NILAR INTERIM REPORT Q3 2021

SHORT-TERM CHALLENGES WILL BE OVERCOME WITH NILAR’S FUNDAMENTAL STRENGTH

July – September 2021 in summary

• Net sales, MSEK 5.4 (7.5).
• Production MWh 4.2 (1.6).
• Delivered energy storage 196 (159), average size per energy storage 7 (9) kWh.
• Gross profit MSEK -87.4 (-39.9).
• EBITDA MWh -93.0 (-42.6).
• Operating profit (EBIT) MSEK -112.2 (-58.3).
• Profit for the period MSEK -100,0 (-75.6).
• Earnings per share before/after dilution SEK -2.20.

January – September 2021 in summary

• Net sales, MSEK 17.9 (19.6).
• Production MWh 10.7 (5.5).
• Delivered energy storage 489 (348), average size per energy storage 11 (11) kWh.
• Gross profit MSEK -241.8 (-121.1).
• EBITDA MWh -271.5 (-139.4).
• Operating profit (EBIT) MSEK -326.9 (-182.2).
• Profit for the period MSEK -349.0 (-229.7).
• Earnings per share before/after dilution SEK -12.46.

Significant events during the third quarter

• Nilar’s production in the factory in Gävle has returned to normal during the quarter after the disruptions that occurred during Q2.
• The component shortage resulting from COVID-19 negatively affects Nilar in several ways. It has made sales more difficult, as Nilar's customers in turn have difficulty obtaining the necessary components to deliver complete solutions to final consumers. The cost and delivery times for input materials have also increased significantly.
• The expansion of Nilar's second factory being built in Estonia has continued during Q3. However, Nilar has decided to postpone the expected start of production until the end of 2022 as a result of the above-mentioned COVID-19 related issues.
• A warranty provision of MSEK 23.7 related to older, phased-out systems and batteries has been made during the quarter.

Significant events after the balance sheet date

• Erik Oldmark was appointed as the new CEO at the board meeting on 11 October.
• Nilar has decided to scale back production and initiated a cost reduction programme while focusing on improving product quality and reduce material costs in the product. The lower production will affect revenues in the short to medium term and the target of 1 billion in turnover in 2023 has been pushed forward to 2025.
• Nilar will moderate capex expenditure which will affect the pace in building the second production facility in Paldiski, Estonia.

CEO's comments

Having taken over the responsibility as CEO of Nilar International AB two months ago, I want to make my enthusiasm clear, as well as my base of analysis and steps forward for Nilar. I have now met and talked to most of Nilar’s customers and employees, and I have come to the following conclusion:

The driving forces underpinning Nilar's business success are strong and resilient. However, work needs to be done to overcome cost and product stability challenges. We also need a relaxation of global supply-chain strictures.

As announced, Nilar and our partners have had severe difficulties sourcing electronic components, which has an immediate repercussion on our recent sales. Significantly lower sales than expected during the past quarters is evidently a setback for Nilar and have led to increased losses. Furthermore, when ramping up production product stability and quality issues have occurred. To address all of the foregoing Nilar will temporarily ramp down production in Gävle and pause the build out of the Paldiski facility, thereby moderating capex expenditure, reducing operational cost and allowing full focus to resolve product stability and quality issues and improve our cost of production.

Operationally, I have six observations and an Action Plan:

• End-customer demand for energy storage of the type that we at Nilar offer remains strong. The market is clearly under-supplied and is set for market prices to increase significantly, also because of drastic lithium price increases (>300% since last year¹) which hits other energy storage suppliers.
• Our system integration partners, and Nilar to a smaller extent, are severely impacted due to the structure of and strains on supply chains, mostly of electronic components, such as inverters and energy meters. We expect these constraints to resolve over the next number of quarters.
• In this vibrant market, Nilar offers a highly attractive product; end customers recognize our strengths and demand our technology. Nilar is exploring longer-term large delivery program opportunities with several partners.
• While Nilar’s production now flows well, past product stability and quality issues are still not fully eliminated. Also, product costs remain too high.
• Ramp-up needs to be paced with delivery capability and demand, so as not to cause a large stock surplus. Temporary reduction in output and adjustment of staff numbers is required.
• Nilar is still a young company within the battery supply industry, with a continuously evolving technology aimed at improving product quality and reducing unit cost.

