Leclanche : Interim Report 2023

Leclanché Group

2023 Semi-Annual Report

Leclanché SA Avenue des Sports 42 • Case postale • CH-1400Yverdon-les-Bains• Suisse +41 (09)24 424 65 00 • www.leclanche.com

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1. MANAGEMENT REPORT

1. BOARD OF DIRECTORS' MESSAGE

The Company's commitment to growth and innovation has continued to drive success in the market and build the foundations for future opportunities. The Board is confident on the Company's potential to create value for its shareholders and drive future growth.

In H1 2023, the Company continued to make significant investments in its manufacturing capacity as well as incurring research and development expenses all while developing its order book. Recurring operating losses reflect this continuing effort.

Summary of 2023 Semi-Annual Financials:

In H1 2023, we achieved a consolidated income of CHF 8.9 million, with customer revenue reaching CHF 7.8 million. This represents a noteworthy increase, with customer revenue up by approximately 21% compared to the figures of H1 2022, respectively CHF 7.6 million income and CHF 6.5 million customer revenue. Furthermore, we have made substantial progress in managing our EBITDA loss, which amounted to CHF (27.0) million in H1 2023, reflecting a significant improvement of approximately 21% compared to the loss of CHF (34.1) million in the previous year.

Moreover, our net loss has also decreased to CHF (37.3) million, showcasing a reduction of approximately 20% compared to the CHF (46.8) million loss reported on June 30th, 2022. These results not only highlight our unwavering commitment to financial stability and growth but also have a positive impact on our Earnings Per Share (EPS).

The positive increase in revenues in 2023 compared to same period of prior year reflect the Company new management's focus on continued growth in executing customer orders and a strategic added value approach in marine, rail and specialised trucks. It is worth noting 5.0 million of net deferred revenues1, increased versus same period last year, highlighting additional invoiced amount to customers which is not yet recognized as revenue under IFRS.

Despite a net loss for the first half of the year 2023 of CHF (37.3) million, the Company has been able to maintain a stable balance sheet of CHF 105.5 million as of June 30, 2023, compared to CHF 90.8 million as of December 31, 2022.

Leclanché SA, the Swiss legal entity, executed a conversion of CHF 66.7 million debt into equity through a capital increase, on 26th June 2023. The Company was in a negative equity situation as of 30th June 2022, in the amount of CHF 51.0 million. Leclanché addressed this over-indebtedness situation by obtaining from Leclanché's main shareholders that the CHF 22.1 million of debt and interests they provided be subordinated. These majority shareholders have also expressed their intention to maintain the status of the convertible loans without immediate conversion to safeguard the interests of minority shareholders.

2. LECLANCHÉ GLOBALLY

Leclanché is a fully integrated heavy-duty industrial battery manufacturer with expanded production lines and R&D capabilities. Our core markets revolve around marine, rail and industrial e-Mobility Solutions as well as Stationary Solutions. Battery and module production facilities are located in Germany and Switzerland. The group employed 357 full time equivalent (as of 30-Jun-2023) across operations in Switzerland, Germany, USA, UK, France, Norway and Finland.

1 Net Deferred Revenues are defined as Contract Liabilities less Contract Assets, see Balance Sheet.

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Our core technology expertise ranges from electrochemistry, through system engineering to a first level of energy management software. Leclanché develops, designs, and manufactures complete battery storage solutions covering the entire technology chain from cells to pack solutions for Hybrid Electric Vehicles (HEVs) and Battery Electric Vehicles (BEVs), as well as complete, energy storage solutions for utilities, grid operators and other large scale energy storage applications.

Leclanché is an environmentally conscious manufacturing Company with 100% renewable electricity for all of our manufacturing sites. Leclanché manufactures all cell electrodes using patented water-based binder technology which reduces the production energy consumption, improves performance and stability of the cell, while removing the need for the use of harmful PFAS (per-and polyfluoroalkyl substances) components in the cell. With this technology Leclanche is a pioneer at the forefront of the expected regulatory tightening in PFAS emission standards.

This makes Leclanché one of the only cell manufacturers incorporating such deep environmental and health considerations in its core technology and manufacturing processes. We have systematic monitoring and reduction of C02 emissions of supply chain and operations and moving forward 90% of our cell materials will be recyclable and recoverable, with a foreseeable increase in the use of recycled materials in the manufacturing process. Leclanché works in close collaboration with recycling partners to optimise and improve the efficiency of key materials recovery.

