Klimator AB (publ) Interim Report 2, April – June 2023

Second quarter April 1 – June 30, 2023

Group

• Operating income amounted to SEK 5,331K (SEK 3,931K)
• Operating profit amounted to SEK -6,057K (SEK -8,510K)
• Net profit after income taxes amounted to SEK -6,273K (SEK -8,524K)
• Net profit per share after income taxes amounted to SEK -0.22 (SEK -0.60)

      (Amounts within parentheses refer to the corresponding figures for the same period the prior year)

The first half-year January 1 - June 30, 2023

Group

• Operating revenue amounted to SEK 12,851K (9,525K).
• Operating profit amounted to SEK -11,624K (-14,562K).
• Net income amounted to SEK -12,099K (-14,656K).
• Earnings per share after tax amounted to SEK -0.42 (SEK -1.02).
• Cash flow from operating activities amounted to SEK -13,485K (-10,251K).
• Number of shares as of June 30, 2023, amounted to SEK 28,824,751 (14,246,262).

Material events during the first six months

• In January, Klimator becomes one of eight participants in MobilityXlab Batch 10. The program means that Klimator will work on creating future mobility solutions together with MobilityXlab's industry partners CEVT, Ericsson, Polestar, Veoneer, Volvo Cars, Volvo Group, and Zenseact.

• In January, Klimator receives an order for the AHEAD sensor technology from a leading Japanese vehicle manufacturer. The order comes from an existing customer who now wants to continue the collaboration with Klimator after a successful evaluation project. The purpose of the contract is to integrate the technology into the vehicle manufacturer's development vehicles for motion control and driver assistance functions. The order value amounts to the equivalent of approximately SEK 800K.

• In March, the company carried out a directed rights issue of SEK 5,800K to a new strategic investor.

• In April, Klimator launches a camera function on its IoT Road Weather Stations. The product has been developed at the company's development department in Odense, Denmark, where Klimator has its foremost experts in IoT solutions.

• In April, Kelių Priežiūra and Klimator sign a partnership agreement for dynamic winter road maintenance concepts towards the Baltic countries. The agreement includes services and products from Klimator's product portfolio such as Road Status Information (RSI) in combination with the IoT based road weather stations.

• In April, Klimator signs an agreement with another municipality in Denmark on smart winter road maintenance. The total order value for a three-year period is approx. SEK 850K.

• In April, Mitsubishi Electric Automotive America (MEAA) unveils its 2023 flagship and demonstration vehicle, which includes the latest technology innovations. One of these is Klimator's solutions for predictive and detective information about road weather conditions.

• In May, Klimator signed a contract with one of the largest municipalities in Denmark for a complete set of road weather stations and monitoring software for making call-out decisions on roads and bicycle lanes. The total order value for the first year is approx. SEK 600K.
• In May, the board approved a cost reduction program of SEK 8-9 million on an annual basis due to the slower-than-expected development of the "Automotive" sector market. The company considers "Automotive" to remain an important market for Klimator AB, but revenue from this market will be generated further down the line. The board also decided on a change of CEO, appointing Emil Danielsson, previously in charge of the winter road maintenance business area, as the new CEO.
   
• In May, Klimator signs a five-year agreement with one of Norway's leading entrepreneurs in the winter industry. The deal is initially valued at SEK 1.1 million and includes the delivery of Klimator's decision support system Road Status Information (RSI), along with the Nordic region's leading IoT-based road weather station.

Material events after the end of the period

Nothing to report after the end of the period

Comment from the CEO

Market growth with more customers and business, introduction of new products for winter road maintenance, and launch of a cost-saving program. These are the main headlines for this second quarterly report.

Through new business agreements, Klimator is reinforcing its market-leading position in Norway, Denmark, and Sweden. Among the new deals, Veidekke (the second-largest road maintenance company in Norway), Malmö City, and one of Denmark's largest municipalities with a special focus on bicycle lanes stand out. Klimator is also securing its initial contracts in the United Kingdom for winter maintenance, providing IoT weather stations.

