Merus Power Plc Financial Statements Bulletin 1.1. – 31.12.2023: Growth in a challenging operating environment

Merus Power Plc company release, February 8, 2024 at 8:30

MERUS POWER PLC FINANCIAL STATEMENTS BULLETIN 1.1. – 31.12.2023

The numbers in brackets refer to the same period of the previous year unless otherwise indicated.

The numbers in the financial statements bulletin are unaudited.

This release is a summary of the report Merus Power's Financial statement bulletin 2023. The entire report is attached to this release as a PDF file. The report is also available on the company's website at https://sijoittajat.meruspower.fi/en/for-investors/reports-and-presentations/.

GROWTH IN A CHALLENGING OPERATING ENVIRONMENT

YEAR 2023 IN BRIEF

• Net sales MEUR 29.0 (16.2), increase of 79.2%
• Operating margin (EBITDA) MEUR 0.2 (0.6)
• Operating result (EBIT) MEUR -0.5 (0.1)
• Earnings per share -0.10 (-0.01) euros
• Orders received MEUR 33.8 (16.9), growth 100.2%
• Moving to new premises in Ylöjärvi, Finland
• The most important achievements in the market:
  • A significant repeat order for the American power quality market for data centers
  • Order for a 20-million-euro energy storage for Taaleri Energia
  • Order for an energy storage for Sallila Energia
  • Modernization of an electric arc furnace compensator system at Ovako steel plant in Finland
  • Order for an SVC modernization at ArcelorMittal steel mill in Poland
  • Order for an energy storage for Herrfors

JULY-DECEMBER 2023 IN BRIEF

• Net sales MEUR 15.5 (9.9), increase of 56.4%
• Operating margin (EBITDA) MEUR 0.6 (0.8)

• Operating result EBIT MEUR 0.2 (0.5)

• Earnings per share 0.00 (0.07) euros
• Orders received MEUR 13.7 (9.1), increase of 51.2%
• The most important achievements in the market:
  • Modernization of an electric arc furnace compensator system at Ovako steel plant in Finland
  • Order for an SVC modernization at ArcelorMittal steel mill in Poland
  • Order of energy storage for Herrfors to operate on the Fingrid reserve market
  • Merus Power announced on December 12, 2023 that it will refine the forecast of the net sales and lower its EBITDA guidance: the company's net sales will increase significantly in 2023 compared to 2022 and will be around MEUR 28-30 and the EBITDA will be positive.

Key FIGURES

PROPOSAL FOR THE USE OF PROFITS BY THE BOARD OF DIRECTORS

The Board of Directors proposes that the loss be transferred to the profit/loss account and no dividend be paid.

DISTRIBUTION OF PROFIT FOR THE SHAREHOLDERS

The Board of Directors proposes to the Annual General Meeting that no dividend be paid.

GUIDANCE FOR 2024

Merus Power estimates that net sales and EBITDA will increase compared to 2023.

CEO KARI TUOMALA COMMENTS ON YEAR 2023:

Energy storages and sustainability as the drivers of our significant growth and operation

The pressure to step up the pace of achieving more renewable energy caused by climate change is increasing day by day. The International Energy Agency (IEA) has stated that investment in clean energy projects and infrastructure must be tripled by the end of this decade if the nations of the world want to combat climate change efficiently and, at the same time, keep the energy market stable. The COP28 climate conference in Dubai approved the decision to transition away from “fossil fuels" to make Net zero feasible by 2050. Achieving these targets entails a major increase in the production of renewable energy, reducing the related bureaucracy and transferring fossil fuel state subsidies to renewable energy sources.

The transition in energy production poses challenges to the operation of the power system and there is a need for companies like Merus Power, which design and manufacture innovative technological solutions for the users of renewable energy, including infrastructure, industry and real estate.

Growth and investments in the future

During 2023, Merus Power continued to grow significantly, achieving net sales of 29 million euros and a positive operating profit (EBITDA). We are firmly on the fast growth path defined in our strategy. We have been able to achieve growth in a very difficult operating environment, where the overall world situation, cost inflation, and long contracts cause many conflicting pressures. Prolonged problems in component availability have caused nonrecurring cost overruns in projects due to component prices and additional costs arising from the availability challenges. Hence the company fell slightly short of its profitability targets.

In a difficult world situation, we have, however, made investments with an eye to future growth. Our personnel has grown considerably while at the same time employee turnover has been small. We have succeeded in retaining our top experts and also attracted new, talented personnel.

In 2023, the Merus Power headquarters and factory moved to new premises in Ylöjärvi near the city of Tampere. These new premises triple the size of the old facility are a major investment in our production and product development. They promise significant growth in production, efficient operation and modern product development and testing facilities. All lifetime services are located under one roof, enabling efficient communication and excellent customer service. The personnel’s wellbeing at work was also a major factor in the design of the new premises. Communal work practices and hybrid work have now become a reality.

