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Q3 2021: Solid foundation for strong growth in 2022

Interim report January-September 2021

Third quarter 2021 (Q3 2020)

  • Order intake decreased 11 percent, totaling SEK 203 million (228)
  • Sales decreased 32 percent, totaling SEK 76 million (111)
  • Operating profit totaled SEK 14 million (21), corresponding to 18 percent (19) of revenue
  • Adjusted operating profit totaled SEK 14 million (21)
  • Earnings after tax totaled SEK 10 million (13)
  • Earnings per share before and after dilution amounted to SEK 0.18 (0.26)
  • Cash flow from operating activities totaled SEK 32 million (-16)

Jan–Sep 2021 (Jan–Sep 2020)

  • Order intake decreased 22 percent, totaling SEK 302 million (389)
  • Sales decreased 8 percent, totaling SEK 274 million (297)
  • Operating profit totaled SEK 8 million (38), corresponding to 3 percent (13) of revenue
  • Adjusted operating profit totaled SEK 28 million (38)
  • Earnings after tax totaled SEK 0 million (20)
  • Earnings per share before and after dilution amounted to SEK -0.01 per share (0.39).
  • Cash flow from operating activities totaled SEK -21 million (21)

Events during the third quarter of 2021

  • On July 2, 2021, Permascand announced that the oversubscription option that the principal owners had issued in conjunction with the company’s listing on Nasdaq First North Growth Market had been partially exercised. In conjunction with this announcement, the stabilization period was concluded.
  • During the quarter, Permascand took the next step with the customer Verdagy and signed a collaboration agreement. The agreement is a continuation of the letter of intent that was signed between the companies in June 2021 and will accelerate commercialization of the electrochemical cell that is the cornerstone of Verdagy’s technology for green hydrogen water electrolysis (the VWE process).
  • On September 30, Permascand announced that the company had received an order of approximately EUR 17.5 million from its largest customer for delivery of electrochemical cells for ballast water treatments systems (BWTS) starting in 2022.

CEO comment: Solid foundation for strong growth in 2022

The third quarter of 2021 was marked by a good level of activity with many customer inquiries in all segments. The lower sales level in the quarter compared with the corresponding period last year is a result of lower order intake earlier in the year, mainly within Water Treatment, due Covid-19. The lower order intake is a result of the pandemic, higher prices for raw materials and supplies as well as supply chain disruptions. However, this lower sales rate had a positive effect in that we are now even better prepared for future growth, and we see that the investments and strategic initiatives that we have carried out to date have generated more efficient processes and working methods. This has had a positive impact on gross profit, which totaled SEK 27 million during the quarter, corresponding to a margin of 35 percent – the highest gross margin ever for Permascand.

Permascand offers customized solutions that are crucial for maximizing performance and durability. On average, we spend four to five years – in dialogue with the customer – to produce, test and adapt our products before the customer submits a final order. Activity levels in this area remained high during the quarter. We are receiving an increasing number of inquiries from potential customers who are looking to initiate partnerships and evaluation procedures together with us, which speaks to strong underlying demand. Despite the continued growth in underlying demand, we still felt the impact of the negative effects of the pandemic during the quarter. On the one hand, this concerned materials supply and generated longer turnaround times than normal – which we successfully offset through existing inventory – and higher prices for raw materials and supplies on the other. The result is that customers have become more hesitant in their investment decision and more cautious in their choice of projects, which we are seeing in the form of a temporary decrease in sales, since part of the deliveries we had relied on were postponed.

In the third quarter, we signed a large and important order in Water Treatment, which indicates that the market in the segment is well on its way toward picking up momentum again. We have also noticed a steady positive trend in our Industrial Solutions and Electrification & Renewables business segments.

Demand in Industrial Solutions remains stable, generating interesting projects. We are also seeing an expanded market, with new Greenfields projects under way. This both generates sales now, and opens the way to new aftermarket opportunities. The framework agreement that was signed during the quarter with one of the leading global players in the chlorine hydroxide and sodium hydroxide market has provided us with a strategically important position for growth in the North American market.

