Azelio interim report after the third quarter 2022

Group financial development
Q3: July – September 2022

• Net sales amounted to kSEK 105 (391)
• Operating profit/loss amounted to kSEK -112,878 (-91,228) after depreciation and amortisation of kSEK -44,295 (-35,663)
• Earnings per share before and after dilution totalled SEK -0.98 (-0.79)
• Profit/loss for the period amounted to kSEK -113,738 (-91,604)
• Cash flow for the period amounted to kSEK -127,339 (-96,856)

First nine months: January – September 2022

• Net sales amounted to kSEK 654 (1,118)
• Operating profit/loss amounted to kSEK -379,020 (-255,900) after depreciation and amortisation of kSEK -127,104 (-73,431)
• Earnings per share before and after dilution totalled SEK -3.29 (-2.29)
• Profit/loss for the period amounted to kSEK -381,532 (-256,953)
• Cash flow for the period amounted to kSEK -422,290 (285,046)
• Cash and bank balances amounted to kSEK 81,153 (503,388)
• Equity per share SEK 5.41 (8.70)

Significant events

Quarter 3: July – September 2022

• On September 15, Azelio's Board of Directors announced its intention to resolve on a fully guaranteed rights issue of units, consisting of new shares and warrants, of approximately SEK 300 million. This was decided on 23 September and the prospectus was published on 28 September.

After the end of the period

• An update of the status of the project with Engazaat in Egypt was communicated on October 10 due to Engazaat securing its share of the project financing.
• On October 19, the outcome of the rights issue was published. The Rights Issue provided Azelio with approximately SEK 250 million after deduction of costs related to the Rights Issue. Through the Rights Issue, the number of shares in Azelio increased by 202,785,065, from 115,877,180 to 318,662,245.

Other events

Quarter 3: July – September 2022

• On July 11, Azelio announced that negotiations with the unions regarding the notice announced on June 9 have ended.
• The plant at Haneberg farm in Sweden was commissioned and put in operation in August. The project, which was co-financed by the Swedish Energy Agency, aimed to demonstrate the simultaneous use of electricity and heat.
• In August, the US passed the Inflation Reduction Act, which includes significant investments in the energy and climate area, which can be expected to further increase demand for Azelio's products
• A collaboration between Azelio and Elum Energy on the control of energy production plants including Azelio's energy storage system was communicated on 6 September.
• The facility at Industrisupport i Åmål AB was commissioned and put in operation on 23 September. This is the first facility where the CE certification is in place.

After the end of the period

• In October, the International Energy Agency (IEA) published its World Energy Outlook 2022, which, among other things, insists that the world has not invested enough in the energy sector, which has made energy systems much more vulnerable to such events that occurred in 2022 – and that a smooth and secure energy transition will require a sharp increase in investment flows within clean energy.
• Azelio published two white papers – one on cluster auto control for its energy storage system, and one on the Combined Heat & Power (CHP) solution.
• The SAVE Cleantech Utilities alliance, a joint cooperation between Azelio, Engazaat and Mascara NT was launched to offer “Water-and-Energy-as-A-Service” for agricultural needs in off-grid desert locations.
• COP27 in Sharm El-Sheikh, Egypt, took place in November. Alongside industry leaders and government agencies, Azelio was a partner in the Swedish pavilion, hosted by Business Sweden. Azelio’s CEO, Jonas Wallmander, and other company representatives participated in multiple panel discussions and events with prominent parties.
• LDES Council and McKinsey & Company released a new report, ‘Net-zero heat – Long Duration Energy Storage to accelerate energy system decarbonization’, about long-duration energy storage and heat. The business case with co-generation (CHP) came out very favorably in the report – an application that the Azelio system offers.

Comments from the CEO

Foundation in place

It is with great confidence that I can state that the foundation is now in place for the transformed Azelio. We have updated our goals and then reviewed and adapted our organization and cost structure. The rights issue, completed in October, added approximately SEK 250 million to Azelio after transaction costs. This means that we can now continue the work of establishing the product on the market.

Transformation and focus make a difference

The strategic review that began when I took over as CEO this spring is now at the finish line. The new goals, and a sharper focus on the prioritized activities, are implemented in all plans. The adaptation of the workforce has been completed, and our costs follow the expected development to reach the planned cost reductions of SEK 150 million on an annual basis. In terms of cash flow, the fourth quarter 2022 and the first quarter 2023 will be affected by payments for previously ordered materials, while ongoing costs are expected to continue to decrease as planned.
The sharpened focus also makes an obvious difference in our marketing and sales work. The appointments of local Regional managers in the initial target markets MENA, southern Africa, Australia and the USA, have resulted in new and improved project opportunities with higher quality. This presence makes it possible to build strong customer relationships, thanks to local knowledge and networks.

Continued establishment on the market

The journey towards establishing our energy storage system on the market takes place in stages, from demonstration and verification installations, via a handful of smaller commercial reference projects, and from there an upscaling in size from 2023. We are currently in the phase of establishing the smaller commercial reference projects, and in the transition towards medium-sized projects that in 2023 are expected to gradually grow in size to between 0.5 MW and 5 MW.
For the current status I am pleased to report that the TES.POD unit that was delivered and installed in 2021 to supply the visitor centre at the Noor Energy 1 project in Dubai with electricity is operational.
The facility at WeeBee in South Africa, which generates great interest in the region, has been commissioned and is now in a start-up phase.
Our partnership with Engazaat took another significant step with the announcement of the SAVE Cleantech Utilities alliance, where also Mascara NT is an important member. The first project in the Moghra oasis in Egypt together with Engazaat and Mascara NT is in the development phase, financing and planning are being finalised, and we expect to be able to start deliveries to the project this year.
The project with Handi Stop in the US is progressing according to plan. The units at Handi Stop will be part of the adaptation and verification project for the US market that is being performed together with MMR and are planned to be delivered in December for adaptation at MMR before being installed at Handi Stop. Once verification and certification according to U.S. rules and standards are in place, the TES.PODs are expected to become operational in the second half of 2023.
The project with Masdar in Abu Dhabi continues to be in operation.
In Australia, work continues to secure an order.
In addition to the projects in our target markets, we also have the facility at Industrisupport i Åmål AB, Sweden, in operation, where we have the CE certification in place for the first time.
The goal of having delivered to the commercial reference projects that build the foundation for the next phase by the end of the year seems to me to be well placed to be achieved.
I expect that in 2023 we will make continued market investments in the first projects, which we have accounted for in the capital raise and budget. Thereafter, in 2023, we expect to gradually be able to transition to Azelio's long-term business model – direct sales as a technology supplier.
As a result of inflation and increased material prices, we will raise the price for our system, in line with general market developments.

Poised to take advantage of the opportunities

Global developments keep strengthening the case for clean, affordable, independent, scalable, around-the-clock energy systems. My conviction of this was further strengthened by all the meetings and discussions I had during COP27 in Sharm El-Sheikh. With a unique product, a clear and growing need for our solution, a well-adapted organization and cost structure, and fresh financing secured, I look forward to continuing our focused work together with my competent employees to establish our TES.POD as an important part of future clean energy systems globally, and Azelio as a key player and enabler for the climate transition work. The conditions are in place – we will take advantage of them.

Jonas Wallmander, CEO

The full report is available as an attachment to this release and can also be found on the company website at the following link: https://www.azelio.com/investors/financial-reports-presentations/