Hydrogenpro As

Good morning and welcome to Hydrogen Pro's fourth quarter presentation. Today, I'm accompanied by CFO Martin Holte, who will present the financial results. And I will now go through the quarterly highlights. The quarter is recognized by stable delivery, providing equipment to Salko's project, and through that recognizing 70 million Norwegian kroner in revenue. The day before Christmas, we announced a capital raise of 140 million Norwegian kroner at a premium of 22%. On our focus on technology improvement, the new electrode line in Denmark is now in the commissioning phase. And also the stack one, as we call it, together with Andrids, is being set in operation for full-scale testing. All components have now been delivered to the Salko project and we are now going forward focusing on the electrode deliveries. Good morning and welcome to Hydrogen Pro's fourth quarter presentation. Today, I'm accompanied by CFO Martin Holte, who will present the financial results. And I will now go through the quarterly highlights. The quarter is recognized by stable delivery, providing equipment to Salko's project, and through that recognizing 70 million Norwegian kroner in revenue. The day before Christmas, we announced a capital raise of 140 million Norwegian kroner at a premium of 22%. On our focus on technology improvement, the new electrode line in Denmark is now in the commissioning phase. And also the stack one, as we call it, together with hundreds, is being set in operation for full-scale testing. All components have now been delivered to the Salko project and we are now going forward focusing on the electrode deliveries. I'm very happy to inform that we have taken major steps in working safely and reduce accidents. Last year, we worked 360 days without any accidents. And thereby, by end of last year, reaching a 12 months rolling lost time frequency rate, as we call it, to zero. Most important is that no people are injured. But it also is showing the underlying work and focus on quality and behavior. Hydrogen Pro is a focused company. We focus on our core products, being the electrolyzer and the gas separator unit, the gas separation skid. But also in the market we are addressing, we are focusing. We have selected large-scale industry segment where we, among the project of ACES, are addressing the balancing of grid and power to gas. The same with the decarbonization of steel production with the Salko project. In addition, we do see market areas where grey hydrogen is already input in the production process to decarbonize. As example, refinery and ammonia. I have mentioned before, but again I want to emphasize this. We're placing Hydrogen Pro in the IEA world map of ongoing hydrogen projects, as this is important. Hydrogen Pro is one of five to six OEMs having delivered to mega projects. This puts us in a forefront position with operational projects. Customers are asking for references and installations, and we are now taking customers to visit the site to see the deliveries that we have provided. As our two projects are among the first ones to start operations, few will have the same reference and documented performance as we will provide others. Before Christmas, the financial market had more or less taken a Christmas holiday. But with the capital injection, it was a big Christmas event for Hydrogen Pro. This has changed Hydrogen Pro from a founder-based owner position to a company with now strong leading industrial partners in major positions. Together, the three industrial partners are now controlling 42% of the company. They are investing in Hydrogen Pro because they believe in the market, they believe in the company, and they believe in the technology. And together, we are now delivering two of the largest projects in the world – It is three financially strong partners where we are well presented on the three main continents in North America, in Europe, and in Asia. Lungi, as the newest partner between the strategic owners, are now in the process where they have delivered and applied for the overseas direct investment, which is pending for the final approval of their investment. The progress is going well and we expect to have the completion beginning of April. As with our two other partners, we see strong synergies also with Lungier. Lungier being the world's leading supplier in PV solar solutions and where contained solar energy, for instance, in area, providing low cost of energy. Energy represents up to 70% of the hydrogen production. And we see solar parks with low energy costs, where it's captured and difficult to transport. And there comes hydrogen into play, where you can either develop it into value-add, ammonia, etc., We also see synergies in the manufacturing footprint. We can optimize the supply chain. And we also see that both companies have technically complementary good solutions. In some cases, Longe has some technical solutions we see that we can also implement. And also in other areas, we see that we have better solutions that they can implement. As an example, the electrode technology. Longe has also projects ongoing in Europe where they would need support in implementation and engineering. And where we will sell engineering hours, implementation and commissioning hours to Longe projects. So we see a synergy in how we deploy our organization together. The funding side is undoubtedly important, but in addition to the capital side of the investment, the partnership puts us also in a much stronger position towards the customer. Hydrogen Pro is focusing, as I mentioned, on the core delivery of the electrolyzer, the gas separation unit, the electrodes, and the assembly. But the customers, they are asking for more. They are asking for EPC. They are asking for full balance of plant. Areas that a company like Hydrogen Pro would not be able to support or supply by itself. Together with our partners, we can now go in and we are going in and supplying and providing the full scope, which is also giving the project and also hydrogen pro a much better bankability. In addition, partners like Andritz and Mitsubishi are already preferred suppliers to their customer in other verticals who are looking at decarbonization. and also entering into the hydrogen space, which Salco again is a very good example of. Also going up the value chain, we see that synergies can be realized on the supply and manufacturing side. And we are now exploring these together with our new partner, Longe. And in Europe, we have a joint assembly together with Andres, reducing the capital burden of Hydrogen Pro, but expanding the capability and the capacity. Although we are focusing on the large-scale market, we do see that we have several projects which are in the beginning or at a smaller scale. So do not forget DHK. Maybe not as large as the three others, JHK has already a good foothold with smaller entities in the private and public sector on energy supply and electrical equipment