CEO’s comments

"Strong customer interest – Letters of intent and customer agreements amount to 143% of the 60,000 metric tons planned to be established in Renewcell 1.

The fashion industry is changing rapidly to meet consumers’ demands for long-term sustainability, and a large part of that change is about introducing circular materials into clothing and other textile products. Developments during the first quarter have continued to strengthen that conviction, despite growing concerns in the outside world. As Renewcell is currently the only industrially scaled technology that can lead the fashion industry into a circular future, the company needs to scale up as the market grows by 3-5 million metric tons per year. This is about 80 times the 60,000 metric tons per year we are currently building. Therefore, during Q1, the company’s board decided to accelerate the upscaling and bring forward the planned expansion from 60,000 to 120,000 annual metric tons by two years at Renewcell 1, our facility in Sundsvall.

Shortly after the decision on accelerated capacity increase, the Company was able to present new declarations of intent for long-term commercial collaborations with the fiber manufacturers Daiwabo Rayon in Japan and Birla Cellulose in India. These letter of intents and agreements imply a total amount of production of 86,000 metric tons of Circulose® – ie already significantly more than the capacity we put into operation this year. In addition, we have made brand launches with H&M, Levis, Bestseller, Gina Tricot, and started new collaborations with, among others, Inditex, PVH, Kering and Ganni.

That we are in this situation is a result of Renewcell’s commercial expertise in textiles and fiber as well as the ability to adapt the process and product to match our customers’ high demands. At the same time, we have made great progress on the raw materials side and by the end of the quarter had secured framework agreements for just over 100,000 metric tons of textile waste per year. In financing our expansion, we will be very carefulin capitalizing the company and try to find an efficient balance between Equity and debt as possible. We see there is significant interest from both investors and banks to support the company despite the current volatility on the market.

The establishment of Renewcell 1 is progressing according to plan. All unit operations are in place and all machine installations have been completed. The detailed schedule for commissioning and production start was decided during the quarter and production start is approaching. Commissioning of all process steps was established during summer. During the quarter, the availability of our demo facility in Kristinehamn remained stable and with high quality, where we beat record after record.

We, like the business community in general, have recently experienced challenges in deliveries of building materials and key components. In addition, costs have increased for, among other things, concrete, alloy surcharges, exchange rate changes and not least freight and delays at subcontractors. I am grateful that our careful work to minimize risk at the beginning of the project has given us the conditions to be able to hold back these cost increases to a large extent. But we must state that cost increases have also had an effect on us to some extent, where we estimate a total CAPEX for the entire plant of 120,000 metric tons per year at SEK 1.2–1.3 billion.

At Renewcell, we are convinced that it is through innovation and entrepreneurship that many of the world’s most difficult sustainability challenges will be solved. This presupposes a business policy game plan where the direction is clear, and the regulatory conditions are clear. That is why I was very pleased to take part in the European Commission’s strategy for sustainable and circular textiles, which was published at the end of the quarter. Proposals for measures such as mandatory blending of recycled fibers in clothing, bans on the export of textile waste, increased producer responsibility and policy instruments for recycling make it clear that Renewcell has regulatory wind in its back in our quest to make the fashion industry circular."

Stockholm, May 2022 Patrik Lundström – CEO