Leclanché is IRIS certified for the design, manufacturing and maintenance related to its hybrid and electric locomotive power system drive units and auxiliary systems. The IRIS standard set by the standardisation group of UNIFE, the Association of the European Rail Supply Industry is designed to secure higher quality in the railway industry by enabling railway component suppliers to meet globally recognised levels of quality for their railway components.

3. ORGANISATION STRUCTURE

In October 2023, we created a separate entity for the business of Specialty. Through this carve-out operation the entity Leclanché SBS SA (Specialty Battery Systems) was created, a fully owned subsidiary of Leclanché SA. This entity was created in order to give more independence to this unit and enable it to have more choice and options in terms of partnerships and their future structure and shareholding. The aim of the carve out was to enable the newly formed entity SBS to have a greater focus on its key markets and implement a growth plan to reach breakeven in the near future.

Today the Company structure consists of the group entity Leclanché SA which incorporates the Stationary Business Unit and the wholly owned subsidiaries Leclanché E-Mobility SA and Leclanché Specialty Battery Systems SA.

Leclanché E-MobilitySA: develops, manufactures,sells and supports customers requiring storage solutions for heavy duty mobility applications in marine, railway and specialised ground transport. This entity contains the production entities, the R&D (electrochemical, mechanical, thermal and software) entities as well as the main engineering teams.

Stationary Storage Unit:sells and supports customers requiring storage solutions with distributed power generation like PV solar/wind/diesel gensets for utility-scale grid ancillary services and micro-grid applications. In the past the focus of the business was to provide EPC (Engineering Procurement Construction) services, as well as BOO (Build Own Operate) models. This has been discontinued with a focus on providing products and services as a product supply only.

Leclanché Specialty Battery Systems:manufactures, sells and supports solutions for customers in the main areas of medical and defence.

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4. BUSINESS UPDATE AND PERSPECTIVE

In the past years, the Company has made significant up-front investments in manufacturing capacity, Research and Development and Engineering while expanding our customer base in all key markets. As a result, we recorded negative cash flow in operating activities in H1 2023. Cash and working capital remain the key drivers for growth and have been the focus for the management over the past months. These are being addressed through a number of initiatives which range from client payment conditions, growth financing, cost optimisation (design to cost and purchasing strategies) and so on. A number of cost improvements, covering both materials/components and manufacturing, have been identified for the larger sales volumes that are expected over the coming year.

We anticipate that we will continue to have negative cash flows in connection with the ongoing implementation of our business plan and further development initiatives as we grow the business. We will continue to require significant amounts of working capital to support our growing operations. Therefore, we are actively working on diversifying our funding sources to support revenue growth in order to generate positive cash flow in the near future.

4.1. E-Mobility:

This year has seen a significant increase in business development activities, resulting in a further increased customer base and exponential business wins. Leclanché is partnering with some of the world's largest marine integrators supplying its battery systems to some of the largest electric and hybrid ferries for end customers such as Scandlines and Brittany Ferries. Leclanché has also won several projects in the Megayacht & Superyacht space.

The ground transport business has been equally successful in the continuation of its growth in the rail and specialised vehicle market. Leclanché has received repeat business with multiple customers in the rail, locomotive and specialised truck business from customers such as Alstom Rail, Canadian Pacific Kansas City (CPKC), FCC. These customers are using a combination of customer specific and generic battery packs all with Leclanché's class leading cell, modules and pack designs.

The strong endorsement of Leclanché by prominent corporations underscores the significance of the knowledge and intellectual property associated with LECN and value it brings.

4.2. Stationary:

The Stationary business has seen market acceptance of its newly launched product called LeBlockTM, a safe, modular, and scalable battery energy storage solution. Two multi-MWh projects using LeBlock have been secured and one already delivered at the moment of writing these notes.

4.1. Specialty:

During the first six months, the market has shown an increase in demand. At the same time, Specialty business unit has been preparing his transition to carveout this autumn. Leclanché Specialty Business has many more opportunities, especially in the medical and defence sectors. 2024 will be a crucial year, with a move at the beginning of the year to provide adjacent operations on a single site at the new headquarters in Yverdon-les- Bains.

