Nel ASA (NLLSF) Q2 2024 Earnings Name Transcript

Nel ASA (OTCPK:NLLSF) Q2 2024 Earnings Convention Name July 17, 2024 2:00 AM ET

Firm Individuals

Hakon Volldal – CEO
Wilhelm Flinder – Head of IR
Kjell Bjornsen – CFO

Convention Name Individuals

Erwan Kerouredan – RBC
Skye Landon – Redburn
Christopher Leonard – UBS
Arthur Sitbon – Morgan Stanley
Alexander Jones – Financial institution of America
Yoann Charenton – Bernstein
James Carmichael – Berenberg

Hakon Volldal

Good morning, and welcome to Nel’s Second Quarter 2024 Outcomes Presentation. At present, seventeenth of July 2024. My identify is Hakon Volldal, I’m the CEO. With me right now, I’ve Kjell Christian Bjornsen, our CFO; and Wilhelm Flinder, our Head of Investor Relations. We now have the next agenda: Nel in short; highlights from the second quarter; strategic and business replace; manufacturing replace; know-how replace; and as typical, we spherical it off with a Q&A.

After the spin-off of Cavendish Hydrogen, the previous Fueling division of Nel, we at the moment are a totally devoted electrolyzer know-how firm. We now have a century of electrolyzer innovation behind us, and we’re pushing for brand spanking new applied sciences. We now have one single focus and that’s to ship essentially the most energy-efficient and dependable electrolyzers on the planet. And we do this along with world-class companions so as to ship the best-in-class turnkey programs.

Nel is listed on the Oslo Inventory Alternate, as you may know, and we now have been listed there since 2014. We’re a number one pure-play electrolyzer producer. We now have put in greater than 3,500 models in additional than 80 nations since 1927. Manufacturing services in Norway and the U.S., Connecticut, extra particularly. We’re investing closely in R&D to develop next-generation pressurized alkaline and PEM applied sciences. We now have a world gross sales community and places of work. We at the moment are 430-ish staff. Nel is the popular associate with business leaders in numerous sectors, and we now have a money stability of NOK2.2 billion, which makes Nel a well-funded hydrogen firm.

Now, on to the second quarter highlights. Revenues got here in at NOK332 million. EBITDA ended at minus NOK79 million. We had an order consumption within the quarter of NOK270 million and ended the second quarter with an order backlog of NOK2,071 million. On the finish of the quarter, the money stability was NOK2,228 million. The important thing developments within the quarter have been the next: Nel obtained $41 million in extra tax credit for manufacturing growth in Michigan; capability reservation from Hy Stor Vitality for greater than 1 gigawatts of alkaline electrolyzers; Nel entered right into a know-how licensing settlement with Reliance Industries, India’s largest privately held firm; and the Fueling division was spun out and individually listed on the Oslo Inventory Alternate as Cavendish Hydrogen. Subsequent to the top of the quarter, we obtained a follow-on contract for greater than EUR7 million for electrolyzer tools.

Some extra particulars on the group financials. Revenues within the quarter down 10%, and we at the moment are solely speaking in regards to the electrolyzer operation. These — all these figures are excluding Fueling figures. They’re reported as non-continued enterprise. That is solely ongoing operations. Revenues within the quarter down 10%, revenues up to now this yr, down NOK27 million or roughly 4%. EBITDA in step with final quarter once we modify for one-off bills associated to the itemizing of Cavendish Hydrogen and in addition some authorized value and bills associated to main agreements that we made within the quarter.

In case you take a look at the year-to-date figures, nonetheless, EBITDA is up from minus NOK133 million on the finish of June 2023 to minus NOK48 million on the finish of the second quarter this yr. That additionally means the EBITDA margin has improved from minus 20% to minus 7%. EBIT has additionally improved as a consequence of higher EBITDA. It was flattish in comparison with the second quarter final yr. Once more, if we modify for the one-off gadgets. And year-to-date, we’re down — we’re up from minus NOK217 million to minus NOK138 million. Pretax earnings and internet earnings improved within the quarter, primarily as a result of final yr being impacted negatively by a valuation of shares in Everfuel.

In case you take a look at the money stability, you’ll be able to see that it is down from NOK4.1 billion final yr to NOK2.2 billion now. And the key purpose for that’s that, we spent NOK650 million on propping up Cavendish Hydrogen previous to itemizing that on the Oslo Inventory Alternate. However we’re nicely capitalized now that additionally the burn fee will come down as Fueling has been spun off. And we do not see a necessity to lift extra fairness to finance our progress within the coming quarters. Utilization of the manufacturing capability will, after all, be adjusted to market demand, and we have taken massive investments up to now to construct out Heroya in Norway for alkaline electrolyzers and in addition now Wallingford within the U.S. for PEM electrolyzers. And a number of these investments at the moment are behind us.

If we go into the main points on alkaline electrolyzers. We are able to see that the highest line is flattish. It is in comparison with the earlier quarters. It is down 13% year-on-year, flat versus the primary quarter. Regular EBITDA improvement over the previous quarters, apart from the primary quarter, the place we had a one-off optimistic results from renegotiation of previous agreements. And what we will see right here is that, the alkaline division with the present volumes that we’re producing is near breakeven, and there is room to do extra. So with completion of the second line at Heroya, we will develop our order consumption and revenues, we now have the capability to tackle extra enterprise and in addition then to develop revenues. And with elevated revenues, we will even enhance profitability. So the enterprise mannequin for the alkaline electrolyzer division is, I feel, confirmed. That is one thing we will construct on.

