Hello everyone, welcome back to ABG Investor Days. My name is Adrian Gilani. I'm an equity analyst here at ABG. I'll be moderating our upcoming presentation with Cinis Fertilizer. With us today, we have Charlotte Becker, head of IR and communications at Cinis. She'll give a roughly 20-minute presentation. Hopefully we'll have some time for Q&A at the end as well. With that being said, I'll hand the word over to you, Charlotte. Thank you very much. Fertilizer production today emits more greenhouse gas than aviation and shipping. Today's production depends on fossil fuels. With a growing population, without it, we wouldn't be able to feed even half of the world's population. We rely on good fertilizers. What we need to do is find smarter and more environmentally friendly ways to produce fertilizer. That's what I'm going to talk about today. I don't know how much you know about fertilizers. There are basically three main nutrients that all plants need to grow. It's nitrogen, phosphorus, and potassium. Maybe you've heard NPK. That's the fertilizer combining all these three. I'm only going to talk about the K today, potassium fertilizer. More specifically, potassium sulfate, which is this: a white water-soluble mineral fertilizer. What Cinis Fertilizer does is we produce a low-carbon mineral fertilizer called potassium sulfate. We do this in our production facility in Örnsköldsvik. The input material is sodium sulfate. Sodium sulfate, it's a white salt, non-hazardous. It's typically found as a waste product. You can find it as a waste product from EV battery production, the production of battery materials, pulp mills, steel plants, basically any type of hydrometallurgical process. What they do with this sodium sulfate today is that they dump it into our seas, into the oceans, or they send it to landfill. We combine the sodium sulfate with potassium chloride, which is a naturally occurring mineral salt. The end product is a water-soluble potassium sulfate fertilizer. The by-product is sodium chloride, which is just regular table salt. This is a proven process. It's been around since the '50s. What's unique, what we've patented, is the use of waste materials into this production process. The entire process has been designed to be energy efficient, recycle water. Obviously, it runs on fossil-free electricity. The result is a fertilizer with a really low carbon footprint. Today's dominating production process, the Mannheim process, relies on fossil fuels, both for their input materials, also as an energy source to run the process. Compared to them, we have half the energy consumption, about 20% lower production cost, up to 100% lower CO2 emissions when we're using fossil-free electricity. We can produce a fossil-free potassium sulfate, sell it at the same price as the fossil-based ones, making it an easy switch for the farmer. If you look at a higher perspective and the market trends, there are several strong trends that are providing tailwinds for sustainable potassium sulfate, SOP, growth. There's the increased food consumption with a growing population, growing wealth. We eat better, we eat more, we eat other types of foods, and we don't have more land. We need to produce more food using the land that we have, and fertilizers are crucial in that. There is a sustainability awareness. Farmers know that they need to reduce the carbon footprint. Agriculture stands for almost 25% of our CO2 emissions today. There's also the issue that many industries are struggling with, and that is reducing waste, and we can do both. A big question that seems to be only growing for every day now is independence and self-sufficiency. For many years, the fertilizer industry has been looking for ways to reduce the dependency on China. In 2022 came Russia's invasion of Ukraine, and that obviously increased more a need for European fertilizer production. Now with increased geopolitical instability, we need to make sure that we have fertilizer production domestically. On top of this, of course, there's a favorable price development. We're talking about the price difference between the input material, MOP, and the end product, SOP. This has remained stable over time and now is even at higher levels than the 20-year average, we'll get back to that. All in all, there's a very strong case for sustainable production of potassium sulfate in Sweden. What we've done is that we've secured offtake and intake agreements over time. We have agreements with leading battery producers such as Ascend Elements and BASF, where we're supposed to take sodium sulfate from their battery production of battery materials. Recently, we also signed an agreement with Ragn-Sells, where we actually get paid a gate fee to take care of the sodium sulfate. That really shows what type of waste issue we're dealing with. We're getting paid to take our input material. Potassium chloride, the naturally occurring mineral salt. We buy it from K+S at a long-term agreement. They're one of the largest players in the mineral and fertilizer industry. For our first production plant, we've sold all of the production to Van Iperen, which is a Dutch wholesaler of fertilizers. We also have an agreement for another site in Sweden, up to 300,000 tons of potassium sulfate per year to Van Iperen. For our next production facility that's going to be based in the U.S., we have a letter of intent with K+S. This is really the most interesting thing. About two years ago, in October 2022, we listed the company on Nasdaq First North, we also raised capital to finance our first production facility. In February 2023, we broke ground, less than 15 months later, we started our production. That's a really short time when it comes to industrial projects. Of course, there have been challenges along the way, there are basically no other industrial projects that have been executed recently in such a short time. I think with that, we became not only the first green mineral fertilizer or fertilizer production of industrial scale in Sweden. It's not just important for the climate, it's important for Sweden and for Europe's self-sufficiency, making sure that we have fertilizer production in Sweden, in Europe, securing the food supply. What we've been working on now is the ramp-up of the production facility. It has been slightly slower, I think. We maybe didn't anticipate how difficult it is having a completely new production facility, a new team, about 30 people who need to not only get to know each other and how to work together, but also understand all of the pipes and tanks and everything that you need to keep track of inside a production facility. We have six shifts, so it's 24/7 operations. The capacity is 100,000 tons of potassium sulfate per year, which at a full year's production is a revenue of around SEK 700 million using today's prices of SOP. Currently, we're at a production of about 75%, and we're expected to reach full capacity in the beginning of 2025. This mineral fertilizer has now found its way to farmers across the globe. 