Although Klimator is currently undergoing a transition with a focus on profitability, our offerings remain robust. The Winter Maintenance business is impacted by significant inflationary pressure, leading to increased costs for salt, diesel, and personnel. This necessitates both private and public entities to vigorously streamline operations and implement cost-saving measures within their respective domains. Those who have not embarked on their digitalization journey with a high degree of automation will be compelled to adopt new solutions within a few years. Here, Klimator presents a clear and proven proposition, with our strongest markets in Norway, Sweden, and Denmark setting new standards for future road winter maintenance.

It's also gratifying to observe the progress in the Automotive business area, where primarily Mitsubishi Electric Automotive Americas showcases the appearance and functionality of future road slipperiness safety systems. High-resolution road condition forecasts play an important role here, in combination with the vehicle's own sensor and measured data. Driver assistance with a high level of automation to prevent accidents related to slipperiness is becoming an increasingly prioritized issue for the automotive industry and for leading organizations like Clepa and EuroNcap. Here Klimator's solution with Road Condition Data (RCD) holds a distinct position, and our market dialogues with the automotive sector are continuously deepening.

Beyond the continual improvement of our software and climate forecasting models, we've launched a range of new products in Q2. Primarily within the Winter Maintenance business area, where the demand for new automation functionalities is growing. The development of our IoT-based technology for Klimator's Road Weather Station includes features such as road condition cameras, measurement of remaining salt quantities on the road, and traffic volume tracking. All these functions are highly relevant for an even more high-resolution forecast and to support individual decision-makers.

In May, the Klimator board made the decision to implement a cost and efficiency program as a consequence of weaker-than-expected performance within the Automotive business area. In the latter part of Q2, the management team analyzed and took action, adjusting the number of employees and conducting a thorough review and execution of cost reductions pertaining to the company's operations in Sweden and Denmark.

As the newly appointed CEO, I am immensely proud and honored to lead Klimator into the next phase. Klimator's paramount core value is together. To me, this entails being receptive and curious about our customers' current challenges and needs, and how our innovative culture discovers new resilient paths to develop both the winter maintenance and the automotive industry.

In conclusion, I can ascertain that Klimator significantly increased its revenues in the second quarter of 2023 compared to 2022, while simultaneously reducing the company's costs. This is a trend that I anticipate will continue in the upcoming quarters.

Emil Danielsson
CEO Klimator AB(publ)

About Klimator

History

Klimator is a Swedish software company that was founded in 2001 by Torbjörn Gustafsson and Jörgen Bogren. The founders have over 30 years of research experience in applied road climatology at the University of Gothenburg. Klimator’s technology is based on years of academic research into road weather conditions. In 2020, the company acquired HedeDanmark’s connected sensors (IoT) business to expand and strengthen Klimator’s product portfolio.

Business areas

To serve the market segments and customer groups addressed, Klimator’s activities are organized into two distinct business areas:

• Business Area Winter Maintenance
• Business Area Automotive

In the Winter Maintenance business area, the company offers a web-based software application, Road Status Information (RSI), based on the company’s Road Condition Data (RCD) platform. The software is customized for the needs winter contractors face when making critical decisions about when and how to implement specific measures and how much salt or sand to lay down. Klimator’s software results in significant cost savings for an industry with annual revenues of around SEK 3 billion in Sweden alone. More efficient wintertime road maintenance also brings major environmental benefits, such as lower salt usage, lower fuel consumption, and less wear and tear on roads.

The company’s IoT sensors give contractors, municipalities, and other organizations the ability to measure road surface temperature, air temperature, air humidity, rainfall, ground moisture, groundwater level, water level, and hydraulic flow in real-timI. With the help of sensors, data is collected and stored in Klimator’s IoT platform, where customers can avail themselves of a number of different services. For the customer, it’s a simple and easy introduction to a more modern, digital way to work.

The company focuses on IoT sensors connected to winter road maintenance, but offers other sensors as a service to existing customers.