On the PEM facet, we had a 4% lower in income in comparison with the second quarter final yr. It is up greater than 50% from a weak first quarter this yr. EBITDA once more is flat — has been flat up to now three quarters and in addition in comparison with second quarter the final yr. What’s essential to note right here is that, whereas we now have a gigawatt of manufacturing capability for the alkaline division, we now have up to now solely had roughly 50 to 100 megawatts obtainable in Wallingford for manufacturing of PEM stacks. We at the moment are growing that to 500 megawatts, and that can allow Nel to take larger orders and in addition be perceived as candidate for purchasers that need to award bigger tasks and alternatives to electrolyzer OEMs. This growth means that it’ll permit Nel to develop each order consumption and revenues going ahead. And that is what is required so as to flip the adverse EBITDA figures into optimistic EBITDA figures.

It is a abstract of our order consumption and backlog. Order consumption within the quarter got here in at NOK270 million, up versus second quarter final yr, primarily as a result of order consumption within the alkaline division and down from the primary quarter this yr. Order backlog additionally pretty flat improvement over the previous couple of quarters with NOK2.1 billion on the finish of the second quarter. And as we now have beforehand mentioned, the order backlog is topic to dangers reminiscent of delays and/or cancellations, however we’re additionally attempting to be conservative once we put one thing into our order backlog. And you’ll see that many of the order backlog pertains to our alkaline operations accounting for greater than 80% of the backlog.

Strategic and business updates within the quarter. We begin with this. Cavendish was efficiently spun out in June, and that made Nel a totally devoted electrolyzer firm but once more. Guarantee that. It was spun out on the Oslo Inventory Alternate on twelfth of June, and we at the moment are dedicating all our capacities and vitality and sources and hydrogen know-how to develop the world’s most dependable and energy-efficient electrolyzers. And I ought to add, following the spin-off, Nel takes a big step in the direction of profitability, and we will even scale back our money burn.

Right here, you’ll be able to see an instance of that. In case you take a look at the EBITDA for Nel ASA what we now have reported in the course of the previous 4 years, you’ll be able to see that the greenish bars characterize electrolyzer plus Fueling, whereas the purple bars now characterize solely the electrolyzer actions. And what now stays in Nel ASA are the purple bars. In 2023, the EBITDA would have been roughly NOK250 million adverse EBITDA versus nearly NOK500 million adverse EBITDA. To date in ’24, EBITDA for the Fueling plus electrolyzer division could be minus NOK150 million. We’re at minus NOK50 million. So this makes it simpler to see that we will truly transfer in the direction of zero and, after all, optimistic figures over time. The problem is barely much less, I might say, than with the mixed entity. In order that’s a optimistic factor.

One other optimistic factor and possibly essentially the most optimistic factor within the quarter, which I am actually proud about is the know-how licensing settlement with India’s largest privately held firm, Reliance Industries. Reliance is famend for its capacity to execute large-scale industrial methods and is now constructing a multi-gigawatt absolutely built-in end-to-end new vitality worth chain consisting of manufacturing services for photo voltaic panels, batteries, electrolyzers, you identify it. And that is, after all, on prime of what they’re already doing, together with working the world’s largest refinery in Jamnagar, India, and having a big cellular operation and digital and retail enterprise in India.

With this licensing settlement, we give Reliance the chance to supply Nel’s alkaline electrolyzers for captive use globally. So all their — they’ll produce electrolyzers for all inside functions for all their tasks world wide and in addition for non-captive use in India solely. They’ll promote electrolyzers to different firms in India. For that, Nel will obtain a compensation. We will even collaborate on R&D, worth engineering, standardization and modularization to enhance the competitiveness of the electrolyzer platform. Because of this this settlement generates a sexy new income stream for Nel from a market that will be very troublesome for us to entry and not using a associate.

And on prime of that, we staff up with a extremely succesful and competent associate to develop our alkaline electrolyzer providing to grow to be much more aggressive. And that’s one thing that can profit all of Nel’s prospects globally. A big achievements I am — I might say, and in addition fairly, I feel, superb that, out of all of the electrolyzer OEMs worldwide, Reliance selected to work with Nel. That makes us really feel proud. And I feel that is testimony to the truth that we’re doing one thing proper in Nel.

One other main achievement is the capability reservation settlement for greater than 1 gigawatt of alkaline electrolyzers from Hy Stor Vitality. Hy Stor Vitality is a mission developer. They’re growing the Mississippi Clear Hydrogen Hub, which goals to grow to be the biggest zero-carbon, off-grid hydrogen manufacturing and salt cavern storage hub within the U.S. The MCHH mission will provide renewable hydrogen to assist the manufacturing of, amongst different issues, inexperienced metal in North America. Nel and Hy Stor signed a FEED contract in — again in December 2023, and we at the moment are the unique electrolyzer associate for Section 1 of this large mission and can present alkaline and PEM applied sciences at scale for greater than 1 gigawatt. If the mission strikes ahead, Nel will present the electrolyzer tools.

So three main business achievements within the quarter. We now have additionally a few manufacturing updates relating to our manufacturing capability world wide. It is a image of a ravishing line two at Heroya. We now have now established an annual manufacturing of greater than 1 gigawatt. The second line was accomplished in June. And we now have, as I mentioned, 1 gigawatt of actual, absolutely automated, manufacturing capability for our atmospheric alkaline electrolyzers at our disposal.

And once more, having 1 gigawatt is essential as a result of prospects have to know that we’re able to producing and delivering excessive volumes with out spending years doing it. 500 megawatt is sweet, 1 gigawatt is significantly better when it comes to giving prospects confidence that we’d be a strategic associate for large-scale tasks going ahead. There aren’t any additional main CapEx commitments at Heroya. We’ll increase manufacturing capability in step with demand. As you already know, demand isn’t there to assist greater than 1 gigawatts for the time being. And that gigawatt will even be utilized by Nel in step with our order consumption or demand. We is not going to have a company to assist the gigawatt if there’s not demand for it.

