Arendals Fossekompani

Earnings Release • Aug 23, 2024

Arendals Fossekompani Q2 and Half-year Interim Report

23 August 2024

arendalsfossekompani.no

Disclaimer

This Presentation includes and is based on forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ from the projected results. These statements and this Presentation are based on current expectations, estimates and projections about global economic conditions and the economic conditions of the regions and industries that compose major markets for the businesses of Arendals Fossekompani ASA and its subsidiaries and affiliates (the "AFK Group"). These expectations, estimates and projections are generally identifiable by statements containing words such as "expects", "believes", "estimates" or similar expressions.

Important factors that could cause actual results to differ materially from those expectations include, among others, economic and market conditions in the geographic areas and industries that are or will be major markets for the businesses of the AFK Group, energy prices, market acceptance of new products and services, changes in governmental regulations, interest rates, fluctuations in currency exchange rates and such other factors as may be discussed from time to time in the Presentation. Although the AFK Group believes that its expectations and the Presentation are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in the Presentation.

The AFK Group is making no representation or warranty, express or implied, as to the accuracy, reliability or completeness of the Presentation, and neither the AFK Group nor any of its directors, officers or employees will have any liability to you or any other persons resulting from the use of the Presentation.

Arendals Fossekompani Around the World

• Long term industrial investment company
• Invest in B2B, energy and technology
• Sustainable value creation
• Active ownership

Main investments 7 (2 listed) Employees ≈2,700

Countries 24

Listed on the Oslo Stock Exchange

1913

Head Office Arendal, Norway

Portfolio aligned with global megatrends

AFK ownership

60% Market cap (30.06) NOK 4,309 million

Head office Oslo, Norway Listed at

Oslo Børs

AFK ownership 80%

AFK ownership 95%

London, UK

Head office

Head office Arendal, Norway

AFK ownership 71%

Market cap (30.06) NOK 765 million

Head office Sherbrooke, Canada

Listed at Oslo Børs

AFK ownership 95%

Head office

Skien, Norway

AFK ownership 100%

Head office Arendal, Norway

AFK ownership 100%

Head office Arendal, Norway

AFK ownership 100%

Head office Arendal, Norway

Optimizing portfolio & reducing exposure to capital intensive businesses

Highlights Q2 2024

Financial

• Group revenue: NOK 1,682 million (1,404 million). Up 20% YoY, driven by NSSLGlobal and AFK Property.
• Operating profit: NOK -660 million (148 million), driven by impairment of Commeo, low power prices, and softer topline development in ENRX, Volue and Tekna in the quarter.
• Quarterly dividend: NOK 1.00 per share.

Key developments

• June 10: Arendals Fossekompani discontinues Commeo investment. Impairment taken on shares and shareholder loan.
• Tekna ships first revenue-generating nano material order for MLCC trials.
• AFK Property to build new facility for Kitron at Longum Næringspark.
• July 8: Arendals Fossekompani, Advent and Generation offers to buy all shares and delist Volue, to enhance Volue's growth trajectory.
• July 12: Vergia sold to Swiss Life Asset Managers.

Diversified portfolio containing both stabile cash flow generating companies and attractive growth prospects

Restructuring, de-risking and focusing the portfolio

AFK ownership 60%

Head office Oslo, Norway Market cap (30.06) NOK 4,315 million

Listed at Oslo Børs

Q2 update Recurring revenue & SaaS growth

Development last 5 quarters

Revenue and other income (MNOK) and operating margin

• Revenues: NOK 409 million (399 million).
• Adjusted EBITDA: NOK 88 million (63 million).
• Adjusted EBITDA-margin: 22% (17%).
• Recurring revenue: NOK 291 million, an increase of 23% compared to Q2 2023.
• SaaS revenues: NOK 135 million, an increase of 38% compared to Q2 2023, representing 33% of total revenues in the quarter.
• Large ongoing changes in end markets, like increased price and production volatility, as well as overall market complexity, are driving growth and further business opportunities for the company. The energy system continues shifting towards shorter, more volatile markets, a trend that Volue is well-positioned for.

Contemplated voluntary cash offer

Arendals Fossekompani, Advent International, and Generation Investment Management has offered to buy all shares of Volue. If successful, the consortium will take the company private.

• Offer period: August 20th to September 3rd. Independent board to issue recommendation within required time frame.
• Offer price: NOK 42 per share, 51% premium to the last traded price (8 July), 39 % and 50 % to the 3-month and 6-month VWAP.
• Value: Prices Volue at approx. NOK 6 billion. AFKs 60% shareholding valued at NOK 3,6 billion. Sell-down to 40% to yield cash proceeds of NOK 1055 million.
• Rationale: The partnership is expected to significantly accelerate Volue's further growth and value creation. The transaction offers existing shareholders a solid cash monetization opportunity at an attractive premium, and provides Volue with access to necessary tools, competences, networks and resources to maximise long-term organic and inorganic growth.
• Arendals Fossekompani, Advent and Generation bring highly complementary expertise to a long-term partnership, ensuring continuity and preservation of established company values, while simultaneously integrating fresh and innovative perspectives.

