Interim report January-September 2022
Q3 2022 (Q3 2021)

• Order intake decreased 30 per cent year-on-year to SEK 143 million (203)
• Sales increased 57 per cent to SEK 120 million (76)
• Operating profit totalled SEK 11 million (14), corresponding to 11 per cent (18) of revenue
• Adjusted operating profit totalled SEK 6 million (14)
• Profit after tax totalled SEK 8 million (10)
• Earnings per share amounted to SEK 0.13 (0.18)
• Cash flow from operating activities totalled SEK 39 million (32)

Events during the third quarter of 2022
On 23 September, Permascand announced that the partnership with Verdagy for the joint development of a new electrochemical cell for the production of green hydrogen had reached an important milestone in the form of successful pilot tests that validate the technology’s durability and scalability.

CEO comment

We once again posted robust sales in the third quarter, delivering on our strong order book. It is gratifying to see that in just the first three quarters of 2022, our sales have already surpassed full-year 2021. This is further proof that we are continuing to deliver according to our growth ambition.

Order intake for the quarter totalled SEK 143 million. Despite lower order intake than in the year-earlier quarter, order intake is one of the strongest we have recorded in a quarter, and our order intake for the January to September period was greater than in the corresponding year-earlier period. We are pleased to see that order intake once again picked up speed after the lower level in the second quarter. An important reason for this is falling prices in the global market for materials and raw materials. The year-earlier quarter was an exceptional period, where the entire annual order intake from one of our largest customers was concentrated in one and the same quarter.

Sales totalled SEK 120 million during the quarter, up 57 per cent year-on-year. Sales were primarily driven by sales in Water Treatment, where we successfully delivered on our order book, primarily derived from the strong order intake in Q3 2021 and on an ongoing basis in 2022. Industrial Solutions also performed favourably while sales in Electrification & Renewables were in line with the year-earlier quarter.

The recent turmoil in the global market has led to a shift in market dynamics meaning that the time between order intake and delivery has become shorter. Now our customers place several smaller orders rather than fewer large ones, which can sometimes entail variations that result in misleading comparative quarterly figures. Permascand’s performance should be viewed in the context of longer cycles. There it is clear that we are demonstrating a positive trend over time.

Gross profit for the quarter totalled SEK 26 million. Changes in capacity utilization have temporarily affected the result and reported gross margin negatively. The gross margin in the quarter was also negatively impacted by increased pricing pressure in Water Treatment.
 
Furthermore, during the quarter we encountered some operational challenges that disrupted our normally efficient operations and production. These included delayed deliveries of spare parts for machinery, employee absenteeism and disruptions to the power supply from a failing switchyard. Increased costs resulting from the interruptions have, to a certain extent, been reflected in the somewhat lower profitability for the quarter. Despite these challenges, we delivered solid figures and profitable growth and we are continuously reviewing our processes to further strengthen our supply chain and create better stability and resilience against long lead times and volatile prices.

Electrification & Renewables
The level of activity remains high and new milestones are continuously being reached. One of these is our partnership with Verdagy, where we successfully worked together to develop a new electrochemical cell for producing green hydrogen. During the quarter, we could announce successful pilot tests that validated the technology’s durability and scalability, which is a precondition for taking the next step and reaching a commercial scale. We look forward to the first commercial order in hydrogen, which is expected to come in 2023. In the area of power transmission, we are seeing increased interest in our expertise in corrosion protection related to investments in green electricity supply.
 
Industrial Solutions 
In line with previous assessments, the activity level and demand remained high in Industrial Solutions, with a strong order intake and sales for the quarter as a result. We have a strong order book in the segment and several future new-build projects are being evaluated.
 
Water Treatment
We once again reported favourable order intake and strong sales in Water Treatment for the quarter, in parallel with the start of several new customer projects. We have an overall strong position in the market together with our customers, enabling us to continue to capitalise on the installations required in order for marine transport to meet regulatory requirements. It is also gratifying that we delivered our first order for industrial water treatment during the quarter.
 
Outlook
We are still experiencing a high level of activity among our customers and we have great expectations that ongoing projects will lead to order placements towards the end of the year and in the beginning of 2023. In line with the previous year, we expect stronger order intake in the fourth quarter for delivery next year, and negotiations involving several customer projects are in their final stage. With an impressive sales record on an annualised basis, robust order books and strong finances, we are continuing to develop on our profitable journey of growth and achieving our financial targets as we progress.

Peter Lundström, CEO Permascand

Report presentation
CEO Peter Lundström and CFO Linda Ekman will present the report in a conference call today 11 November at 10:30 CET. The presentation will be held in English and will conclude with a Q&A session.

Webcast
https://ir.financialhearings.com/permascand-top-holding-q3-2022

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: 9111060#

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

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/