On the identical time, we now have the chance to increase Heroya to 2 gigawatt if there’s enough market demand. So we’re pleased for now. It is absolutely constructed out to match demand that we see in — for the time being primarily based on the pipeline that we now have. And if there is a have to go to 2 gigawatts, we will do this fairly shortly. Once more, as a result of Line 1 was a pioneering initiative. Line 2 is extra of a replica paste. And Line 3 could be, once more, a replica paste. We now have a really quick implementation time for brand spanking new traces at Heroya. And we now have a really expert group now capable of function these manufacturing traces nearly flawlessly across the clock, seven days per week, which suggests we’re assured that we will ramp up in a short time if wanted.

It is a image from Wallingford the place we produce our PEM electrolyzers. And the objective right here is to extend capability from 50 to 100 megawatts yearly to 500 megawatts yearly. That is progressing in keeping with plan. All main manufacturing steps shall be optimized and automatic and a few beforehand outsourced processes will even be insourced. Remaining dedicated funding CapEx by way of completion for this growth is roughly NOK120 million. We have taken the lion’s share of this funding already.

There’s roughly $10 million, $11 million left of apparatus to buy to finish this. And we intention to have this up and working at full pace in the direction of the top of the yr. This is not going to solely enhance our capability. It can additionally enhance the standard of what we produce and it’ll additionally considerably scale back the price of our PEM stacks as a result of it isn’t solely about automation, it is also about enabling new applied sciences to make use of of latest supplies to optimize the cell or stack design so as to get the associated fee down and the effectivity up.

Within the quarter, we additionally secured a further $41 million in assist for the deliberate electrolyzer facility in Michigan, and that brings the overall assist program for a possible Michigan plant to $170 million. Roughly half of that quantity is money incentives. The Michigan plant, we now have deliberate to be round 4 gigawatts, and we need to manufacture our next-generation merchandise in that facility. However, once more, closing funding choice isn’t but taken and can solely be taken if we see that demand is there to assist it. Heroya are up and working at 1 gigawatt, Wallingford on its strategy to 500 megawatts and a big assist package deal to assist potential growth in Michigan, if wanted.

Now, on to know-how updates. And that is what possibly excites me essentially the most about what is going on in Nel for the time being as a result of we’re actually onto one thing thrilling relating to applied sciences improvement for the approaching a long time. After we discuss know-how developments, I needed to point out you this as a result of it isn’t solely a Nel’s R&D engineers which might be driving innovation in Nel.

Sure, we now have an enormous staff of R&D individuals with confirmed monitor data and the lengthy expertise within the business, however we’re additionally growing groundbreaking know-how along with many, many, many world-class companions world wide. And also you see some examples right here. It is a number of our companions in Europe, within the U.S., in Asia, from analysis establishments to universities, to business firms that you just may not have heard about to giant family names like Reliance, GM, and many others. So fairly a formidable record, I’ll say, of R&D companions.

And we are inclined to faucet into this associate community and use our personal engineers to ship on this plan. We consider that we’re on the primary S-Curve for alkaline and PEM stacks. The alkaline providing is a little more mature than the PEM providing. However despite the fact that it is mature, it is doable to squeeze extra out of this know-how. We are able to get the associated fee down nonetheless. We’re on a regular basis decreasing the price of our alkaline know-how and our PEM know-how. We are able to get the effectivity up.

We are able to spend fewer kilowatt hours per kilo of hydrogen produced. It is nonetheless doable. So we’re driving this each single day to make our current portfolio higher. And as we now outsource or license the manufacturing of, for instance, the atmospheric alkaline know-how to Reliance, it is doable to faucet into a totally totally different sourcing provide chain and in addition continued electrode developments will enhance the efficiencies. So the S-Curve can truly be shifted out to the appropriate by way of this low-cost nation sourcing setup and partnership with Reliance.

Nonetheless, we consider that so as to basically shift the efficiency over time, we have to get on to the subsequent S-Curve. And we plan to do this with our next-generation PEM know-how developed in collaboration with Common Motors primarily based on their lengthy expertise with gasoline cell know-how and our pressurized alkaline stacks, which we’re growing internally.

And as these applied sciences mature in the direction of 2030 and into the subsequent decade, there could be different future know-how options that might disrupt the know-how platforms that we see right now. And these enabling applied sciences may very well be AEM or stable oxides or different applied sciences. So we regulate these applied sciences. AEM is one thing we now have regarded into for greater than a decade. It is carefully associated to improvement of PEM stacks. So Nel isn’t solely growing higher current merchandise, we’re pushing the envelope relating to next-generation applied sciences and future technology applied sciences.

Then the way you package deal that is essential. If you take a look at the present merchandise that we now have, the alkaline stack and the PEM stack, sure, we work to get the price of these stacks down and the efficiency up. But it surely’s additionally in regards to the full resolution that we ship to a buyer. And we at the moment are growing 100 megawatts turnkey modules in partnership with main world-class EPC firms world wide. We now have signed, within the quarter, a number of strategic partnership agreements with world-class EPC companions, which cowl totally different geographies for growing 100 megawatt alkaline and PEM turnkey options.

By doing that, we scale back each the worth and footprint of large-scale electrolyzer vegetation, and we permit Nel to focus its R&D on stack and stability of stack. We are able to focus our vitality and sources on what we do greatest, and we will faucet into the know-how and data of the EPC firms relating to stability of plant options. Extra particulars on totally different collaborations shall be introduced shortly. You’ll be able to see an instance of our 100 megawatt PEM constructing block to the appropriate.