We have also continued our significant investment in product and software development. Our products are and will continue to be both technologically high quality and state of the art. Merus Power products are modular and scalable. Large equipment deliveries always consist of smaller standard modules. This ensures that the customer always gets the ideal product, and that we can implement our scalable way of operation.

Our long-term strategy on the energy storage market is working and also supports the growth of our service business

Development on the energy storage market has continued positive. Our operation has expanded from traditional equipment deliveries to comprehensive partnership with the customer, when, in consultation with the customer, we plan the entire business operation of the energy storage, while simultaneously helping right from the necessary permit applications.

The forthcoming energy storage ordered by Taaleri Energia, the biggest energy storage on the Finnish frequency reserve market, exemplifies such a turnkey delivery, with Merus Power as the project and business plan developer together with the customer and responsible for the turnkey delivery of the energy storage right from the construction permit application. In addition, Merus Power has long-term service, maintenance and operating contracts with Taaleri Energia to guarantee system reliability and the profitability of the investment.

The 1.7 MW / 1.7 MWh energy storage ordered by Sallila Energia in June and the 7 MW / 7 MWh energy storage of Herrfors are examples of a more traditional equipment delivery and of a service and maintenance contract. Both have their place in in our operation.

Energy storages are a part of the critical grid infrastructure, where ensuring availability creates a need for services and spare parts. Our services business is therefore growing steadily, as customers need and want support services. In addition to the traditional service business, we are developing and offering smart IoT services for our customers. These include the Merus® MERUSCOPE™ remote monitoring and control software, which opens up new opportunities to expand our service business. In addition to the remote monitoring and control software, MERUSCOPE™ will also be offering a trading platform for our energy storage customers.

SVC modernizations play an increasingly important role in our sustainable operation

In the power quality market, we have maintained our market share and reached the same level as last year. In 2023, we have carried out several SVC modernizations. Targeting the market’s aging installed base, the SVC modernizations constitute an important market for the company. At the same time, we remain true to our sustainability values. In the modernizations, we make use of components already in use but with a longer service life. The customer can maintain and continue to use of these passive components, but the smart components and control systems, which are among our core competencies are renewed.

In all we do, we want to be responsible and communicate openly with our stakeholders. In 2023, we published our first sustainability report covering year 2022 and targeted at investors. We are currently modifying our communications to comply with the new ESG reporting requirements, which will involve us in the near future with the CSRD directive.

FINANCIAL REVIEW 2023 AND JULY-DECEMBER 2023

2023 NET SALES, PROFITABILITY AND RESULT

Net sales of Merus Power 1.1.-31.12.2023 were 29.0 (16.2) million euros. Growth was 79.2 (9.7) %. Operating margin was 0.2 (0.6) million euros, being 0.6 (3.6) % of net sales. Operating result was -0.5 (0.1) million euros, being -1.8 (0.7) %. Undiluted earnings per share -0.10 (0.01) euros. Equity/share 1.58 (1.69) euros. Result for the financial period -0.8 (-0.1) million euros.

2023 BALANCE SHEET, FINANCING AND CASH FLOW

Balance sheet total of Merus Plc 31.12.2023 21.2 (24.5) million euros. Group total equity 12.1 (12.9) million euros. Group total liabilities at the end of the financial period 1.4 (-1.4) % and gearing 11.6 (-11.2) %. Group solvent ratio 57.1 (52.5) % million euros. Group liquid funds at the end of the financial period 31.12.2023 2.6 (5.3) million euros. Cash flow from operating activities 0.0 (-5.0) million euros.

NET SALES, PROFITABILITY AND RESULT IN SECOND HALF OF THE YEAR

Net sales of Merus Power 1.7.-31.12.2023 15.5 (9.9) million euros. Growth 56.4 (-4.9) %. Operating margin 0.6 (0.8) million euros, being 3.8 (8.2) % of net sales. Operating result 0.2 (0.5) million euros, being 1.3 (5.3) %. Undiluted earnings per share 0.0 (0.7) euros. Equity/share 1.58 (1.69) euros. Result for July-December 0.0 (0.5) million euros.

PERSONNEL AND MANAGEMENT

The Company employed 97 people at the end of the review period (in 2022, 70 people).

Merus Power Plc’s management team consisted of the following people: Kari Tuomala, CEO; Rainer Antila, CFO; Mikko Marttala, Finance and Project Development Director; Jyri Öörni, Development Director; Markus Ovaskainen, Sales Director; Maiju Levirinne, Director, Factory Supply Processes; Juuso Järvinen, Director, Delivery Process and PMO; Toni Peltomaa, Aftermarket and Service Director has been a member of the management team since April 1, 2023. Aki Tiira, Aftermarket and Service Director, was a member of the management team until March 31, 2023.