5. RESEARCH & DEVELOPMENT

Leclanché covers the full technology value chain from cell development and manufacturing to the design and manufacturing of complete customer battery storage solutions.

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Cell development focuses on the design of products with performance characteristics specific to our main markets with a strong emphasis on heavy duty products. We have a number of ongoing projects covering both short term as well as long terms developments. Our research and development team work both on inhouse projects as well as consortium projects with external partners. We typically work on the longer term and more research focused projects within funded projects with external partners, whereas we will do the short-term projects inhouse.

Amongst the key short-term projects, which are aiming for product commercialisation within the coming 12 to

24 months, we have been working on three new electrode materials:

1. High-capacitycathode material NMCA, which is in pre-production validation and should enable a 20% capacity improvement at the cell level. We still need to finalise the production trials and product certification. Exact cell performance will be fixed once all these remaining steps are completed.
2. Introduction of Niobium oxide anode materials as an alternative to the LTO technology. Pre-production trials have taken place, and we still need to optimise certain production process steps to reach the full performance expectations. We are working with our partners from the material supply side on this and are targeting to start customer sampling end of H1 2024.
3. Introduction of silicon materials into the graphite anodes: this development is targeting high energy density cells while helping improve fast charge capabilities. A number of material combinations are being tested with the aim to go to production trials early 2024.

Aside from specific developments mentioned above, we continue to work on alternative materials to secure the supply chain.

The long-term projects include work on various types of new cells including projects such as solid-state electrolytes and sodium ion cells. For these projects we participate in a number of consortiums both in the roles of advisers as well as partners.

On the system development side, we have continued to develop new products for the marine market with a new version of our Marine Rack System, for which we will start commercial deliveries in Q1 2024. This new system builds on the previous technology and incorporates many of the developments made on the control electronics and the new modules that are being produced on the large capacity line. We have also been working on the battery system for road applications, also incorporating most of the latest developments ranging from cell to module and electronics, as well as new pack designs for volume production.

6. OUTLOOK

We have seen a growing number of customer and project wins which have contributed to a significant increase in the order book and a market validation of Leclanché's products and solutions. The positioning of Leclanché in the rapidly evolving battery market, the recognition of our technology offering and its advantages over competing technologies and the reaching of industrial scale with new technologies continues to require a significant amount of resources.

Increased efficiency

Throughout the first half of 2023, the management continued to streamline the complexity of the Company structure and enhance the focus on our key markets (marine, railway and specialised road applications). This will bring increased efficiencies and scale to our business. The segments of marine, railway & specialised truck are using Leclanché's own cell technology and we are undergoing an internal review to determine if its own cell technology can be incorporated into the LeBlockTM product as well. Leclanché E-Mobility has released its next generation Marine Rack System (MRS 3) which will ensure that Leclanché remains at the forefront of the Marine energy storage business segment with its differentiated product deliverables.

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Effects from cooperations

Leclanché E-Mobility has been working hard over the last 18 months to embed its products with key market leaders in their relative areas, such as Canadian Pacific Kansas City (CPKC) in the freight rail, Alstom and Koncar in passenger rail. In the marine segment, Leclanché has won several projects with Wartsila, Kongsberg, Siemens and Elkon. In March of this year, we announced a Memorandum of Understanding (MOU) between Leclanché and global power and technology leader, Cummins Inc., enabling both companies to offer customers a range of hybrid, battery-only and fuel cell hybrid solutions in marine and rail applications. This collaboration represents a significant step forward in providing customers with a broader portfolio of integrated power solutions and will enable Leclanché to strengthen its position in these markets. Continued growth is expected in the Rail & Marine segments as Leclanché continues to increase its global visibility with some additional major partners in Marine & Rail.

Increased business resilience

Leclanché has made significant progress in enhancing our organisation's performance and security. Currently, we are in the process of becoming ISO 21434 certified, reaffirming our commitment to automotive cybersecurity. Our comprehensive cyber strategy is actively fortifying our security posture and cultivating a culture of cyber resilience. With the increased utilisation of our ERP system, our data quality has improved significantly. We are now gearing up to expand our project portfolio and optimise our workload management, fuelling our journey towards greater operational excellence.

