NEL ASA

Good morning from sunny Oslo. It's Wednesday, 17th of April, and we are ready to present Nel's first quarter 2024 results. My name is Håkon Voldell. I am the CEO. With me today, I have our CFO, Kjell Christian Bjørnsen, our Head of Communications, Lars Nermund, and our SVP fueling, Robert Borin. We are going to cover Nel in brief, the highlights from the first quarter, commercial developments. We are going through a fueling presentation to give some background on fueling as we contemplate a spinoff and separate listing of the fueling division and summarize and do Q&A. Now, Nel is a pure play hydrogen technology company with a global footprint listed on the Oslo Stock Exchange since 2014. A leading electrolyser manufacturer with more than 3,500 units delivered to more than 80 countries around the world since 1927. Also a leading manufacturer of hydrogen fueling stations with more than 140 station modules sold or in progress to 14 countries. Manufacturing facilities in Norway, the U.S. and Denmark, a global sales network, roughly 670 employees, preferred partner with industry leaders across a variety of industries, and 3.3 billion NOC in cash reserves. It means that we are well capitalized. Let's get to the beef. The first quarter highlights. Here are the results. Revenues of 387 million NOC. EBITDA of minus 60 million NOC, order intake 459 million NOC, order backlog at the end of the quarter 2,437,000,000 NOC, and a cash balance of 3,260,000,000 NOC. When it comes to the key developments in the first quarter, we signed a 10 megawatt electrolyzer contract with Samsung CNT. We renewed our relationship with Nikola and also partnered with Fortescue Future Industries on the 80 megawatt Phoenix hydrogen hub in the U.S. We announced an ambition to explore a spinoff and separate listing of our fueling division. We received $75 million in funding for the planned Michigan facility, and Nell, together with partners, received U.S. dollars $90 million in funding for Seventh. meaning several also R&D projects. After closing of the quarter, we received an additional $41 million in additional tax credit for manufacturing expansion in Michigan. Group financials, if we look at the top line, it's up from 341 to 387 million NOC. helped by one-time effects from the Nikola FFI agreement. EBITDA, significant improvement, helped by the same 96 million NOC in one-off effects from the Nikola and FFI agreement, helping also then EBITDA and EBIT and pre-tax income. We have a solid cash position, as you can see, 3.3 billion NOC, which means there's no immediate need to raise additional equity, despite what is being said in the media. We are well capitalized to fund our growth. The expansion programs for Haardøya and Vålingfjord remain on plan. Capacity utilization will, however, be adjusted to match demand. We can look at the details. For the first time, we separate out the alkaline and PEM divisions. We split the electrolyzer segment into alkaline and PEM to give you more details on how we're doing. That means we have three segments. We have alkaline electrolyzer, we have PEM electrolyzer, and we have fueling. Looking first then at alkaline electrolyzer financials. We have a 20% year-on-year growth, again, helped by the Nikola FFI agreement with 54 million NOC in impact from that agreement. And as you can see, the EBITDA is up by 118 million NOC. And the reason we have an improvement in EBITDA above the 54 million NOC from the Nikola agreement is that we also have some provisions that we have in positive one-off effects on the bottom line. You might argue 20% growth, it should be higher for alkaline, at least when you adjust for the one-off effects from Nikola. And the thing is, we don't recognize revenues based on production only. We don't recognize revenues based on number of electrodes produced on a daily basis. We have milestone-based revenue recognition. And in the first quarter, there were a few significant milestones that we reached. And that means we had limited project revenues in the first quarter. We will catch up on that in coming quarters. So that's why growth is only 20 percent and EBITDA again positively impacted by one of the effects from Nikola and also other one positive one of effects from the FFI agreement related to warranty provisions etc. Should be noted though that for the past four quarters the alkaline business is almost break even on EBITDA level, despite using one line only and not to the full capacity. So I think the business model for Alkaline is proven with clear scale effects. What we need now are more orders. When the orders come, this will scale and you will see profitability. So the Alkaline business is actually in good shape to scale up with positive contributions. If you turn to the PEM business, the PEM business is less mature than the Alkaline business, and you can see that from the results, revenues a bit more up and down. We had 52 million NOC in revenues in the first quarter compared to 77 one year ago. That's down 33%, and it's due to facing, again, our project revenues and few milestones being reached in the quarter. We had... Decline of 20 million NOC on the