installation. And who they are now working on decarbonization and or hydrogen distribution. To illustrate the type of partnership we are developing, common for all these three partners is that they are committed to the energy transition and to hydrogen. Mitsubishi, in addition to the initial investment in developing the ACES project, they have also invested several hundred millions in the Takasago plant in Japan. where Hydrogen Pro's electrolyzer is a vital part in the world's first integrated validation center for hydrogen-related technologies, covering hydrogen production, storage, and utilization. Longe is investing in the diversification from solar to hydrogen as their commitment to carbon reduction. UNRID is at the forefront of the green transition, integrating environmental awareness with technological innovations. They are investing in the entire value chain from carbon capture, green hydrogen production, to e-methanol and e-ammonia. We are clearly in a time with uncertainties and unpredictability. As most others, I do also not have the answer to the outcome of the current geopolitical tensions. But Hydrogen Pro has made several proactive measures to maneuver. In today's uncertainty, with the market slower than expected, increased competition from Chinese OEMs, And also an increase on focus on track record, safety, reliability and documenting the technology. So we can only focus on maneuver with the uncertainties. And we have taken already steps and actions. And Hydrogen Pro has, like Hydrogen Pro, has a small headquarter in Oslo, combined with a cost-leading supply chain, positioned also in a global scale. We have raised capital from strategic partner at a premium. We have a strict capital discipline, both in what we have already invested in manufacturing capacity in China and Denmark, but also by postponing US expansion as it was originally planned. We have entered into the partnership with Andritz. We are now entering into the partnership with Longe to strengthen competitiveness further. We are delivering to two of the ten largest projects globally, excluding China. And we are offering well-documented high-pressure alkaline with advanced electrodes. Hydrogen is lagging according to previous expectations. But there is a huge overperformance in the renewable sectors of solar and wind, which will also drive the hydrogen development. The need for stabilizing and utilizing the variability in the renewable sector is where is hydrogen a medium in a steady supply. For instance, within storage and also in periods with negative pricing, hydrogen will be an element for evening out the energy transmission. And also decarbonizing is driving hydrogen projects going forward. China is leading the way and recognized by our partner, Longji. The previous estimates from reaching net zero emission in 2050 has come down, which also has impacted electrolyzer deliveries. But We do still see that the global market is very large. Actually, the next two years, global electrolyzer deliveries are expected to be close to 20 gigawatts during this year and next year, which again translates to more than 50 billion Norwegian kroner in the same period. China is by far the largest market, but we still see significant volumes in the rest of the world, particularly in certain areas of Europe, Germany, Spain, and also other Nordic areas are growing more rapidly than many other regions, India also being an example of where we see growth coming. And despite the slowdown, I do remain positive. The total number of projects in our pipeline has not increased. But the increase of prioritized projects is a clear sign that projects are maturing and getting closer to FID. And based on how I see the development of these projects, This is the main reason for my now higher optimism entering 2025 than what I was in the beginning of 2024. The European Hydrogen Bank announced last fall EU-funded projects will have to fulfill certain criteria for European manufacturing in order to qualify to obtain the funding. We have gone carefully through the criteria and we see that with our setup of assembly in Germany, electoral production in Denmark, there are only minor changes in our current supply chain that we need to change or alter. Also, our suppliers in China have alternative supplies outside China if it needs to come from outside China. that we can draw on. With that, we can continue to utilize also our plant in China for some of the production and also then combined with supply in rest of Europe. So let me state clearly, with our setup, we are complying to the European Hydrogen Bank requirements. As I mentioned in the beginning, we are continuing to focus on product and technology enhancement. Compared to substitute technologies, we are with our high-pressured and electrode technology, positioning HydroGEN Pro in a superior position. With further design improvements, we are also improving the operating cost of the electrolyser with the best capability. Based on this, again, we have delivered two of the largest projects. And an update on the project execution. We are continuing with stable delivery, and the project execution is going well. As referred to again in one of my first slides, Hydrodynamic Pro being among the five, six suppliers of megaprojects in the world, being this, ACES, and the SADCO project. And the development of this project is that we will then be among the first to commission and operate megaprojects. The ACES project is in commissioning. It is a large and complex project. And the final commissioning might be late compared to the initial information. But we have delivered all the equipment. It's placed at site. It's installed. We have our commission engineers at site. And any delays in startup compared to early announcement is not related to hydrogen pro delivery. For the SALCO projects, there was a groundbreaking ceremony that took place five days ago, and this is also running well according to plan. We do put a lot of effort and resource into enhancing our technology, and one of the major things that we are doing, and an important milestone in this, is the production of Generation 3 electrodes. And here we are now in the start-up phase of the project and preparing for full production. The project is on time and below budget. Another example of our focus on technology improvement is the full-scale production at Hawea, which is also now in the start-up phase. The electrolyzer is being electrified this week and will then run for approximately one month. The electrolyzer is equipped with 50% of the Gen 3 electrodes. and 50% of the conventional generation two electrodes. So we have a direct comparison. It also has an improved design for life flow, which will further enhance the performance. And this is the first electrolyzer as it's made, which will then be delivered to SALCO after the validation. With this, I would now like to hand over to Martin to go through the financials. Thank you.