In Electrification & Renewables, there is significant interest in development of cells and production methods, where Permascand can capture a strong position in the continued development of the electrochemical cells that are a crucial part of the technology. During the quarter, we also took the next step in our successful partnership with Verdagy. The prototypes have now been created, and the next step is to produce test cells for test runs and, ultimately, commercialization in an even larger testing facility.

Operationally, the third quarter was reminiscent of the preceding quarter, which was also filled with new partnerships and customer projects. We continue to work with a long-term perspective, and have already seen our efforts begin to pay off despite the slower growth phase. We have extremely robust resources in research and development, and our efforts at a full-scale technology and innovation center in green hydrogen are progressing in accordance with plans. This will strengthen our position and potential for delivering innovative, competitive electrochemical and manufacturing solutions to this rapidly growing global market.

To sum up, the third quarter was a stable one with a healthy level of activity and operational progress despite a challenging market situation. The demand situation at the end of the third quarter was a positive one. We enter the final quarter of the year with a historically strong order book, and we expect that demand will gradually increase. We now have a firm basis for accelerating in pace with the market for the global green energy transition.

Peter Lundström, CEO

Link to report
The interim report is attached to this announcement and can be found at: https://permascand.com/investors/financial-reports/

Permascand signs a Master Supply Agreement with major U.S. based client

Permascand has signed a Master Supply Agreement with one of the largest global players in the chlorine and caustic soda market to deliver electrodes and electrochemical cells for the client’s chloralkali and diaphragm technology. The estimated value of the agreement is in the range of SEK 30-50 million per year for a period of three years.

Within the business segment Industrial Solutions, Permascand is committed to develop electrochemical solutions for industries to increase the efficiency of its client’s production. The client that Permascand now has entered into a Master Supply Agreement with, is a global leading manufacturer of chlorine, caustic soda, caustic potash (potassium hydroxide), calcium chloride, sodium chlorite and polyvinyl chloride resins. During 2020, approximately SEK 15 million of Permascands net sales were attributable to ad-hoc orders from the client (i.e., 3.6 percent).

“We are very pleased to continue this well-established business relationship with a major U.S. based client within chloralkali, diaphragm technology. Together we strive to reduce the impact of our environmental footprint by creating and bring innovative sustainable solutions to the industry market. This is according to our growth plan with focus on the North American market and contributes to the global green transition”, says Peter Lundström, CEO at Permascand.

The agreement is valid for three years and shall, unless terminated by a party, be renewed for two more years, a total of five years.

Permascand receives order of EUR 17.5 million from its largest client

Permascand has received an order from its largest client, one of the major global players in the ballast water treatment system (BWTS) arena, for the supply of ballast water disinfection cells, confirming a continued partnership and further cementing Permascands position as one of the world leaders in the provision of ballast water treatment cells. The order will be included as order intake for the third quarter of 2021 and is worth EUR 17,5 million, with planned deliveries beginning 2022.

The discharge of untreated ballast water from ships can have a negative impact on the marine environment and is now strictly governed through a number of globally enforceable regulations. Permascand’s electrochlorination cells used to treat ships ballast water and other water purification applications, play a key part of increased sustainability within the field by preventing the spread of invasive aquatic species.

“We are happy to receive this order and to continue this well-established partnership with one of our major clients, it is of great value and is aligned with the green transition and future growth. It represents yet another significant step towards becoming the leading independent global supplier of electrochemical solutions for clean tech applications in green technologies.”, says Peter Lundström CEO at Permascand.

During the 2020 financial year, 61 percent of Permascand’s net sales were attributable to orders from the client. The client was established by a team of experts with a strong background and solid knowledge in waste and water treatment technology for marine applications. Driven by the needs of shipowners and stricter environmental protection legislation, the company started designing and manufacturing innovative BWTS. Today, the company holds a strong position in the global market for BWTS.