80%

Head office London, United Kingdom

Q2 update

Revenue growth and continued strong performance AFK ownership

Development last 5 quarters Revenue and other income (MNOK) and operating margin

• Revenues: GBP 29.3 million (GBP 22.9 million).
• EBIT: GBP 5.6 million (GBP 4.6 million).
• Higher operating profit in Q2 compared to Q2 2023 due to due to higher revenues in Q2 2024 and slightly lower operating costs.
• Continued strong underlying performance, supported by a strong pipeline, solid customer base, competitive technology and service driven organization.
• During the second quarter, NSSLGlobal won GBP 6.1 million of new business. Of which GBP 5.5 million was new business opportunities, and 67% where government orders.

AFK ownership 70%

Head office Sherbrooke, Canada Market cap (30.06) NOK 765 million

Listed at Oslo Børs

Q2 update Fluctuating revenues, strong order intake in Advanced materials

Development last 5 quarters

Revenue and other income (MNOK) and operating margin

• Revenues: CAD 11.2 million (CAD 11 million), a 2% increase year-over-year, but 30% increase from last quarter.
• Adjusted EBITDA: CAD -1.5 million, down from CAD -0.6 million in Q2 2023.
• Overall order backlog: CAD 18.2 million (CAD 22.0 million). Lower order intake in Systems, but Advanced materials order intake and backlog grew by 18% and 28% respectively.
• First revenue-generating order for nano material for next-generation multi-layer ceramic capactators (MLCC) shipped to a customer for factory trials.
• Major win in an intellectual property case concerning competing patent rights to produce titanium powder in Canada. Tekna is working to recoup a potentially significant part of its related legal costs.

95%

Head office Skien, Norway

Softer topline, but continued strong order intake AFK ownership

Development last 5 quarters Revenue and other income (MNOK) and operating margin

• Revenues: EUR 36,9 million, in line with Q2 2023

Q2 update

• Slightly reduced activity within the Heat division was offset by a positive contribution from the Charge division.
• Solid growth in North America and Europe compared to Q2 2023, while sliding deliveries held back performance in Asia.
• Operating cost increased by 4% compared to Q2 2023, driven by higher inflation and non-recurring costs related to internal projects.
• Order intake remains strong. Total order intake EUR 40.3 million (EUR 37.8 million)
• Total order backlog was EUR 75.6 million (EUR 94,2 million) up from EUR 74,3 million in Q1 2024. Reduction YoY reflects high deliveries in Q4 2023 and Q1 2024, coupled with reduced order intake in the same period.

AFK ownership

100%

Development last 5 quarters Revenue and other income (MNOK) and operating margin

Head office Arendal, Norway

• Acquired in 2022, Commeo's product concept was high quality battery modules for the commercial and industrial segment, assembled in Germany using cells produced outside China.
• Over the past 12-18 months we have seen deteriorating market conditions for battery hardware companies, and a general weakening of the German economy.

Commeo investment

discontinued

Q2 update

• Commeo concept was not sufficiently cost competitive. High interest rates and inflation weakened willingness/ability to pay for premium quality. Sales suffered.
• After period of financial distress with no line of sight to improvement, and a need for significant additional capital to potentially reach positive cashflow, Arendals Fossekompani decided to stop funding Commeo. AFK released a stock exchange notice June 10th. Commeo filed for insolvency in July.
• Arendals Fossekompanis exposure to the high-risk, capital-intensive battery industry is now removed.
• Arendals Fossekompani will continue to support Cellect Energy, a pre-revenue software company unaffected by Commeo's issues.

95%

Head office Arendal, Norway Portfolio

Q2 update Growing revenues and ARR, while launching new products AFK ownership

Development last 5 quarters

Revenue and other income (MNOK) and operating margin

The annual recurring revenues (ARR) for the portfolio grew to NOK 48 million, representing an 45% increase compared to Q2 2023.

ARR growth was driven by underlying strong demand and customer growth, introduction on new products and upselling to existing customers

• Kontali grew ARR by 26% compared to Q2 2023.
• Veyt grew ARR by 58% compared to Q2 2023.
• Factlines: ARR growth of 94% compared to Q2 2023.
• Utel is advancing a general anomaly detection solution with a focus on fraud detection, making notable progress in Q2 through testing with key customers.

23 August 2024 13 All portfolio companies are on a growth trajectory as a result of investments made in competence and technology. Alytic expects continuous product launches and upgrades throughout 2024. Increased focus on sales and marketing in coming quarters.