The primary half is the facility provide to web site. This may be consolidated in numerous methods, and it is actually not a part of the stability of plant or Nel scope. However if you happen to exclude the facility provide setup on the left, then you definately see the facility electronics, the transformer rectifier feeding the electrolyzer stacks, pipe racks, storage tanks, cooling, et cetera. The footprint for that is considerably down in comparison with current options and it is carried out in an economical and good strategy to scale back the variety of elements to cut back the structure and to make sure that you’ve secure, dependable operation of one thing which delivers 100 megawatt.

That is one other instance of what we’re doing. That is our idea for pressurized alkaline know-how. And following a profitable stack check of full-sized pressurized electrodes within the first half of ’24 turnkey pressurized alkaline prototype will now be constructed at Heroya within the second half of ’24. It is a skid-based resolution, the place the facility electronics, the stacks and the gasoline separation is all inside 20-foot containers, decreasing the time spent on web site, the engineering hours, the complexity for the shopper and will get the associated fee considerably down in comparison with current applied sciences.

So it is a very good manner of delivering an entire resolution to a buyer that Nel is exploring. The footprint is possibly 20% of our current alkaline atmospheric resolution. And it is meant to take Nel into the subsequent period of aggressive electrolyzer applied sciences. So it is a very thrilling mission the place we’re delivering on the design standards for the stacks and now on to constructing a prototype to confirm that the whole design truly works. And it is attracting a number of curiosity from companions and potential prospects that we now have shared this idea with already.

That concludes the quarterly presentation for the second quarter. And to sum it up, we accomplished our — the spin-off and separate itemizing of the Fueling division, creating a totally devoted electrolyzer firm that’s now Nel ASA. We signed a licensing settlement with Reliance for manufacturing and collaboration of know-how improvement. We accomplished building on line 2 at Heroya, bringing annual alkaline manufacturing capability to 1 gigawatt, and we’re on monitor with the PEM growth in Wallingford. Considerably improved year-to-date financials and shorter royalty profitability and a decrease money burn fee following the spin-off of Fueling and with NOK2.2 billion in money reserves and a number of massive investments behind us, there isn’t any near-term want to lift extra money.

With that, I invite our CFO, Kjell Christian Bjornsen on stage along with me to reply questions from the viewers, and also you — Wilhelm will do the conventional introduction, I suppose.

Query-and-Reply Session

A – Wilhelm Flinder

Thanks, Hakon. I see we now have some questions coming in already. [Operator Instructions] If we now have time, we will even take written questions submitted by way of the Q&A perform. If there are questions we do not have time to reply, please attain out to us on ir@nelhydrogen.com.

And as a reminder from earlier quarterly displays, we is not going to touch upon outlook-specific targets, detailed phrases and situations on contracts, in addition to questions on particular markets. Modeling questions, we’d additionally respect is taken off-line. So we’ll begin with a query from Erwan Kerouredan. We now have activated the microphone on our finish. Please go forward.

Erwan Kerouredan

[Multiple Speakers] Are you able to hear me?

Hakon Volldal

Sure.

Erwan Kerouredan

Effectively, thanks for taking my query. So I’ve a primary query on Heroya the road quantity two. Are you able to make clear what it signifies that you are pondering of adjusting the associated fee construction and utilization charges? And have you ever view — clearly, we are going to understand how the market has been evolving. However, sure, are you able to give extra granularity when it comes to utilization charges for the subsequent, I might say, one or two quarters?

Kjell Bjornsen

Effectively, we are going to — we now have a backlog, and we don’t intend to construct a big retailer of readily produced electrodes. And with the backlog we now have, there isn’t any want for working the 2 traces we now have at Heroya full pace. So we shall be working at lower than full pace for the subsequent couple of quarters. After which we shall be tuning up and down primarily based on no matter order consumption we now have.

Erwan Kerouredan

Understood. Thanks. After which on the associated fee construction facet of issues, what does it imply when it comes to your progress in the direction of EBITDA breakeven? Is it like a slower tempo versus anticipated or one thing else? Thanks.

Kjell Bjornsen

So crucial factor for us to achieve EBITDA breakeven is that, the amount we produce and ship in any given quarter. So, after all, the faster we get the order consumption in, the faster we’ll get to optimistic EBITDA.

Erwan Kerouredan

Okay. Thanks. And final query, please, on know-how technique. If I am not mistaken, it is at all times been recognized that you just have been AEM additional out. But it surely appears to be like like stable oxide is a little bit of a brand new factor. Are you able to make clear — are you able to affirm that? After which give some colour as to what prompted you to look into that know-how?

Hakon Volldal

We won’t discover all obtainable applied sciences on the market. And we all know there’s a marketplace for PEM and alkaline electrolyzers. We’re unsure what the market shall be for stable oxide and AEM. Each applied sciences look very promising whenever you take a look at the theoretical KPIs of those two platforms in comparison with PEM and present alkaline applied sciences. However the bar is consistently being raised as a result of the present applied sciences get higher. And we expect we’d like extra calendar time each for stable oxide and AEM to get to a aggressive CapEx stage.

You must also know that stable oxide is a excessive temperature know-how, that means it operates at round 600 to 1,000 levels Celsius and only some processes lend themselves to that know-how. You’ll want to have extra warmth or waste warmth so as to run the stable oxide electrolyzer in an environment friendly manner. In case you do have that, then you’ve very attention-grabbing effectivity numbers for that know-how. AEM is sort of like a hybrid or PEM and alkaline, the place you’re taking one of the best of each platforms. You get the footprint — the small footprint of the PEM stack and the differential strain.

