Q2 2022 (Q2 2021)

• Order intake decreased 91 per cent year-on-year to SEK 4 million (41). Impairment of previous orders had a negative impact on order intake
• Sales increased 33 per cent to SEK 163 million (123)
• Operating profit totalled SEK 45 million (-3), corresponding to 28 per cent (-2) of revenue
• Adjusted operating profit totalled SEK 45 million (12)
• Earnings after tax totalled SEK 35 million (-5)
• Earnings per share amounted to SEK 0.58 (-0.1)
• Cash flow from operating activities totalled SEK 58 million (-39)

Events during the second quarter of 2022

• On 29 June, Permascand announced a write-down of one order, which decreased the value of the order backlog by approximately SEK 63 million. The order, which was placed in 2018, will not be delivered. The delivery of the order was previously estimated for the second quarter of 2023, which implies that sales for the current calendar year will not be negatively affected.

CEO comment

In the second quarter of the year, we once again achieved record sales alongside high levels of customer activity. We are still benefiting from streamlining and scalability in our production, which resulted in a gross margin of 38 per cent during the quarter.

The value of incoming orders amounted to SEK 67 million, an increase of 63 per cent over the year-earlier period. After the write-down of one order during the quarter, net order intake totalled SEK 4 million. Customer activity levels are generally high in all of our business segments. At the same time, we can note that there was a certain amount of passivity among some customers in the quarter in terms of placing new orders.

Sales totalled SEK 163 million, up 33 per cent year-on-year and approximately 17 per cent stronger than the previous record-breaking quarter, Q1 2022. Strong sales were once again driven primarily by the Water Treatment business segment, where we continued to deliver on our strong order book. While the other segments accounted for a smaller portion of sales in the quarter, the trend has been positive and sales met expectations. 

The gross profit for the quarter totalled SEK 62 million, an increase of SEK 31 million over the year-earlier period. We are following our growth plan and managed to deliver good profitability thanks to our efficient and scalable production. 

In large portions of our projects, our strong buffer inventory of raw material and materials provide flexibility and stability, as volatile prices for materials and raw materials or unpredictable supply chains otherwise can lead to uncertainty.

In the end of the quarter, we decided to write down parts of one order, which entailed an approximately SEK 63 million decrease in the value of the order backlog. A change entailing the cancellation of a project for our customer meant that the order, originally placed in 2018, would not be delivered. As previously announced, the delivery of the order was previously estimated for the second quarter of 2023, which implies that sales for the current calendar year will not be negatively affected. Otherwise, the order book remains stable and other orders will be delivered as expected.

Electrification & Renewables
The activity level remained high and our assessment is that several companies in green hydrogen are accelerating their processes and moving projects ahead of schedule to reach commercialisation. 
Our partnership agreement with Verdagy is based on development where we work together to develop a new electrochemical cell for producing green hydrogen. Like several other partners, Verdagy is accelerating its investments, which can be seen in the form of an intensified level of activity where the next step is to ramp up the demonstration facilities so they reflect the production capacity required in a commercial environment. When our partners then receive commercial orders from their customers, we are ready to do our part and deliver components that make these projects possible.

Industrial Solutions 
We noticed that customer activity also remained high in this segment and we expect it to begin to transition into major orders in autumn 2022. One of the high points of the quarter was an order for continued capacity expansion, which we expect to deliver before the end of the year. In addition to the expansion, demand is strong in maintenance of industrial facilities, where Permascand continuously supports customers in maximising production performance and efficiency. There are currently no signals that demand will slow down in this segment.

Water Treatment
Sales in the Water Treatment segment accounted for the majority of the company’s sales in the quarter. We broke a new sales record in a single quarter. Increased costs and falling prices for shipping, signs of a challenging global market, impact ship owners and put pressure on treatment equipment suppliers. At the same time, negotiations intensified concerning volumes and prices, indicating that there is uncertainty among our end customers. 
Furthermore, we see an opening in new use areas. For example, we have now received our first order in the water treatment segment within industry and public water distribution, where our electrochemical methods are effective. Growing regulatory requirements and expectations regarding sustainability mean that companies around the world are increasingly demanding efficient methods for treating water in these areas as well. This means that we can offer the same kind of technology we use for ballast water in new use areas in a growing end market.

Outlook
We are closing out the first half of the year with record sales and good earnings, while we also foresee continued high customer activity levels for the rest of 2022 that are expected to result in new orders. However, we can note that the global market has grown more difficult during the quarter, with increased caution among customers as a result. Thus, it is relatively more difficult to predict the market situation beyond the end of the year. Nonetheless, there are no signs that the global green transition will slow down – the reverse, in fact – and we are convinced that the companies that can enable this transition will benefit. Permascand is one of those companies. With strong financial earnings behind us and several exciting customer projects on the activity list, we look forward to continued strong development at the company during the second half of 2022.

Peter Lundström, CEO Permascand

Report presentation
CEO Peter Lundström and CFO Linda Ekman will present the report in a conference call today 18 August at 11:00 CEST. The presentation will be held in English and will conclude with a Q&A session.

Webcast
https://tv.streamfabriken.com/permascand-top-holding-q2-2022

Phone number
To participate via telephone please dial-in on the numbers below.
SE: +46-8-5051-6386
UK: +44-20-319-84884
US: +1-412-317-6300, Pin code: 2717689#

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

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.