Head office Arendal, Norway

AFK ownership 100%

Q2 update

Lower electricity prices

Development last 5 quarters

Revenue and other income (MNOK) and operating margin

Price and power generation*

• Average electricity price in the NO2 price area during Q2 was 45 EUR/MWh (82 EUR/MWh). As a result, AFK Vannkraft revenue was down 45% in the second quarter. Hydropower production amounted to 135 GWh (134Wh) in Q2.
• The primary cause of the lower price level compared to last year was higher precipitation than normal, lifting the hydro reservoir levels Norway. Also, last year's unusually strong electricity prices were partly driven by high prices for gas due to uncertain gas supply in Europe.
• The construction of Kilandsfoss (38 GWh) proceeding according to plan.

Power generation (GWh/Week) Power price (EUR/MWh)

Financials

Profitability severely impacted by impairment in Ampwell, along with lower electricity prices

• Results severely impacted by depreciation of assets in Ampwell (NOK -731m effect on group operating profit).
• Reduced profit from hydropower due to considerably lower electricity prices.
• Softer topline development impacted the profitability of ENRX, Volue, and Tekna in the quarter
• Profitability improvement in portfolio companies NSSL, Alytic and AFK Property.
• AFK Property profitability uptick due to handover of the third stage of Bryggebyen Project.

Operating Profit (MNOK)	Q22024	Q2 2023	Difference
	36	48	-12
	74	63	11
	-23	-14	-9
	2	11	-9
	44	107	-63
	-781	-30	-751
	-7	-19	12
	-1	-2	1
	15	-4	19
Arendals FossekompaniConsolidated	-660	148	-808

Implications of Commeo on the financial results

In addition to Ampwell, AFK parent company as well as the Group financial figures are affected

Parent

• As a result of poor financial performance of Commeo, a German group company, the entire book value of AFK's shareholding and shareholder debt to Commeo has been impaired.
• Sum impairment shareholder debt is EUR 83.6m (NOK 961m) and is recognized as finance cost, not affecting EBITDA or EBIT (operating profit). Impairment consisted of two components:
  • The book value of AFK parent company's shareholder debt in Commeo of EUR 81.3m, equivalent to NOK 935m at exchange rate at the date of the related stock exchange notice of June 10th, 2024.
  • The book value of AFK parent company's shareholder debt in Ampwell of EUR 2.3m (NOK 26m).

Group

Negative impact on EBIT (operating profit) is EUR 63,9m (NOK 731m). Consisting of:

• The entire goodwill of EUR 24.2m (NOK 277m) related to the investment of Commeo impaired in the consolidated group accounts.
• Capitalized R&D in Commeo impaired with EUR 8.3m (NOK 95m).
• Property, plant and equipment in Commeo impaired with EUR 20.4m (NOK 234m).
• Inventory in Commeo was written down with approx. EUR 11m (NOK 125m) and recognized as Materials and consumables used. This write down also impacts EBITDA.

NOK 837m in cash, 2.0bn in available liquidity

Net cash, NOK million Liquidity, NOK million

Guiding

2024 revenue is expected to be higher than 2023, while operating profit is expected to be lower for AFK Group as a whole. This is largely driven by the impairment of assets in Ampwell and Commeo, and lower profits from hydropower production.

Volue expects both revenues and operating profit to be higher in 2024 than in 2023. Long term guidance:

• Annual long-term organic growth of 15%.
• Active M&A agenda with 1-2 deals per year.
• Year by year improvements in adjusted EBITDA margin, cash conversion, share of ARR and SaaS revenues.

Tekna expects revenues to be in line with 2023, and operating profit to improve in 2024 compared to 2023.

ENRX expects revenues to be in line with 2023, while operating profit is expected to be higher in 2024 compared to 2023.

NSSLGlobal expects 2024 revenues to be higher than 2023. Operating profit is expected to be in line with 2023.

Outlook and Closing Summary

Outlook – focus, optimize

• Energy transition, electrification and digitization will continue to drive growth in all portfolio companies.
• Capital to be carefully allocated toward accelerating most promising value creation opportunities.
• Short to medium term focus on realizing full value potential in existing portfolio .
• We do not expect significant new investments on AFK level in short to medium term, and limited capital market activity, however active M&A agendas in portfolio companies.

Closing summary

• Mixed results for portfolio companies. Profitability affected by Commeo impairment and lower electricity prices. Softer top line development in Volue, ENRX and Tekna, somewhat offset by NSSL, Property and Alytic.
• Portfolio focused and de -risked through the actions taken with Commeo and Vergia. Exposure to capital intensive, and subsidy dependent business reduced.
• Contemplated voluntary cash offer for Volue.
• Focused business development on-going in all portfolio companies driving growth in long term NAV.
• Diversified and well positioned portfolio containing both stable cash flow generating businesses and attractive growth opportunities.

VISITING ADDRESS Langbryggen 9, 4841 Arendal

POSTAL ADDRESS Box 280, 4803 Arendal

+47 37 23 44 00