Merus Power Plc Board of Directors was formed by Vesa Sadeharju (Chair), Anne Koutonen (former Leskelä) and Vesa Riihimäki.

STRATEGY AND FINANCIAL TARGETS

Our strategy is to increase the sales and profitability of the Company and strengthen its market position in the sustainable energy transition. Merus Power aims at strong growth notably in the energy storage market and in the integration of renewable energy. We also intend to grow faster than the market in the global market of power quality solutions. 

The cornerstones of Merus Power growth strategy are:

• Scalable product portfolio
• Our multichannel sales strategy
• Growth of energy storages in Europe
• Local and global presence of the power quality solutions
• Increasing the share of services
   

Merus Power’s medium-term financial targets are to achieve:

• Achieve 80 million euro net sales in 2026 primarily through organic growth
• On the average over 15 percentage operating profit margin (EBITDA)
• Over 35 percentage equity ratio

OPTION PROGRAMS

On April 1, 2021, the Company’s Board of Directors decided on a share option program and granted a maximum of 150 000 option rights, and hence entitlement to subscribe to an equal number of the company’s A-series shares. The issue price for one share is 3.32 euros. The issue price per share can be lowered, if, before the issuance of shares, the Company grants new shares to existing shareholders relative to the percentage of their current shareholdings. However, the minimum issue price per share is always at least 0.01 euros.

These share acquisitions based on the option programs must take place in the period December 31, 2023 – December 31, 2026. At the end of the financial period, 21 key people and employees permanently employed by the company have stock options.

GENERAL MEETING

The Company’s Annual General Meeting was held in Tampere on March 16, 2023 at the Hatanpää Mansion. The meeting approved the Company’s annual financial statements for 2022. It was decided that the loss shown in the financial statements should be entered in the account for profit and loss and that no dividend should be paid. The Board of Directors and the CEO were granted discharge from liability for the financial year January 1 – December 31, 2022.

The remuneration policy of the Board of Directors and CEO was discussed and approved. The General Meeting also decided on the number of Board members and decided to appoint three members for the next financial period. Vesa Sadeharju (Chair), Vesa Riihimäki and Anne Koutonen (formerly Leskelä) were re-elected as Members of the Board of Directors for a term to end at the next Annual General Meeting.

The meeting approved the audit fee of the auditor and appointed Moore Idman Oy to continue as the auditor for the coming financial period. Authorized Public Accountant Jukka Lahdenpää will continue as the main audit. The Board of Directors was authorized to decide on the issuance of shares and special rights entitling to shares according to its proposal.

SHARES, SHARE CAPITAL, AND SHAREHOLDERS

Merus Power’s share capital, which has been totally paid and duly marked in the commercial register on December 31, 2023 was 270 000 euros and the number of shares at the end of the review period was 7 644 966 (7 644 966) shares. The average daily volume of shares during the review period was 7 644 966. The average number of shares between 01.07. and 31.12.2023 was

7 644 966 (7 644 966). The company has only one class of shares, all with equal voting rights, dividend, and the company’s assets. The company did not possess any own shares during the review period.

At the end of the review period, the company had 5 019 registered shareholders.

SUMMARY OF TRADING ON NASDAQ FIRST NORTH GROWTH MARKET FINLAND 1.1. – 31.12.2023

Near future risks and uncertainties

Merus Power uses risk management to expedite the achievement of its strategic and operative goals to ensure the continuity of its own and its customers’ operations in a changing world. Our goal is comprehensive risk management, which emphasizes proactivity throughout: meticulous planning, continuous monitoring, and assessment of risks supported by the appropriate systematic and timely action. Risk management is an integral part of our daily operations. Risk assessment related to sustainable development has a central role in the risk management of our business and our customers’ business.

Weak economic growth, inflation, and the rise in interest rates were prominent economic trends during 2023. According to some experts, economic uncertainty may also slow down the pace of investments in the green economy. According to the OECD’s report, global economic growth is set to remain weak in 2024 and inflation high, although it has slowed down in many countries. During 2024, the high interest rate of corporate bonds may be reflected in the investment decisions of some projects.

Growth driven by the green transition continues strong, however, and climate goals remain as before. For example, the International Energy Agency (IEA) has emphasized the improvement of energy efficiency and the importance of achieving the goals. In the power quality sector, the need for equipment remains unchanged despite the general economic forecast, hence investments are normally not cancelled but only postponed. In the energy storage market, growth prospects continue positive.