But it surely operates in an alkaline setting, that means you do not want iridium and different costly platinum group metals. You get the associated fee good thing about the alkaline platform and the effectivity advantages of the alkaline platform mixed with the footprint and strain advantages of the PEM know-how. However, I might say, I do not assume my perspective is, I ought to say, that stable oxide and AEM will not be applied sciences that can grow to be extraordinarily related on this decade. We’ll be wanting on the subsequent decade earlier than these applied sciences will begin to get massive orders after which just for sure functions initially.

Erwan Kerouredan

Understood. Thanks. It’s very useful.

Wilhelm Flinder

Thanks. Subsequent query comes from Skye Landon. Please go forward.

Skye Landon

Thanks for the presentation. On the Reliance deal, can — my query, what your present expectations are when Nel would begin receiving royalties from Reliance and what the materiality of those may very well be? Are you able to share something about Reliance’s deliberate capability dimension? And likewise, have you learnt if Reliance is every other applied sciences alongside alkaline? Thanks.

Hakon Volldal

So we can’t disclose an excessive amount of details about the settlement with Reliance. However we now have already booked revenues from this settlement as order consumption within the second quarter, and we now have already obtained funds. There’s an upfront portion and there is a working portion. And, after all, the working portion depends upon how briskly they roll out the know-how and the way a lot they produce. Their rapid plan, as they’ve mentioned formally is to get 2 gigawatt scale subsequent yr. That is what they’ve mentioned. And once more, in India, issues can take extra time, however issues can even transfer extraordinarily quick. If we’re capable of switch our know-how and data to them shortly, after which we’re engaged on that each single day now.

Our expectation is that, we are going to get 2 gigawatt scale subsequent yr. And that — following that, they may — in the event that they like what they see, they may shortly increase that past the primary gigawatt to one thing larger. However I feel it is unsuitable of us to touch upon Reliance plans. So we ought to be cautious to place phrases of their mouth, however it’s a large income and revenue alternative for Nel. How massive it turns into, depends upon how a lot they really do. However understanding Reliance, they don’t seem to be into this as a result of they assume it is attention-grabbing to be at low digit gigawatt scale, they need this to be vital, and so they need it to be massive. In any other case, it isn’t value their time and a focus.

Skye Landon

Understood. Thanks. And on the applied sciences, are they something apart from alkaline?

Hakon Volldal

Proper now, the main focus is on alkaline know-how, our platform, which lends itself properly to a low-cost setup in India. The plan is to verify we will produce at scale Nel’s current atmospheric alkaline stacks after which get the associated fee down on that and along with them additionally enhance the effectivity by way of new materials choice and additional enhancements of membrane know-how and coatings, et cetera. So it is — that is their main focus for the time being. I am not conscious of different electrolyzer initiatives for the second.

Skye Landon

Thanks. Nice. Thanks very a lot.

Wilhelm Flinder

Thanks. Subsequent query comes from Chris Leonard. Please go forward.

Christopher Leonard

Yeah, guys. Sorry. Hopefully. Now I’m unmuted. Might you please simply present an replace on the 200 megawatt U.S. contract? I consider it has been over a yr now since you’ve got acknowledged the income and have not but obtained the money. It accounted for like 34% of 2023 electrolyzer income. So when do you assume you will have to take the choice to jot down down that contract? Are you able to give us some visibility on that? And secondly, does that additionally hyperlink to why you are possibly seeking to scale back Heroya utilization charges going into Q3, This autumn because of the threat of remarketing that 200 megawatts of manufacturing? Thanks.

Kjell Bjornsen

So on that, it is an ongoing analysis when you’ve an excellent receivable of that dimension. And we might have taken choices on that already if we did not see progress on the mission and progress on the funding. And likewise remember the fact that we now have obtained a large amount of cash already. So there’s positively some lock in from the mission proprietor facet to make this occur. We’ll proceed to work carefully with that one buyer. We nonetheless proceed to consider that, that mission shall be realized, and we are going to monitor the state of affairs carefully. If it seems that the mission is not going ahead, we are going to, after all, must remarket 200 megawatt. That isn’t in present plans on the utilization of Heroya.

Hakon Volldal

We would add that we now have acknowledged revenues from the mission, however the EBITDA half that we now have acknowledged has already been collected in money. So if the mission must be written off, it would not affect the EBITDA, it will affect the highest line solely. In order that’s one factor. The opposite factor is, you could be conscious that it has been a difficult regulatory setting, each in North America and in Europe, and it continues to be that manner, however with indicators of enchancment. In Europe, they’ve now on a nationwide stage, accredited a few of the IPCEI funding that was awarded most likely a yr in the past, which signifies that tasks winners can truly obtain cash from nationwide governments to assist the IPCEI tasks.

Within the U.S., nonetheless, we’re nonetheless ready for clarifications across the detailed laws of IRA. And what does it take to qualify for the $3 manufacturing tax credit score? That is impacting U.S. tasks negatively, together with the mission we’re speaking about right here. We’d like visibility and readability on this. Treasury has come out with an preliminary suggestion. There have been hundreds and hundreds of feedback to this proposal. And our understanding is that, they’re working by way of all these feedback and have the ambition to come back out with a closing regulation this yr. However this mission that we’re speaking about right here is, sadly, a little bit of — is negatively impacted by the dearth of readability. And there are different tasks as nicely, each Nel tasks and non-Nel tasks which might be in the identical state of affairs.

Christopher Leonard

Thanks. And simply on the shopper. I imply, is it truthful to imagine that your view of an ongoing choice shall be taken? Is it truthful to imagine that they’ve truly obtained capital that is been raised and that their liquidity is in a ok spot so that you can assume there’s not threat right here?