Q2: Continued profitable growth during an intense first half-year

Interim report January-June 2021

Second quarter 2021 (Q2 2020)

  • Order intake decreased 27 percent, totaling SEK 41 million (57)
  • Sales increased 57 percent to SEK 123 million (78)
  • Operating loss totaled SEK -3 million (1), corresponding to -2 percent (1) of revenue
  • Adjusted operating profit totaled SEK 12 million (1)
  • Earnings after tax totaled SEK -5 million (-3)
  • Earnings per share before and after dilution amounted to SEK -0.1 (-0.06)
  • Cash flow from operating activities totaled SEK -39 million (10)

January-June 2021 (January-June 2020)

  • Order intake decreased 39 percent, totaling SEK 98 million (161)
  • Sales increased 7 percent to SEK 198 million (186)
  • Operating loss totaled SEK -6 million (17), corresponding to -3 percent (9) of revenue
  • Adjusted operating profit totaled SEK 14 million (17)
  • Earnings after tax totaled SEK -11 million (6)
  • Earnings per share before and after dilution amounted to SEK -0.21 (0.13)
  • Cash flow from operating activities totaled SEK -53 million (37)

Events during the second quarter of 2021

  • On April 1, 2021, Permascand announced a comprehensive innovation effort to conduct advanced research and development to enable large-scale and cost-effective production of green hydrogen for energy storage. In total, the company plans investments of around SEK 300 million over the next three years in a full-scale technology and innovation center and investments in the company’s research team.
  • On May 18, 2021, Permascand announced its intention to list the company’s shares on the Nasdaq First North Premier Growth Market. The offering and prospectus were published on May 27, 2021, and the first day of trading in Permascand’s shares took place on June 4, 2021.
  • On June 15, 2021, Permascand announced that the company had signed a letter of intent (LOI) with Verdagy for the joint development of a new electrochemical cell for the production of green hydrogen.

CEO comment: Continued profitable growth during an intense first half-year

We have now closed the books on an eventful first half of 2021, a period characterized with several new collaboration agreements, exciting customer projects and the listing on Nasdaq First North Premier Growth Market. After an intensive period during the listing process, we had the pleasure of ringing the listing bell on June 4, thereby welcoming over 2 300 new shareholders to Permascand. The listing is an important step in our continued journey of growth, in which we will continue to deliver profitable growth by capitalizing on rapidly growing markets being driven by megatrends in sustainability and the environment.

Customer demand has continued to recover from the waves of the pandemic that occurred in 2020 and early 2021, and is expected to increase as government authorities ease the restrictions linked to the pandemic. The order intake reflects the dynamic of the industry and decreased as expected, by 27 percent to SEK 41 million. Sales during the second quarter of 2021 increased by 57 percent to SEK 123 million, driven by generally increased demand for our products, primarily in Industrial Solutions and Electrification & Renewables. With a strong order backlog and a flexible approach, we delivered positive adjusted operating profit of SEK 12 million during the quarter, compared with SEK 1 million in the year-earlier period.

Through increased ambitions in green hydrogen – a sub segment to Electrification & Renewables – we are accelerating our efforts in the business area, where Permascand has a great deal of experience in delivering hydrogen electrodes to the hydrogen market. During the quarter, our primary focus was on launching the largest innovation investment in the company’s history. By constructing a full-scale technology and innovation center and through investments in the company’s research team, Permascand will pursue advanced research and development to facilitate large-scale, cost-efficient production of green hydrogen for energy storage, where we hold a unique position. The plan is to launch the technology and innovation center in 2022. In total, we are planning to invest around SEK 300 million over the next three years, and our focus going forward will be to gather the resources and skills needed to develop the next generation of hydrogen electrodes and electrolyzers.

We see a major opportunity in the market for green hydrogen produced via electrolysis, a market in which Permascand has delivered electrodes for electrolysis for over 20 years. Permascand has its greatest potential in green hydrogen, and our long-term ambition is to position ourselves as one of the leading independent suppliers of catalytic coatings, electrodes and electrochemical cells in the field.

In Industrial Solutions, awareness is growing about the climate benefits generated by using dimensionally stable anodes (Permascand DSA® – catalytic coatings on a titanium substrate), which is driving demand in the segment. Our long experience and know-how means we can deliver successful concepts and smart technology adapted to each specific customer. We are now in dialogue with customers in Industrial Solutions regarding other environmental applications outside the segment, in which players such as Chemetry have several exciting projects in their pipelines where Permascand can play a key role in the value chain. One example is the letter of intent with Verdagy, a spin-out from Chemetry, which was signed in the second quarter and attributable to the Electrification & Renewables segment. The partnership with Verdagy builds further on the successful partnership between Permascand and Chemetry for the commercialization of electrochemical cells for Chemetry’s eShuttle® technology, and relates to joint development of a new electrochemical cell for the production of green hydrogen.

