skill set of the industry. They are a really strong market channel to any industry that we are serving, so that's also a benefit of working closely to the OEMs. They are demanding customers, so they make us much better.
I think we have another question here, that is: do you see that there will be service and aftermarket sales for you in the future? And I think we haven't elaborated too much on that in the report or now, but it's. I think we have been clear in the report regarding that, that we are now working with the delivery and the project to SEAM and also the two ferries in Norway that will run for Torghatten Nord, the Norwegian state. And on those, we have also said that we are now working with setting up a service agreement with them, and that is not really signed yet, but it's something that we foresee that we have going forward.
When we also, especially in major projects, towards the marine, that is something that comes up with potential customers from the very start to look at, okay, it will be an installation, but there will also be a need of having a service agreement and aftermarket sales to this. So this is something that we are preparing ourselves for, and also being a clear revenue stream going forward as well then, as our products are gonna be installed, and it's gonna be taken care of in a service and aftermarket sales.
See if we have any more online questions.
Yeah.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
There is an sista alors.
Mm-hmm. We have a question here that we mention a focus on cash flow, but if we don't reach the goals, the need for new capital will increase. What does your plan look like to secure capital for growth? And I think we were on to this, that we do foresee that we do have a leverage going forward and a potential of creating cash flow. We had a specific effect in Q4 then with a cut-off effect that worsened the cash flow for the fourth quarter. But going forward, we do see that there is no major need for CapEx investment that we've already commented on, and a potential to really grow with cash.
But with that said, I mean, going forward, if we do foresee that we get potential opportunities or, or potential potentials for growth in any other way, we might, of course, or we will be open to, to have capital injection in, in one way or another. And that could come through to a debt financing, or it could also be to equity sometime, but it will be to focus on growth or, or fetching any possible growth in a good way.
Mm-hmm. And as you pointed out, equity will be something that we are approaching if we have a potential to expand the footprint of PowerCell and making active, perhaps acquisition, et cetera. Otherwise, it's not an area that we're exploring. And concluding on the fourth quarter or the full year, reporting a 27% growth, I think will be in the industry fairly good. But from our perspective, we want to perform even better. We view ourselves as a fast-growing company in a technology shift. In every technology shift and innovative market, there will be fluctuations in both growth and demand. We view ourselves as a growing company, so 27% is something that we want to improve.
We also want to improve the leverage even more, to be able to provide a break even, to the shareholder and the market, because that's a commitment that we see very strong. With that said, I am happy with the ability of PowerCell to adapt to new market conditions, that we have a strategic agility to act on new opportunities, to be able to capture what is out there, and make sure that if one area of the market is slightly softer, we could expose ourselves to the more fast-growing and the long-term growing market.
So I am happy with the ability to capture what is out there, and also to continue to invest into new abilities that we are investing into the new generations of technology, where we have the medium-duty platform and heavy-duty platform that will go into industrialization in the upcoming years, even though we have what we think is industry-leading technology with the S3 Stack together with Robert Bosch in production. We are heavily investing into the new generations because this market is still an innovation-driven market. Being able to continue to provide more value, both with the technology portfolio and product portfolio, capturing specific adaptations to segments, will be a competitive advantage, and we are happy with the ability to do that and still have a leverage on the growth that we see.
So, not too happy with all of the numbers that we presented because we, we want to perform even better. But, in relation to the underlying market, I think that we have done a good job, and I look forward to an interesting 2024, where we will expand on our competitive advantage even more. So thank you very much for today, and see you in April for the quarter one report.