After establishing the Automotive business area late in 2019, the company carried out a number of successful Proof of Concept (PoC) and developmental projects with leading European and Japanese vehicle manufacturers and suppliers. There are several highly attractive areas of application for the company’s data platform (RCD) and sensor technology (AHEAD) within the automotive industry with respect to:

• improved driver information
• improved use of Advanced Driver Assistance Systems (ADAS)
• safe and scalable Autonomous Driving technology (AD)

Product portfolio

Road Condition Data (RCD) is a cloud-based Data-as-a-Service platform (DaaS) that aggregates data from a number of different sources. Advanced climate models and Klimator’s unique classification model for the road network are used in tandem to process this data and deliver detailed real-time information and predictive forecasts about road weather conditions. This information can be applied in a number of different areas in the automotive industry, including intelligent Advanced Driver Assistance Systems (ADAS) and complex systems for autonomous vehicles (AD).

Based on RCD, Road Status Information (RSI) is a digital Software-as-a-Service (SaaS) application that provides detailed forecasts for roads, bike paths, and pedestrian walkways. These high-resolution forecasts are used by transportation agencies and winter road contractors to make critical decisions about when, where, and how to implement snow removal and de-icing measures. Klimator’s forecasts facilitate decision-making, planning, and follow-up and Ilitate more efficient use of resources, which results in significant cost savings and a lessened impact on the environment.

AHEAD is a sensor technology that analyzes road conditions and friction in front of a moving vehicle in real-time. The technology is the result of more than ten years of research and development into road condition classification. AHEAD gives vehicle system information about prevailing road conditions, which improves the functionality and utility of Advanced Driver Assistance Systems and Autonomous Driving technology.

Klimator’s IoT Road Weather Stations provides real-time information on how weather impacts local road conditions. This data will empower operators to make informed decisions on the appropriate treatments necessary. The data is easily accessible from the Road Status Information (RSI) platform. The data comes in the form of an API so can also be fed into other weather monitoring and forecasting systems if necessary.

Financial overview

Consolidated financial statements

The Interim Report relates to the group, where the parent company, Klimator AB, owns 100 percent of the shares of Klimator Danmark DK ApS (hereinafter collectively referred to as the “company”).

Accounting principles

The Interim Report has been prepared in accordance with the Annual Accounts Act (“Årsredovisningslagen”) and the BFNAR 2012:1 Annual accounts and group accounting (“K3”) general guidance from the Swedish Accounting Standards Board (BFN).

Income

Revenues

The company's total turnover increases by 36% to SEK 5,331K for the second quarter of 2023, compared to the same period in 2022 (SEK 3,931K).

The company’s revenues primarily consist of licensing income for the Road Status Information service in the Winter Maintenance business area and income via IoT sensors.

The revenues also include project income from the Automotive business area regarding Proof-of-Concept and innovation projects with vehicle manufacturers, in relation to the company’s products Road Condition Data (RCD) and AHEAD.

In the second  quarter of 2023, net revenues amounted to SEK 4,693K, which is an increase of 24% compared to the prior year (SEK 3,789K). The increase is mainly attributable to the fact that the company has increased its recurring revenue (ARR) compared to 2022.

The company’s revenues from Winter Maintenance, now also including the sensor business, are normally accrued evenly throughout the year since the business model typically entails a one-year subscription.  In addition to this, the company normally charges a start-up fee. Invoices and payments are often sent or received in advance.

Capitalized developmental work and proprietary fixed assets

The company capitalizes expenses attributable to the mapping of new geographic areas in its data platform.

The company has a significant cost for the use of servers and data traffic. During the beginning of 2023, development work was initiated to make this more efficient, with the aim of reducing the company's running costs.

In the second quarter of 2023, the company capitalized SEK 233K of developmental expenses for the above-mentioned projects.

Other operating income

The company occasionally receives research and development grants from authorities such as the EU and Vinnova that are reported as Other operating income.

In the second quarter of 2023, Other operating income amounted to SEK 405K compared to SEK 142K for the same period the prior year, which is an increase of 185%. The increase is mainly attributable to the collaboration with Scania, regarding autonomous (self-driving) vehicles.

Costs

Direct costs

Cost of sales primarily refers to data traffic, server capacity, and hardware costs associated with the sale of sensors and AHEAD systems.

In the second quarter of 2023, direct costs amounted to SEK 1,645K (1,299K). The increase is mainly attributable to initial hardware costs incurred when selling to new customers and increased delviries of data due to more costumers

Other external costs

Other external costs primarily include rental costs for the premises, IT services, marketing, travel and consulting fees.