Thank you, Jarle. Then I will walk you through the fourth quarter financials. So during the last quarter in 2024, Hydron Pro generated revenues of 70 million kroner. The gross profit, which is measured as revenues minus direct materials, ended at 29 million, which equals a gross margin of 41%. EBITDA ended at minus 44 million and the net loss was 38 million. So then comparing with the third quarter last year, the revenues are 2 million lower, while the gross profit is 10 million higher. And the major explanation behind that is that we have in the fourth quarter recognized less costs on the ACES project compared to the third quarter. Personal expenses was 42 million in the fourth quarter compared to 40 million in the third quarter. And if we then look at the other operating expenses in the fourth quarter, this was at 31 million. or 13 million higher than in the third quarter. So six million of this increase is related to a reversal of a provision that took place in the third quarter. And then the remaining seven out of that three million is mainly related to professional services in connection with the capital race we announced just before Christmas. And the remaining four million is related to mainly related to an increasing operating expenses at our factory in Tianjin. We have initiated some cost measures already, but the bulk of these will now come into effect during 2025, later this year. And I will get back to that later now in the presentation. Then let's look at the development in the liquidity position during the quarter. So the cash balance at the start of the fourth quarter was at 188 million and it ended at 191 million. So an increase of 3 million. And bear in mind, this does not include the private placement, which was announced just before Christmas. So the first 70 million was settled now in January from Andris and Mitsubishi. And the remaining 70 million equity Injection by Longji, which is then contingent upon approval by the Chinese authorities, is expected to be settled now in the second quarter of this year. So the changes then in the cash position were as follows. So the BTA came in at minus 44 million. Changes in networking capital had a positive impact on the cash situation of 58 million, mainly related to payments on the SALCOs order. And then we had investments in Denmark of 9 million kroner in the quarter. And the expansion now in Denmark has been completed now in February on time and below budget. This is a slide I have presented before and I want to repeat it now because it's important for us to convey this message. We see also that we differ from a lot of the other companies in the electrolyser sphere with our very keen focus on capital discipline. As Yara alluded to, the market is more challenging right now, and it's important to be even more conscious on spending. Throughout HydroPro's history, we have demonstrated a strict capital discipline with a sound foundation in place. We have chosen one core electrolyzer technology, large scale, high pressure alkaline. So a focused offering that is scalable to meet different project sizes. And we couple this then with strong partners. So this platform gives us operational leverage where we can grow and maintain a lean global organization. And not the least, we have a cost competitive supply chain. So we've combined this foundation with a list of focus areas. So we can rather quickly adjust some of the cost base in line with the project activity, as we will now do in Tianjin. We will reduce the running cost in our manufacturing site there. The expansion in Denmark was delivered on time and below budget. And our top priority is to invest, to spend our funds to invest in technology to take a position as a technology leader. And our high R&D activity is largely enabled by R&D grants. So very conscious spending. And we've tried to then, of course, seek as many R&D grants as possible to keep the activity level high. And lastly, we focus on retaining a sustainable networking capital when we take on new contracts. So given the slow market we're facing, we're now taking some additional measures to meet this situation. We have established a cost savings program where we're planning to take out more than 40 million in annual savings. This will be implemented now and it will consist of downsizing in Europe, reduced use of external consultants. We are bringing down the activity and cost level in Tianjin in line now with lower production activity. And lastly, we will keep our Shanghai office in a dormant position only now. But important to say, while we're taking down the costs, we need to keep some core competencies in place to deliver. In this company, there is a lot of special competence and experience, which is extremely valuable. And we need to keep that afloat when the market improves. So with that, that concludes the presentation. And now over to Q&A. So please join me on the stage, Jarle.