18 months after groundbreaking, we sent our first shipment, 3,400 tons of potassium sulfate fertilizer to Van Iperen, who then packaged and resold it to farmers in about 25 countries across all continents. As I said, all of the production from this plant has already been sold to Van Iperen. Everything we produce here, they take, package, and distribute across the world. Since then, we've delivered another shipload, and we will continue to do so over the next couple of weeks. I think what's really interesting here is that this is a product that is making an impact for farmers and their CO2 footprints. Not tomorrow, not in five years, but today. They already have the product in their hands and can use it. One ton of our product, compared to the dominating one today, saves about 300 kilograms of CO2. What we're going to do next is take all of the learnings from the first site, which of course there were plenty, and build a production facility in Hopkinsville, U.S.A., in Kentucky. What we're doing here is that we're co-locating with a battery producer called Ascend Elements. They have several battery recycling facilities, and now they're in the final stages of building another battery production site and battery materials production. We're going to build this production facility in steps of 100,000 tons, and that is to match the scale-up of Ascend Elements and ensure that we don't take a big investment until we see that they're ready. It's a way of reducing the risk. They're starting up their production early 2025. With that, we expect to start building by the end of 2025. After that, we have a full plan of building six production plants until 2030. That's an installed capacity of 1.5 million tons of SOP, potassium sulfate, per year. The first one, Örnsköldsvik, it's already in place, it's already producing, already generating cash. Then we have the second one being planned in Kentucky. For the next four ones, we have discussions with basically several of the largest EV battery materials producers in Europe, U.S., but also globally. If we then look at the more financial part of it, as I discussed before, the input material we need is called MOP, potassium chloride. We use it to produce SOP, potassium sulfate. Since everyone needs to use MOP, potassium chloride, to produce SOP, potassium sulfate, these two prices co-variate. Historically, there's been a price premium of about EUR 200 to EUR 300 per tonne. You see that there was a strange price spike that was due to, first, it was China cutting off exports of potassium sulfate fertilizer, needing it for domestic production. Sanctions against Belarus, on top of that, came Russia's invasion of Ukraine. What you see now is that since about one year ago, prices have stabilized and found their way back to a more normal stage. What has increased is the spread between MOP, the input material, our biggest cost, and SOP, the end product. On top of this, there is a premium. This is a standard potassium sulfate that I'm presenting the prices for, we're producing a water-soluble product, which is a premium product. There's an additional price premium on top of this. As I mentioned before, we've chosen not to charge a green premium. We would rather make a big impact, sell big volumes from the start. Of course, there is a possibility that you could get those in the future. With that in your mind, we've set these long-term financial targets, a profitability of 25% EBITDA margin, long-term, low leverage net interest-bearing debt over EBITDA below or around 2.5 times. Since we're planning to build more production facilities and use cash flows for that, we won't be giving out any dividends for the near future. To summarize, this is a case with a very low technical risk. It's an established technology. We have a production facility that's up and running. We have offtake and intake agreements for several plants in place. We have a big plan to build six production plants. First one, it's already there, just five more to go. It's a really big environmental benefit compared to the alternatives on the market today. Up to 100% lower CO2 footprint, half the energy consumption, and a lower production cost. Last but not least, we're solving circularity. We're helping industries such as battery producers, pulp mills, other manufacturers, reduce their waste and making sure that they don't dump sodium sulfate into oceans or into landfill. With that, I'd like to open up for questions. Thank you. Perfect. Thank you a lot for that presentation, a bit quicker than 20 minutes as well, it leaves more time for Q&A, which is great. I'd just like to start off in the current facility in Örnsköldsvik. Obviously, the focus is on ramping up the volumes, you mentioned it took a bit more time than expected. Can you elaborate on what the unexpected issues were, whether those are mostly behind us now? There are several things. We recruited a great team of process operators. Many of them have been working in the process industry. When you come to a new plant, there's still a lot to learn. They haven't seen exactly this type of plant, they haven't run exactly this type of plant, and they haven't worked together. I think we underestimated the time it actually takes to get everyone up to the same speed, really. Some shifts were maybe faster than others, getting up to speed and learning and understanding how to run this facility in the best way possible. We've done a lot of training hours, bringing in all the shifts, making sure that everyone runs the plant in the same way, because that really gives an effect on the output and the availability. We also had a big power outage, of course, which set us back a couple of weeks. All of those are behind us now. With the experience now of having built one plant, is there anything you plan on doing differently for the Hopkinsville plant or? Of course, a lot. Okay. It would be horrible, it would be wrong to not do things differently after. No matter how well you plan, you're always going to learn along the way, and I think we've found ways that we can do more prefab to reduce basically installation costs on site, because that's the