In the second quarter of 2023, other external costs amounted to SEK 2,260K, which is an decrease of 21% compared to the prior year (SEK 2,884K). The decrease is primarily attributable to that the company now hires consultants to an ever-smaller extent.

Compensation and benefits

At the end of the second quarter, the company employed 27 individuals in business management, sales/business development, administration, and product development/project management.

In the second quarter of 2023, compensation and benefits amounted to SEK 7,280K (SEK 7 992K), which is with a bit less compared to the same period previous year and due to fewer employees since May 2023.

Depreciation and amortization

The company amortizes the goodwill from the acquisition of the Danish business and OmniKlima (merged subsidiary) as well as capitalized development expenses over a period of 5 years.

In the second quarter of 2023, the company’s depreciation and amortization amounted to SEK 203K (SEK 266K).

Other items

Intangible assets

At the end of the second quarter, the company’s intangible fixed assets amounted to SEK 2,408K, which included SEK 1,270K in capitalized development, SEK 450K for patents and SEK 688K in goodwill.

The acquisition cost of an internally developed fixed asset includes all directly related expenses.

Intangible fixed assets are linearly depreciated over the estimated useful life of the asset, which is reassessed on each balance sheet date. Currently, the useful life is estimated at five years for all intangible fixed assets.
 

Cash and cash equivalents

At the end of the second quarter, the company had cash and cash equivalents of SEK 6,876K.

The company also has an unused bank overdraft facility of SEK 3,000K.
 

Cash flow

For the first half year, cash flow from operating activities amounted to SEK -13,485K (SEK -10,251K).
 

Interest-bearing long-term debt

The company’s liabilities amounted to SEK 1,249K in the form of a loan from Almi Företagspartner. Of this amount, SEK 937K is long-term debt. The loan was assumed in spring 2020 in connection with the COVID-19 pandemic. The loan has a term of 60 months and an annual interest rate of 4.64 percent. Repayment of the principal began in August 2021.

The company has an unused bank overdraft facility of SEK 3,000K at Nordea, with an annual administration fee of 1.5 percent and an interest rate on any withdrawn amount of 2.95 percent.
 

Interest-bearing short-term debt

The short-term portion of the loan from Almi Företagspartner amounts to SEK 312K.

In July 2022, the company successfully carried out an Initial Public Offering of convertible notes at a nominal value of SEK 9,111K and an annual interest rate of 12%.

In connection with the company's rights issue in December 2022, debentures were converted to a value of SEK 2,753K and the debt thus amounted to SEK 6,357K, the remaining debt, including accrued interest, was repaid in June 2023.
 

Equity

As of June 30th, 2023, the equity of the group amounted to SEK 3,435K while the parent company’s equity amounted to SEK 7,475 by June 30th.
 

Equity ratio

At the end of the second quarter, the group’s equity ratio was 22 percent.
 

Stock-based incentive plans

At the AGM on May 18, 2021, shareholders approved an  incentive plan (TO3) that will increase the number of shares by 500,000 in 2024 if all vested options are fully exercised.
 

Convertible notes and new share issue

No events during the period except for the repayment of convertible bonds.

Number of shares in the company

At the end of the second quarter 2023, Klimator had 28,824,751 shares outstanding, compared to 14,246,262 shares outstanding in the second quarter 2022.

During the second quarter 2023 the average number of shares amounted to 28,824,751. During the second quarter of 2022, the average number of shares amounted to 14,246,262 shares.
 

Profit per share

Profit per share for the second quarter amounted to SEK -0.22 (-1,02).
 

Auditor’s review

This Interim Report has not been reviewed by the company’s auditor.

Next report

The next report is the company's interim report Q3, which will be published on November 30th 2023.

For more information:

Emil Danielsson
CEO, Klimator AB
Phone: +46 (0)70-421 04 00
E-mail: emil.danielsson@klimator.se

Partner Fondkommission AB (Phone +46 (0)31-761 22 30, www.partnerfk.se) is the company’s Certified Adviser on the Nasdaq First North Growth Market.

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