EBITDA line from 23 million NOC a year ago to minus 43 million NOC this quarter. And this is amid reduced revenues. Again, a business that needs to scale further. And in order to achieve that, we need more manufacturing capacity to allow customers to place bigger orders with NEL. So first we need the capacity, then the orders will come. It's difficult to justify placing large orders unless you have the capacity or ability to deliver those orders within a reasonable timeframe. And that's why the expansion in Wallingford is important and it remains on track. The expansion will add capacity, but it will also bring down the cost or the unit cost of stacks produced as we not only automate, and scale up the different steps, but we also introduced new ways of producing the different components of the PEM stacks. Fueling had a 45% year-on-year revenue growth, again, held by the renegotiated Nikola supply agreement, 42 million NOC in one-off, positive one-off effects from that on the fueling side. EBITDA improved by 10 million NOC, And the positive one-off effects from the Nikola supply agreement were partly offset by inventory adjustments for discontinued products and also some further provisions. If you look at order intake and backlog, we reversed the trend on the order intake side. In the first quarter of 2024, we booked 450 59 million NOC in new orders. And that's in line with what we did a year ago, 2% down. And it's above what we have reported in the previous three quarters. That means the order backlog was fairly stable. It's down 13% year on year, but quarter on quarter, it remained flat. The order intake came mostly from alkaline electrolyzers. and also some on the PEM side with less on the fueling side. And you can see also the backlog is predominantly on the alkaline side with PEM at 400 and fueling 300 million NOK. Commercial developments in the quarter. This was, according to our knowledge, the largest announced project that was awarded in electrolyzer industry in during the first quarter of 24. so a total we have calculated of 36 megawatts were awarded to to all the different electrolyzer oems and this was the largest project the only project 10 megawatt or above awarded in the quarter it was awarded to nell from samsung cnt Order value 5 million euros. It will be built in South Korea. This will be the first off-grid green hydrogen production project for Samsung CNT. They will do the EPC work themselves. And it's also important to notice that they have a significant pipeline of electrolyzer projects. So this is a customer that could potentially become important to Nell over time. We renewed our relationship with Nikola, as you have seen, with positive one-off effects for both the alkaline business and the fueling business. The old supply agreement from 2018 was canceled, and we will enter into a new supply agreement for 110 stacks, and that is approximately 275 megawatt of electrolyzer capacity. not a firm order yet and it's not included in the backlog we will include it in the backlog when we receive firm purchase orders the new supply agreement is aligned with our preferred scope of supply on electrolysis projects meaning stacks plus balance of stack and as a consequence of renegotiating the original supply agreement nell received nine million dollars in compensation Another important project linked to the previous agreement with Nikola is that Fortescue Future Industries has acquired the Phoenix Hydrogen Hub project from Nikola. They've taken over the project, which means they've also taken over the 80 megawatt of electrolyzer stacks that Nell has already delivered to Nikola. In order to operate these stacks, you need additional equipment, and we have signed a contract with Fortescue for balance of stack equipment. i.e. the gas separation equipment you need, and also updated warranties and guarantees for the stacks that we delivered previously to Nikola. The contract has a value of $11 million, and the project will be built in Phoenix, Arizona, United States. Please note that the project has already taken a final investment decision, and this will become one of North America's largest electrolyzer systems. The biggest electrolyzer plant in Europe are 20 to 40 megawatts. This is 80 megawatts. So it's a sizable step in increasing the size of hydrogen production plants. The first quarter was the quarter of big announcements when it comes to public funding. As you might know, we have announced our plan to build an electrolyzer plant in Michigan, in the Detroit area. And to support our progress there, we, on 13th of March, were awarded $50 million from the Department of Energy with a $25 million matching grant from the state of Michigan to accelerate the building of that plant. Then on April 4th, we were awarded $41 million in tax credits through the Qualifying Advanced Energy Project Tax Credit, 48C program, also a Department of Energy initiative. That means if we include also the benefit package that we negotiated with the state of Michigan back in 2023, We have accumulated close to $170 million in support, and roughly half of that amount will be cash incentives. The other half