COVID-19 continued to impact our customers in Water Treatment during the quarter. Port and border closures and deferments granted by regulatory agencies as a result of the pandemic, in combination with historically high raw materials prices, are expected to continue to dampen growth in the business area over the short term. The need for systems that can efficiently purify ballast water remains, and we believe that market conditions beyond the pandemic remain basically unchanged. We have a strong order book in Water Treatment, and are looking forward to the deliveries ahead of us in the coming quarters.

Using a flexible approach, we have continued to adapt our operations and our working methods to the new reality. This will lead to continual productivity increases in many parts of our operations after COVID-19 as well. Despite a market performance that is difficult to assess from a short-term perspective, we are well positioned to capture additional market shares, strengthen our profitability and increase our lead over our competitors. Permascand is stronger than ever, and we look forward to restrictions being eased and to life returning to normal as soon as possible. I would like to take this opportunity to welcome all our new shareholders and to thank all our employees, suppliers and partners for their hard work during this highly eventful first half of 2021.

Exercise of overallotment option and end of stabilization period

ABG Sundal Collier AB ("ABG"), in its capacity as Joint Global Coordinator and stabilization manager, notifies that the overallotment option in connection with Permascand Top Holding AB's (publ) offering of shares prior to the listing on Nasdaq First North Premier Growth Market (the "Offering") has been partly exercised. A total of 2,107,900 shares were exercised of the overallotment option. The stabilisation period has now ended and no further stabilisation measures will be conducted.

As announced in connection with the Offering, ABG has had the option, acting as Joint Global Coordinator and stabilisation manager, to carry out transactions aimed at supporting the market price of the shares at levels above those which might otherwise have prevailed in the market. Stabilisation transactions could have been undertaken on Nasdaq First North Premier Growth Market, in the over-the-counter market or otherwise, at any time during the period from the date of commencement of trading in the shares on Nasdaq First North Premier Growth Market, 4 June 2021, and ending no later than 30 calendar days thereafter. However, ABG had no obligation to undertake any stabilisation measures. Transactions have not been permitted to be conducted at a price higher than set out in the Offering, i.e. SEK 34.

The Main Shareholder[1] of the Company granted ABG an over-allotment option which could have been utilised in whole or in part for 30 days from the first day of trading of the Company's shares on Nasdaq First North Premier Growth Market to be able to sell up to 2,229,094 shares corresponding to up to 15 percent of the total number of shares in the Offering to cover any over-allotment in connection with the Offering.

ABG now notifies that the over-allotment option has been exercised corresponding to 2,107,900 shares. Thus, the remaining part of the over-allotment option that was not exercised, corresponding to 121,194 shares, will be returned to the Main Shareholder.

The stabilisation period in the Offering has now ended and no further stabilisation transactions will be conducted. ABG announces, in its capacity as Joint Global Coordinator and stabilisation manager, that stabilisation measures have been undertaken in accordance with article 5(4) in the EU Market Abuse Regulation 596/2014 (MAR) and the Commission Delegated Regulation (EU) 2016/1052 as specified below.

The contact person at ABG is Erik Skog (tel: +46 8 566 29 471, e-mail: erik.skog@abgsc.se).

Stabilisation information:
Issuer: Permascand Top Holding AB (publ)
Securities: Ordinary shares (ISIN: SE0015962048)
Offering size: 14,860,627 shares
Offer price: 34 SEK
Ticker: PSCAND
Stabilisation manager: ABG Sundal Collier AB
Stabilisation transactions:
Date Quantity, shares Price (highest) Price (lowest) Price (volume weighted average) Currency Trading venue
4 June 2021 121,194 34.00 34.00 34.00 SEK Nasdaq First North Premier Growth Market (SSME)

[1] Norvestor VI, L.P.

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