Thank you. We have received some questions related to your presentation. And I think I'll start out with a question related to your projects. One is very concrete, and that is, is the cook

Well, as I said, I'm optimistic for this year in terms of maturity of the pipeline, as I showed you. But we are never commenting on specific projects and development issues. Not because of our own position, but from the customer perspective. They are deciding on what to be communicated and not communicated related to their progress. So I cannot comment specifically on this project, but remain positive.

Okay, but then you also answered a couple of other questions related to your backlog and your contracts. But it's also one more concrete question related to the DG Fuels. What are the standing on that project now?

With DigiFuel, I can also only relate to what is publicly announced. And it's announced and we know that they are working to conclude the Fel3 study and coming to the final FID within the next quarter. We also know that the Louisiana project will be blue, but we also know that they are working with other green hydrogen projects in Maine and Minnesota, among others.

And then a question related to the mission done in December. There were 12.7 million shares issued, of which 3.7 million were allocated to Andret and to Mitsubishi, respectively. Why were there an additional 5.3 million shares issued at this point?

Yeah, so there is a limit in terms of the number of shares that can be registered. So it's up to 20% of the share capital during a 12-month rolling period. So we are now in a process of submitting a prospectus to have all of the shares approved and registered. So once that prospectus is approved, all of the 12.7 million shares will be registered and call it part of the share capital.

As a part of the mission in December it was also communicated that there might be a compensatory mission. Why has there been no communication regarding this?

Yes, we're currently assessing that situation, whether we will go forward with subsequent offering or not. And we will get back to the market in due course on that. But of course, the share has now traded sort of below the issue price for quite some time. So that's one of the considerations to make in that respect.

A question related to the manufacturing capacity that is building up in Denmark. What is your factory utilization rate for advanced electrodes in Denmark in 2025, given your recent orders booked?

Well, as we have informed, we will supply the SALCO project with the generation 3 electrodes. So for the first half year and well into the third quarter, we are fully booked of that operation.