are, as I said, tax credits and reduced fees on different items. In this planned four gigawatt facility, we will manufacture our next generation technologies. So it's not only about getting financial support to build it and you know the market demand to to support it but it's also about making the technologies ready for mass production final investment decision has not yet been taken of course we're not going to move ahead unless there is market demand and when it comes to the us it's important to ensure that the regulations when it comes to how much um support or incentives will our customers receive when they produce hydrogen? That has to be clarified, and we're still waiting for the final regulations on that for the Inflation Reduction Act through the Treasury Department. That will come out later. In addition to the support for our Michigan facility, we also applied for funding of R&D projects. And in the first quarter, Nel, together with several partners, were granted $90 million in support from the U.S. Department of Energy. And we're talking about seven R&D projects. We are the leading partner on one of the projects, and we're contributing on others. And the project we are spearheading is related to low-cost clean AEM electrolysis. AEM is a technology that you could very, I think, simplistically say is a PEM stack operating in an alkaline environment. And the purpose is to take advantage of the small footprint of the PEM stack and the fact that in an alkaline environment, you can use cheaper materials than you can do in the normal PEM environment. So you get the cost benefit of the alkaline operation, and you get the size benefit and the differential pressure on the PEM side. This is a technology that is seen as, let's say, a third generation technology. And a lot of companies have come out and said that they work on AEM. Nell has worked on this technology for more than a decade. And we continue to work on it to qualify it, even though we don't think it's suitable yet for large-scale projects. It is a very interesting technology for the future. We will undertake roughly 10% of the work under the seven R&D programs. And then you can calculate our share of the $90 million in direct R&D funding and support. But the US is a good place to be these days. for doing both R&D work on electrolyzers and potentially building new electrolyzer plants and facilities. Then I'm done for a while and I will welcome Robert Borin, our senior vice president of fueling, to give some details on our fueling operation. In our previous quarterly report, we announced the ambition to explore a separate listing and potential spin-off of the fueling division. And Robert is here to give you a presentation of what the fueling division is doing and what they're up to. So welcome, Robert. The floor is yours.

Thank you very much for that, Håkon. And good morning to you all. My name is Robert Borin. this morning i will walk you through our approach to what i believe is is one of the most interesting areas in hydrogen i'm of course talking about the area where i spend my every day which is hydrogen mobility i will walk you through why i believe that hydrogen fueling is a great market opportunity and not necessarily in the two different it's an opportunity that is not laying too far out in the future and why I believe that Nell is in a great position to take a leading role in in this market with the next generation products already on the way. As I just said, my name is Robert Burin, and I'm currently heading Nell's fueling business. I'm also excited to take on the role as CEO for the new fueling company after a potential spin out. I have been in this position for the last three years and before that I have a past in the wind business where I was both in Siemens and Investas. My last position before joining Nell was as member of the executive management team in Mitsubishi Vestas offshore, where I was responsible for the operations. Marcus Halland is not in the presentation today, but having a past in KPMG and Align and six years in Nell in various positions in the finance, he is our absolute preferred candidate for the CFO position for the new fueling company to come. and together Marcus and I are very excited to take on this next chapter in the history of our company. I would like to start out by giving you a quick refresher on how our hydrogen mobility business looks like today. In short, we We develop and we deliver hydrogen fueling solutions for the mobility market, and we have been doing so for the last 20 years plus. Since the start, we have sold in the vicinity of 140 plus systems and the market split between those systems are roughly 50 50 between the US and the European Union, with an additional 50 stations or so in Korea. Most of these stations have been manufactured on our location in Herning, which is, by the way, one of the world's largest manufacturing facilities for hydrogen fueling stations. We have service hubs on three different continents with locations in key markets, both in the US and Europe and, of course, also in Korea. These stations have been produced, installed and sold by most of our