most expensive part that we can reduce. Ways to just structure the plant to make it easier for operators to access certain points of the plant. Yeah, there's a ton. Now also we have a team of operators in Sweden who have actually run exactly this type of plant, and they will have done it for almost two years when we start production in Kentucky, and that helps a lot. Also just what's the rationale of going as far out as the USA for the second plant? Because a couple of years ago, there were plans of building more plants in Sweden. What's changed since then? We see that for battery producers, or producers of battery materials, more specifically, they are struggling to get environmental permits because they have large amounts of sodium sulfate, and if you have an old permit, you can emit this into the sea, and it's quite expensive to send it to landfill. We play a really important role for these companies, and we saw that Ascend Elements, they had a very strong development. They have a good track record. They've put up several battery recycling plants, and now they're building this gigafactory, and they had a very quick timeline. It was basically a matter of Their timeline being quicker than some of the projects in Europe, which is why we prioritize them. The original plan was to build in Skellefteå next to Northvolt, and I think we're quite happy now that we chose to focus on Kentucky before that. Understood. Obviously plan A as well was to source MOP from Northvolt, also for the Örnsköldsvik plant. Yeah, sodium sulfate. Yeah, exactly. Yeah, sodium sulfate, sorry. Can you just talk about the situation now with Northvolt volumes not ramping up? What's the plan for sourcing inputs at the moment in the current factory? Yeah. In the current factory, we're sourcing the majority from producers in Spain. We're adding on more and more waste streams from mainly surrounding industries that are close by the facility in Örnsköldsvik. The Ragn-Sells contract was a first one. It's actually a much, much better contract financially than the one we had with Northvolt, because we actually get paid. Yeah to take care of it. That's the type of contracts that we're going to add for Örnsköldsvik. Yeah. Just moving on a bit also to the pricing of the product. You mentioned that you've chosen to not take out a green premium pricing. What's the rationale behind that, and also how do you assess your possibility of perhaps getting a green price premium in the future? Yeah. It's two parts. The fertilizer industry, it's concentrated on quite a few large players. Actually getting access to the distributors and the end users, it takes a lot of muscle, and we don't have that. We think collaborating with someone selling it in bulk is a good way. If we can price it at the same level as the fossil-based products and still make a profit, we think that's the best way forward, because then you can sell large volumes from the start. It makes it so much easier. I think everyone can recognize this, that in theory, everyone is willing to pay more for more sustainable jeans or a broccoli or whatever. When you're standing there in the store and it costs three times as much, you're maybe not as eager, and that's what we see. We believe that farmers are no different. That was the choice, and I think what we're seeing now is that when the end users are getting the product in their hands and they see that it has even higher quality, actually, than the fossil-based products that they've been using. That also creates an increased will to pay for it. Pay a premium. Maybe for the CO2 reduction, also for the quality. Yeah. We have the margin, as you mentioned, is determined by the spread between the SOP price and the MOP price. Obviously it's very logical that SOP should be priced higher as it's an upgraded version. What drives the spread of the two materials, and what's your view on whether that spread might increase or decrease going forward? Yeah. As I said, all SOP needs to be produced using MOP, so that's why you have that natural spread. Mannheim process is the dominating one, stands for 50% of the market. Basically, they've been the price setters, and they use fossil fuels for their production input materials, also running the process. Sulphuric acid, which can be quite expensive. If you look at the price spread now, it's over EUR 300 per ton, so way above the average. What we see, all the analysts, the potash analysts, very niche market, but they see that this spread is going to remain stable at these higher levels or even increase because the SOP market is undersupplied. There is an increasing demand for SOP. As the soils get drier, you need to switch to this premium fertilizer, and there just aren't enough projects being built. The facilities in Europe are closing in on decommissioning because they're old. Yeah. As for the margin target, do you assume an expanding spread going forward to be able to achieve the margin target, or what's that based on? We try to be slightly conservative and use an average spread- Yeah for our calculations, I think what we've seen for this year and in the near future is that Northvolt not delivering sodium sulfate. That has cost us. Unless we can find new sources of sodium sulfate at the same price as Northvolt or even lower, we have an added cost of about SEK 45 million per year. It's still within reach. Yeah. Then a final question on the funding side, because the first plant, as you mentioned, was funded by both loans and an equity raise. Now you have the first plant in place. Looking at the Hopkinsville plant, what do you expect that that will cost in total, and what's the plan for funding that project? As I said, we're going to build it in lines of 100,000 tons. With the improvements that we've made, we expect the 2 first lines to cost about SEK 1.2 million, with the SEK 650 for the first and SEK 550 for the second. Yeah. We're going to do it in steps. That's a way to reduce the initial investment needed, but also a way to basically be slightly more safe and reduce risk. We're going to finance that through a combination of cash flows, added debt. We could do the type of project financing that we did in Örnsköldsvik, for example, but there are also still a lot of grants available. There are leasing opportunities if we wish to pursue that. That's what we're deciding on. An equity raise sounds to be out of the question. Yeah, that's not in the cards. Okay. Perfect. I guess that was all for all my questions. I'd like to just once again thank you for your presentation and for answering all of my questions. Thank you.