Is the increased electrode building capacity connected with the expectation that Longhi is ordering HP electrodes for their orders or sales? Yes.

I think it's natural that once we talk about UB Corporation and their investing in the company, as I mentioned, we have technology that we see that there is synergy with them and vice versa. And obviously, our electrodes being one of the, let's say, major assets we have on the technology side. It's still early in the phase of, shall we say, all the details of the cooperation, but it's natural to be part of the discussion.

You also mentioned something about your supply chain, and it's one question that is stated as follows. When will you make your minor necessary adjustments to your supply chain?

We are doing that continuously and it will depend on the project. With a project funded by the European Hydrogen Bank, the adjustment is not a matter of any investment or building capacity. This is a matter of where we are being supplied from the components that we are not making ourselves. So again, we are assembly in Germany. We are making an assembly and coating the electrodes in Denmark. And the rest are just minor adjustments together with our mostly current suppliers.

Question related to your cost saving initiatives. What are the costs for your cost reduction measures?

Yeah, so we have, as we mentioned also in the presentation, a flexible supply chain set up with our manufacturing site and being sort of the major cost driver with regards to supply chain cost. And we will reduce that cost now during the next few months as the activity level will be reduced at our factory in Tianjin. So I would say very little, call it additional costs with regards to cost reductions. And we've also, it's also externally known that we have done some layoffs in our temporary layoffs in our organization in Norway. So that's the status for the time being. So meaning very limited additional costs to implement these cost measures.

Regarding investors in general, who are Clearstream and what are your relationships?

So Clearstream is a nominee account, mainly then consisting of both institutional and retail investors, mainly in Germany. So again, that account consists of several different investors. It's hard for me to give that breakdown further. But as you might be aware of, there is now a new regulation in place from 1st of February this year. So we will also now open up, of course, for requests in case external stakeholders have questions regarding the ultimate owners behind the nominee accounts.

Another question on the backlog. It might be I'm not able to answer it, but I'll put the question anyhow. How much of the 305 million order backlog is for 2025 execution?

Well, we disclose the total backlog. We are not breaking it into the years. We have our assumptions. But it all depends on when it will mature and materialize in an FID by the customer. So obviously, as soon as we have any further development on that, we will inform on that.

But if they are referring to backlog and not pipeline, the 305 million backlog, that is now mainly related to the Salkos delivery during this year, mainly, or this year. And the remaining chunk of that is mainly related to the ACES service, call it after sale and service contract, which is... primarily linked to a large overhaul, which will take years, several years down the road, say eight to 10 years down the road.

Then a couple of questions in the end related to the more common perspective of the market. And one question is, there are voices saying a consolidation in the electrolyzer market may come and only five, maximum 10 Western companies will survive. What is your opinion about that?

Well, I guess my speculations will be as good as the other speculations that it's natural in an oversupplied market as it's described now that consolidation is part of that. I think we have already shown that we have taken measures with our now partnership with Lomgi. So we have already taken measures and we will now see how we can utilize the manufacturing footprint together.

And then it's related to the, they call it the elephant in the room, is the heading of the question. What are your take on the green transition in relation to the development in the world at the moment, Trump, Ukraine, etc.? ?

I think it's important to have more than one thought in the head at the same time. And we also see, particularly in Europe, that the politicians are talking about, yes, we have some immediate and urgent issues to handle. But at the same time, they are devoting time, energy and also energy that we have seen now with the latest funding sources provided with the German government to build, for instance, European manufacturing. My take is that politicians are still obviously concerned about the climate change, about the energy transition. But I think the most important is not just the political environment. I showed you the picture of the development in the renewable sector, solar and wind. This is going on beyond anyone's expectations, also the politicians. Solar energy is the cheapest source of energy today, so the economy is driving it. But it's not stopping there, as I said, with overproduction on solar and also wind. You have to store that energy, and you have to also even it out as it's fluctuating. And there is where hydrogen is coming in.

Okay, thank you. I think that concludes the Q&A session.