Merus Power products are intended for use in long-term investment processes. Sudden price changes in materials and components cannot necessarily be transferred to the price of the end product, which may cause risk to profitability goals. The 2023 Interim Review noted that problems with component availability may continue. Component availability improved towards the end of 2023, but some problems were experienced, notably with semiconductors. During 2024, however, availability is predicted to return to normal. Nevertheless, the availability of those components also used in the car industry is still likely to be challenging and may well persist even until 2025.

Availability challenges have so far caused the company some delivery delays, but these have been systematically overcome by the delivery chain. In project-based business, risk management related to component availability and delivery times is always important and we constantly develop our project management process and systems.

The rapid proliferation of the energy transition and the electrification of vehicles have caused increased demand for Lithium ion batteries, hence the manufacturing chain encountered challenges to meet the growing demand. This in turn affects the availability, delivery times, and prices of batteries used as a component in energy storage equipment and constitutes a risk to our energy storage business. During 2023, the availability of batteries was better than in previous years.

The war in Ukraine does not greatly affect our business, but entails greater risks in predictability. We no longer do business on the Russian market. The share of Russian business was not significant in our net sales, thus the impact on growth and predictability is low.

Cyber security is one of the greatest challenges to a modern society. Due to their large size and far-reaching effects, energy grids and the entire energy sector are among the most critical development targets in continuous information technology. Software and electronics also play a key role in the operations of Merus Power, making us potentially vulnerable to cyber security risks as information systems and products may suffer interruptions in operations, loss, or manipulation of data and malfunction. The company must therefore continuously develop its products and production to guard against these risks and support its customers in the secure use of Merus Power’s products.

Our listing brochure published on May 21, 2021 addresses in greater detail the risks related to the business, operational environment, regulation, and financing of the company.

CHANGES IN CORPORATE STRUCTURE

Pirkanmaan Tasapainotus Oy has been disposed of the corporate structure during 2023.

OTHER REVIEWS AND EVENTS JULY-DECEMBER 2023

24.8.2023 Merus Power Interim Report January 1 – June 30, 2023: Strong growth in the first half

2.10.2023 Merus Power modernizes the compensator system of the Electric Arc Furnace at Ovako Imatra’s steel plant in Finland

27.10.2023 Merus Power in new premises – with significantly improved possibility to grow

22.11.2023 Static Var Compensator modernization at ArcelorMittal Warszawa steel mill in Poland

12.12.2023 Negative profit warning: Merus Power publishes restated comparison figures for net sales and lowers its operating margin guidance

20.12.2023 Merus Power supplies Herrfors with a 7 MW / 7 MWh battery energy storage system, which will operate alongside a 5 MW electric boiler in the Finnish national frequency regulation market

FINANCIAL REPORTING

Press conference

Merus Power will hold a press conference in Finnish for the media and analysts on February 8, 2024 at 10:30. The event will be held as a Teams webinar. Please register in advance via the link below.

https://events.teams.microsoft.com/event/7231fb5b-defb-446d-9257-14ff9962c394@eb19cf28-ccec-4816-b423-0b1fd1cedaca

Materials relating to the event will be published on the Company’s website after the event at

https://sijoittajat.meruspower.fi/sijoittajatietoa/tiedotteet/.

Publishing of the financial statements

The Financial Statements, Report by the Board of Directors, and the Annual Report for 2023 will be published on February 22, 2024 as a company release and on the Company’s website at

https://sijoittajat.meruspower.fi/sijoittajatietoa/tiedotteet/

The Company’s Annual General Meeting is to be held on March 13, 2024. The Board of Directors will extend a separate invitation to the meeting at a later date. The Invitation will be published as a company release and on the Company’s website at:

https://sijoittajat.meruspower.fi/sijoittajatietoa/hallinto/yhtiokokous/

The Company’s Half-year Report will be published on August 22, 2024.

Merus Power Plc

Board of Directors

For more information:

Merus Power Plc, CEO Kari Tuomala, tel: +358 20 735 4320

Certified Adviser:

Aktia Alexander Corporate Finance Oy, Authorized Advisor, +358 50 520 4098

Distribution:

Nasdaq Helsinki Oy

Financial Supervision Authority

Key media

Merus Power in Brief:

Merus Power is a technology company driving the sustainable energy transition. We design and produce innovative electrical engineering solutions such as energy storages and power quality solutions, and services for the needs of renewable energy and industry. Through our scalable technology, we facilitate the growth of renewable energy in the electricity grids and improve the energy efficiency of society. We are a domestic specialist in innovative electrical engineering and operate in global and high-growth markets. Our personnel represent internationally renowned engineering expertise. Our net sales in 2023 was 29.0 million euros and our stock’s trading symbol on the Nasdaq First North Growth Market Finland is MERUS.

The original of this document has been made in Finnish. In case of any discrepancy, the Finnish version will prevail.