Kjell Bjornsen

Effectively, if there have been zero threat, we’d have taken a better share of the RAN (ph) or EBIT affect. So this has been highlighted as a threat. We predict the monetary disclosure round it’s balanced. And the way in which it has been offered every so often, retaining in thoughts that we now have solely taken the end result affect equal to the money obtained. So you would say from a worst case perspective, we get a receivable is all of a sudden a list at value to supply somewhat than being a receivable.

Christopher Leonard

Thanks. Thanks, guys.

Wilhelm Flinder

Thanks. Subsequent query comes from Arthur Sitbon. Please go forward.

Arthur Sitbon

Hey. Thanks for taking my query. It is principally in regards to the latest European public sale outcomes the place the worth premium that was granted to the bidders was round EUR0.40, EUR0.50 per kilo of hydrogen. Does that imply — as a result of it appears to be like fairly low. Does that imply that for tasks to work economically, it is all about offtakers paying a premium for inexperienced hydrogen over grey hydrogen? And if that’s the case, do you see willingness to do this from the offtakers? And what’s driving this willingness to pay if there’s any willingness to pay for a premium?

Hakon Volldal

Yeah. I feel the associated fee hole between grey hydrogen and inexperienced hydrogen is unquestionably increased than EUR0.50 per kilo. It is a lot increased for the time being, sadly, which signifies that the public sale — I view the public sale as extra opportunistic. There are some firms that could be absolutely financed. There are tasks which may have offtakers which might be keen to pay a big premium over grey hydrogen, and that is simply icing on the cake as a result of EUR0.50, EUR0.40 is unquestionably not sufficient to shut the hole in the direction of grey hydrogen. So have that behind your thoughts. The associated fee hole is larger.

However sure, there are offtakers which might be keen to pay a premium that’s fairly vital as a result of they need to decarbonize their operations, and so they have only a few alternate options to hydrogen. I feel that’s the main motivation for the time being. So long as we’re not speaking about gigantic gigawatt tasks, however we’re speaking about tasks within the lots of of megawatts, the offtakers will not be shopping for large portions, proper? So that they may very well be keen to pay a premium for a small portion of every thing that they purchase.

And that is essential as a result of that is what we have to get off the bottom. Over time, we all know we are going to scale back the hole in the direction of grey hydrogen, however we’d like any person who’s keen on the offtake facet to pay the present premium so as to jump-start this business. And we do see that funding helps, it closes the hole, however EUR0.50 isn’t sufficient.

Arthur Sitbon

Thanks very a lot.

Wilhelm Flinder

Thanks. Subsequent query comes from Alex Jones. Please go forward.

Alexander Jones

Thanks very a lot. You confirmed a chart displaying alkaline EBITDA over time has been comparatively flat ex the one-offs final quarter. Are you able to discuss somewhat bit about what is going on on beneath the service? As a result of I feel if we return to final yr, you talked about type of combine enhancements resulting in bettering margins. And clearly, that is not seen within the headline outcomes. So has that occurred and simply been offset by scale up prices or is a number of that blend enchancment nonetheless to come back?

Hakon Volldal

Sure. That blend enchancment is but to come back. And there’s no prime line progress which we additionally want to profit from the dimensions benefits which might be inherent on this enterprise. What we report on are nonetheless a number of the tasks that we signed with full scope. They don’t replicate absolutely the stack stability of stack scope that we now have. As you already know, a few of these tasks have been delayed and postponed. So I feel the complete visibility on the intrinsic margins, our stack stability of stack providing isn’t but seen absolutely within the P&L.

Alexander Jones

Okay. And simply to observe up on that, ought to we count on any enchancment within the second half or are we actually seeking to subsequent yr and afterwards to see that blend come by way of?

Hakon Volldal

Second half will most likely be pretty much like first half. And we intention to shut out a number of the complete scope tasks in the course of the yr. After which it depends upon the order backlog for ’25. If we get enough quantity for ’25, we must always see a margin enchancment. If we do not get order consumption, then, after all, the margin enchancment shall be eaten up by low utilization and overhead. However identical prime line. So if you happen to assume the identical prime line subsequent yr with the stack stability of stack combine, the margin ought to go up. However then we have to ship on that very same quantity.

Alexander Jones

Thanks.

Wilhelm Flinder

Thanks. Subsequent query comes from Yoann Charenton. Please go forward.

Yoann Charenton

Good morning, everybody. Thanks for taking my questions. So I wish to come again on to the purpose you simply made in regards to the second half of the yr that can look similar to the primary half when it comes to margin. I am simply attempting to know what we now have seen up to now within the first half when it comes to prime line stage. It appears to be like like you might be working under the run fee that’s implied by what once more was reported in your annual report when it comes to income recognition anticipated this yr for the electrolyzers phase on the time. So I am simply attempting to know why margin isn’t going to development increased within the second half, assuming the highest line is ready to get well from right here. So that will be the primary query.

After which the second query is possibly a bit extra broad-based. Coming again on to some factors you commented on as nicely throughout this name. It is about these auctions. We all know that now and a few OEM friends have been negotiating with EU authorities for the inclusion of Made in Europe restriction for tools that’s principally ordered by participant into these auctions. Any replace on this challenge chances are you’ll present?

Hakon Volldal

I can begin with the second half, after which you’ve time to let the primary half mature, Kjell Christian. We’re in — we’re not negotiating with the EU Fee, however we attempt to supply our opinions to the EU Fee on how they’ll design the second upcoming hydrogen financial institution public sale so as to get the result that the EU truly wish to see as a result of despite the fact that participation within the first public sale was superb, greater than 130 tasks, I feel, utilized for funding. Solely a handful of tasks have been awarded cash and out of these tasks. It appears to be like like a good portion of apparatus shall be sourced from China.