To resume sales growth and to create a path forward, we are taking effective actions by immediately implementing our Action Plan consisting of the following points:

1. We are fully focused on eliminating product instability and quality issues². We will bring forward the next product generation of module design, to improve quality and drive cost reduction – “design to cost”.
2. To avoid stock building and until product stability and quality issues have been resolved, we will temporarily scale back production and delay planned production ramp-up.
3. We are implementing a substantial reduction in workforce.
4. We will moderate capex expenditure by among other things reallocating the two planned Gävle production lines (7 and 8) to be Paldiski, Estonia. As we see supply issues resolving, we will build two additional production lines in Estonia.
5. To establish longer term delivery agreements, we will concentrate on strengthening the partnership with a smaller number of large key system integration partners and continue to help these secure their supply of critical components. Focus will be on positioning Nilar even more strongly in premium segments, based on our existing product advantages.
6. To create clearer responsibility and accountability, the leadership team will be reconfigured. What is great about the Nilar organization, according to my analysis, is all the talented and highly motivated employees.
7. Reflecting delays in achieving sales and production targets, Nilar will need additional external capital during 2022.

I have confirmed in my analysis that Nilar is a truly innovative company at the heart of the green transition. We are perfectly positioned in time, as the world leaders have just met in Glasgow to attempt to forge a path to ‘net-zero’, most importantly through impactful electrification of our society. Nilar has a unique position in the energy storage market with products offering superior benefits through the combination of the bi-polar design and the Nickel-metal hydride (NiMH) chemistry. Nilar NiMH batteries are uniquely safe and truly environmentally friendly, designed for recyclability and produced with an astoundingly low-energy production technology. Nilar is based on its own unique product and production development, but, recently, a major international car brand has validated this ‘bi-polar NiMH’ approach and, for the first time, is launching this technology in hybrid car batteries. Nilar is thrilled that more companies have embraced the value of the same battery production philosophy combining bi-polar design with safe NiMH chemistry³.

Nilar is still in the transition from technology start-up to becoming a more mature manufacturing company, with an important role in the environmental energy transition. Fundamentally, Nilar’s strategy is accurate, and will, in time, with hard work lead to a competitively strong company with a global footprint. In a capital and R&D intensive industry, time and financial resources are required. Others before us have shown the way, and we know that this can be done.

I am ready for the challenge and will faithfully and with commitment report progress – step by step – to you, our shareholders, our customers, and our employees.

Erik Oldmark, CEO Nilar
Täby November 22 2021

1) Benchmark Mineral Intelligence. 2021. https://www.benchmarkminerals.com/membership/lithium-ion-battery-prices-rise-for-first-time-in-gigafactory-era-automakers-in-negotiations/ (downloaded 2021-11-18)

2) We have a warranty exchange program running. While NiMH does not burn, complex high-voltage electrical systems can develop short circuits, also Nilar’s systems. So, constant vigilance and quality improvement is paramount.

3) Callum Brook-Jones, Engine + Powertrain Technology International. 2021. https://www.enginetechnologyinternational.com/news/hybrid-powertrain-technologies/toyota-launches-aquahybrid-with-bipolar-nickel-hydrogen-battery.html (downloaded 2021-11-18)

For further information, please contact: 
Erik Oldmark, CEO
E-mail erik.oldmark@nilar.com 
Mobile +46 70 432 4444

About Nilar:
Nilar is a Swedish-based developer and manufacturer of batteries for stationary energy storage systems. Energy storage systems can be used to bridge imbalances between energy production and demand in order to, for example, improve the utilization of intermittent electricity production from renewable energy sources, such as solar energy and wind power, as well as to strengthen the increasingly strained power grids. Nilar's battery technology is based on nickel-metal hydride (NiMH) electrochemistry with a water-based electrolyte, which results in a strong environmental, safety, and longevity profile. The Company is headquartered in Täby and the energy-efficient production facility is, since 2012, located in Gävle, where the Company's research and development also takes place.

The Nilar share is listed at Nasdaq First North Premier Growth Market, ticker NILAR. FNCA Sweden is Certified Adviser +46 8 528 00 399. For more information go to www.nilar.com.

This information is information that Nilar International AB is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 2021-11-22 21:40 CET.