Expansion of production footprint

Leclanché has initiated a project to relocate and significantly expand its pack assembly facilities from Yverdon- les-Bains to Willstatt, Germany. This strategic decision allows the expansion of our German facility under the current infrastructure and expertise in the 100% renewable run facility. This also gives the added value of further reducing our carbon footprint. We expect this to be completed next year and allow Leclanché execute pack production with increased efficiency and capacity.

7. CORPORATE GOVERNANCE AND SUSTAINABILITY

Enterprise Risk Management

Risk Management is an integral part of the day-to-day Management processes and the Corporate Governance of the Leclanché Group. Leclanché's Audit & Risk Management Committee is responsible for monitoring and maintaining the effectiveness of the Group's Risk Management activities and internal control processes.

The Enterprise Risk Management is an ongoing process that started in 2016 and from 2021 risk assessment process has been managed regularly in ERM software and according to ISO 31000:2018 ERM framework.

Risk Owners from all Business Units and Departments are required to conduct an annual review of their risks and they are responsible for their mitigation, detailed action plan and monitoring. The annual update has been completed and risks with the highest criticality (likelihood x impact) along with the respective measures, will be presented and discussed with the Audit & Risk Management Committee beginning of November.

Internal controls are key elements of Risk Management Framework. Leclanché internal control system aims to provide reasonable assurance regarding the effectiveness and efficiency of operations, reliability and integrity of financial reporting and Group's compliance with respective laws and regulations.

Sustainability

In 2022, Leclanché recognized the need to manage sustainability-related risks, such as compliance with future European regulations on batteries and non-financial reporting obligations. As a response, Leclanché established

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a dedicated task force to better understand these risks and obligations, assess their current environmental performance, and promote environmentally friendly practices, answer to Audit and prepare for reporting.

Circular Economy Strategy - focus on Recycling

In line with the EU regulation, Leclanché introduced the "6R" circular economy concept (Record, Reliability, Repowering, Reuse, Recycle, Recycle content) in early 2023. They initially focused on recycling, mapping out technologies and companies in the recycling sector to set up management processes and partnerships for handling production scrap and end-of-life batteries.

New EU Regulation on Batteries

Europe Union has identified the battery industry as strategically important for achieving its Net Zero target, creating local employment, and reducing dependence on Asian manufacturers. In 2023, the EU introduced a regulation to establish a circular economy within the battery industry. Leclanché actively follows the regulation through the RECHARGE association, Europe's industry association for lithium battery.

Leclanché is aligned with this regulation's goals due to its existing manufacturing facilities in Europe and its aim to reduce its environmental impact.

Battery Carbon Footprint

Leclanché's short-term challenge is to calculate the carbon footprint of its batteries by the end of 2024. Leclanché is working on these calculations and have identified competitive advantages with a reduction of 35% of the battery Carbon Footprint compared to the industry benchmark, thanks to the use of renewable electricity and a unique water-based binder process for the cell production.

PFAS Restriction

Discussions in Europe in 2023 revolve around restricting the usage of PFAS (per- and polyfluoroalkyl substances) due to their persistence in the environment and potential health effects. Leclanché has a unique water-based binder process in its cell production, offering PFAS-free alternatives for Li-Ion batteries. This presents an opportunity for Leclanché to scale up its technology in Europe, as they can provide a solution in line with the PFAS restriction.

Sustainable Finance Disclosure Regulation

Since Leclanché activity is clearly listed in the European taxonomy, the Company has recognized the importance of implementing policies and Key Performance Indicators (KPIs) to classify investment funds that invest in Leclanché as impact funds. Leclanché has performed internal work to start this activity with the Sustainability department, jointly with the majority shareholders. The goal is to help fund managers to qualify their investment funds as an article 8 or 9 according to the European transparency framework Sustainable Finance Disclosure Regulation (SFDR).

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1. CONSOLIDATED FINANCIAL STATEMENTS 30 JUN 2023 (unaudited)

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1. Condensed consolidated income statements for the period ended 30 June 2023 and 2022

Condensed consolidated statements of comprehensive income for the period ended 30 June 2023 and 2022

The accompanying notes form an integral part of the interim consolidated financial statements.

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