What we’re asking for is a stage taking part in area. We need to compete on equal phrases with the Chinese language. And it isn’t truthful that we’re at a drawback in Europe relating to competing on these deliveries. And that is all we’re asking for. We now have — I do not need to go into particulars on what we now have proposed that yow will discover in a few of the press releases we now have despatched out.

However I feel the European Union positively is conscious that they should do one thing so as to have a better worth creation in Europe for European tax cash — taxpayer cash spent on subsidizing hydrogen. However, once more, the EU needs to be best-in-class relating to following WTO guidelines and laws. China would not do it. U.S. would not do it, however Europe needs to do it. So it is laborious to design standards that can result in a Made in Europe consequence.

However I feel it is wanted if we need to see a profitable European OEMs with deliveries in Europe and never every thing being imported primarily based on subsidies and different mechanisms. So I feel there’s completely an curiosity contained in the EU to maneuver nearer to, as an instance, Made in Europe method. Precisely what the foundations and laws they may provide you with for the second public sale haven’t but been determined. That shall be determined within the subsequent coming weeks.

Kjell Bjornsen

After which again to the margin a part of the query. The remark was in proportion phrases. We’ll proceed to be impacted by a few of these full scope tasks which might be nonetheless not closed out. We now have managed to shut out a few of the outdated ones, and we’re persevering with to work on closing that out. And as you already know, when you’ve got a mission going over time, then usually that goes over funds as nicely. And when that comes on the finish of the mission, there’s actually not a lot new income to match that with. So whereas we do get some value protection, there’s not nice margin, if any in any respect, on the tasks which might be over time.

In case you take a look at the backlog reported within the annual report, the backlog continues to be underneath strain for cancellation and delay. So we do see some threat. Nonetheless, there are additionally some upside. So I feel it is too early to be exact on income for this yr. The primary couple of quarters, we have been a bit sluggish on deliveries on a number of milestones in comparison with what we’d have needed. So on our main mission for supply this yr, there’s nonetheless vital deliveries to be carried out for the yr.

Hakon Volldal

At enticing margins.

Kjell Bjornsen

At enticing margins.

Yoann Charenton

Thanks. That’s very clear.

Wilhelm Flinder

Thanks. We now have one other query coming in from Arthur Sitbon. Please go forward.

Arthur Sitbon

Thanks. Thanks for taking my query. With all of the agreements which have been concluded, the capability reservation, order agreements as nicely, I used to be questioning if you happen to might assist us perceive a bit how a lot of your manufacturing capability is reserved or already dedicated for 2025 to 2027. Thanks very a lot.

Hakon Volldal

If the capability reservation agreements are literally executed, we are going to want the capability we now have now established at Heroya into ’25 and ’26 and first a part of ’27. If they aren’t executed, we now have a number of obtainable capability. If we get extra orders on prime of the reservation agreements and the reservation agreements are executed, we’d most likely want so as to add capability. So the result is, I might say, nonetheless a bit unsure. We do not have a number of visibility on this. Greatest case is that, we’re absolutely booked nearly. Worst case is that, we now have a big job to do to fill the factories in ’25, ’26 and ’27.

Arthur Sitbon

So to be clear, does that imply that till you’ve visibility on this massive capability reservation settlement, you’ll be able to’t actually be certain of how you are going to deal with new orders as a result of how would that work [indiscernible]?

Hakon Volldal

So we are going to take new orders. If we take all new orders, and if a few of these bigger capability reservation agreements are then executed, these are multiyear deliveries, which suggests we now have time to extend capability. We are able to even source from Reliance in India if we’d like. So, I am not anxious in regards to the capacity to ship, however it’s kind of laborious to present you exact figures on the utilization fee for Heroya in ’25, ’26, ’27 for the time being, provided that we do not know when these capability — if and when these capability reservation agreements will truly be confirmed.

Arthur Sitbon

However does that imply in different phrases, that any new giant order would set off an additional growth of Heroya?

Hakon Volldal

No. It means that we’ll — a confirmed order we are going to at all times take, provided that the situations are enticing. After which if a capability reservation settlement is then later executed and we’d like extra capability as a result of we now have already stuffed up the manufacturing facility, then we now have time so as to add extra capability, if wanted, however we’re not at that time but.

Arthur Sitbon

Okay. Thanks very a lot.

Wilhelm Flinder

Thanks. Subsequent query comes from Skye Landon. Please go forward.

Skye Landon

Hello. Thanks for taking my second query. On the 1 gigawatt capability reservation with Hy Stor, are you able to run by way of the steps which might be wanted for this mission to take FID and grow to be a agency order? After which extra typically, when are yourselves at Nel anticipating to start out seeing agency orders and mission FIDs to start out type of flowing again into the market? Thanks.

Hakon Volldal

The bigger tasks, we count on FID in the direction of the top of ’24 early a part of ’25, particularly for Hy Stor. That is in regards to the inexperienced metal mission, the place the shopper is — the offtaker is presently in discussions with the Division of Vitality for subsidies on a part of the capital expenditure as a result of we’re speaking tons and plenty of billions of {dollars} for this mission. It is not absolutely — it isn’t depending on getting assist from DOE, however it will assist.

So what we do want is for the offtaker to decide to a inexperienced metal mission within the U.S. In the event that they do this, then Hy Stor is the unique associate for delivering inexperienced hydrogen, subsequently, the manufacturing of the DRI metal to that offtaker, and we’re the unique supplier of electrolyzers to Hy Stor. So I feel all of it comes down as to whether the offtaker on this case, the metal firm will transfer ahead with the DRI facility in North America.

Skye Landon

Understood. Thanks.

Wilhelm Flinder

Thanks. We now have two extra questions, after which we’re ending this Q&A session. Chris Leonard. Please go forward.

Christopher Leonard

Thanks for taking my observe up, guys. You bought — 2025, clearly, you mentioned that some giant orders might are available on the again finish of this yr and possibly into the beginning of ’25. Given your electrolyzer backlog, first half is round down 16% year-over-year. How comfy are you with consensus income expectations to point out 25% income progress in 2025? Do you really want to see orders come by way of instantaneously within the subsequent quarter to have the ability to attain these ranges? Thanks.

Hakon Volldal

We’re fairly assured that we’ll signal orders within the third quarter and fourth quarter. What we’re not assured about but is how a lot are we speaking about? We now have a big pipeline with the median mission dimension is within the lots of of megawatts. We do not want a number of them, however we do want a pair. With none new tasks, ’25 goes to be difficult, and there shall be no prime line income progress.

With a few these tasks, we now have the chance to have an excellent ’25. So I feel, sadly, the visibility is a bit low for the time being. After we take a look at the mission pipeline, ongoing discussions, LOIs, contract negotiations, there’s a number of exercise. And not less than, I ought to communicate for myself, I’m assured that we’ll signal contracts within the third and fourth quarter which might be significant to Nel, that means not Mickey Mouse contracts, however sizable contracts with significant manufacturing volumes.

Christopher Leonard

Nice. Thanks.

Wilhelm Flinder

So we are going to take one final query from James Carmichael. Please go forward.

James Carmichael

Good morning, guys. Sorry, I feel I muted myself. Simply shortly, I imply, you type of touched on it earlier, however it appears like various the outlook relies on the U.S. and the time line on that 45B tax credit score has been shifting quite a bit as anticipated finish of final yr, then I feel broadly talking, there was an expectation in June or July this yr. And now it feels prefer it’s slipping to the appropriate once more. I respect that you would be able to’t management it.

However what is the type of the key holdup? There are headlines round this type of Chevron deference ruling from the Supreme Courtroom. The three pillars are clearly inflicting some issues. What was your type of greatest estimate and greatest understanding of how shortly that may all be resolved? And, I suppose, any sense you’ve got obtained of what the Trump administration, if it is available in, may as a result of that if it isn’t handed in time restrict?

Hakon Volldal

If I left you with the impression that the pipeline that we’re when it comes to potential new tasks are principally within the U.S., then I’ve misled you, as a result of it is — that is not the actual fact. If we take a look at the pipeline, we do have tasks within the U.S. We do have tasks in Europe, and we now truly see vital tasks in Asia. Asia is shifting at its personal tempo, I might say. They have been far behind. Now they’re catching up. And the important thing driver isn’t a lot decarbonization, however vitality safety, vitality import, they want extra vitality.

And it is laborious to construct new nuclear vitality services. It is laborious to construct photo voltaic. It is laborious to construct offshore, onshore wind in a few of these nations. In case you take a look at Japan, South Korea, et cetera, they should import vitality, and that vitality has to come back from different nations the place it is doable to construct out renewable vitality. After which hydrogen is the vitality vector, the type of the molecules you transport so as to get the vitality again to the homeland. So we now have a few very promising tasks in Asia, and we count on exercise there to choose up.

In Europe, exercise has been held again by excessive rates of interest and troublesome funding setting and lack of assist. A number of ambitions have been introduced by politicians, each contained in the EU and on native or nationwide stage, however little or no cash has truly ended up in a checking account that may be utilized to purchase electrolyzers from Nel and different OEMs. That’s bettering. We see some cash now being paid out.

Within the U.S., we’re ready for the clarifications from Treasury round manufacturing tax credit. And though we do not assume that the Trump administration shall be as ahead leaning because the Biden administration has been on this. It may be very laborious to reverse a number of what has been put in movement. If there shall be different issues on prime, we’re most likely not anticipating that to occur. However once more, the Treasury wants to come back out. That’s what is holding again progress within the U.S. Even when that takes extra time, we now have good alternatives in Europe and Asia. So our pipeline, I might say, is pretty diversified. We do not rely upon one continent solely to make progress so as to win new orders.

James Carmichael

Thanks lots.

Wilhelm Flinder

So yeah, that was the final query, which ends this Q&A session, and please attain out to us on ir@nelhydrogen.com for additional questions. And with that, I am going to give the phrase again to administration for any closing remarks.

Hakon Volldal

Thanks, Wilhelm. First quarter was all about incentives. We obtained a number of assist, specifically, in North America to fund the R&D packages and in addition for the potential Michigan growth. So the headline was subsidies and assist. I feel the headline for the second quarter is strategic agreements with Reliance, after all, being the important thing settlement that we signed. We have additionally landed a capability reservation settlement with Hy Stor. We now have signed strategic partnership agreements with world-class EPC firms. And we have additionally spun out Cavendish Hydrogen.

So I feel the second quarter is de facto about deal-making. And let’s hope the third and fourth quarter shall be all about new orders. We stay optimistic and hope to come back again to you in, what’s it, October, with extra visibility and readability on how we count on the remainder of ’24 and ’25 to unfold. However as I mentioned, we stay optimistic in regards to the outlook for hydrogen, Nel’s place particularly, and hydrogen’s place extra broadly. And sure, we do every thing we will every day to get extra orders, and we stay assured that we’ll get that. So with that, thanks. Thanks to your time. Thanks for listening in. Have a fantastic summer time break, and see you again in October.