or by some of our plus 250 employees. And last year we had a revenue of roughly 32 million euros. In the hydrogen value chain, our products in the fueling business are placed somewhere in the sweet spot between production of hydrogen and consumption of hydrogen. This means that our equipment is able to take hydrogen from a source, compress it, cool it and put it in either a vehicle for consumption or in a trailer for transportation. We believe that also trailer filling alongside with high capacity fueling or heavy duty fueling will be a big business area for us in the coming few years. If we are zooming in even further. Our scope of supply ranges from supply panels, and basically a supply panel is where you connect a trailer coming to dump off hydrogen, or you can connect an electrolyzer, or you can connect any kind of source at the connection panel or the supply panel. Then we, of course, also supply hydrogen storage and the main event, which is the fueling station. And then we have a number of different dispensers that you can connect to this. If we look at our business from a services point of view, we are delivering services that are ranging all the way from installation and commissioning to operations and data monitoring and so on. So we are doing the full value chain. If we are comparing hydrogen mobility to other sources of energy for transportation, such as fossil fuels or batteries, there are many advantages with fueling. Some of the more obvious ones are, of course, the total lack of emissions from the outlet if you compare it to fossil fuels. comparably long driving ranges if you compare it to batteries. But some of the less obvious advantages, especially when we are talking about high capacity filling and heavy duty vehicles that are, of course, the fast filling times, if we start out with that. So we can transfer energy comparable to a one megawatt hour battery in the vicinity of 10 minutes. um and uh yeah and then to put that in perspective a one megawatt hour battery would be corresponding to roughly 10 teslas um if you will do this with the best charging technologies of today it will take well above five to six hours if we look at the grid connection our fueling stations can actually be placed fairly remote. And that is because the coming high-capacity fueling station will require less than one megawatt of grid connection. If you compare that to a comparable charging station, that would require more in the vicinity of 10 megawatt grid connection. And just to put that in a little bit of perspective as well, the city of Herning, where we have our production facilities located, is a city of roughly 50,000 people and has a base load of around 11 megawatt. So it goes without saying that a high capacity fueling station is the better alternative when it comes to connecting or grid connections. If we look at the hydrogen market of today, hydrogen is, of course, already a significant market with close to 90 megaton hydrogen produced on a yearly basis. This is today mainly dominated by industrial use. Hydrogen has the potential to play an important role in the transition from fossil based fuels to more renewable and green energies. And this is why the market is believed and forecasted to grow a factor three in the coming decades. And it's also believed that hydrogen mobility and especially high capacity and heavy duty transport will be one of the major drivers for this growth. Obviously, A driver for growth is in any kind of industry is the supporting regulatory framework and the funding landscape. And there has been many initiatives in the last five to 10 years that has been backing hydrogen mobility. But there's one specific event I would like to point out from last year, summer last year, that I believe is a game changer. And that is that the so-called AFIR or the Alternative Fuels Infrastructure Regulation was put into legislation. What AFIR says is that along the so-called 10T, which is the Trans-European Transport Network, basically all the major highways throughout Europe. Along the 10T, every 200 km, one high-capacity fueling station needs to be built on each side of the road. This actually equates to, in the vicinity of somewhere between 650 to 700 stations, all in all, that has to be built before 2030. However, if we take a conservative look at the timelines in the market, we believe that this will lead to minimum 400 stations being built before 2030. And we are, of course, in the sweet spot for delivering equipment to these 400 stations. And this is only Europe alone. If you look at the United States, the funding landscape has already been put in place, where in the vicinity of $2.5 billion has been put on the table for funding around hydrogen infrastructure. and uh however the the legislative landscape is is is not fully put in place yet but we expect that to come uh with a similar uh regulation um like after uh also in the u.s in the coming year or years here so but the important part is that the funding is already put in place It goes without saying that we believe that we have what it takes to meet the demands of AFIR and the market growth in the coming years. Hydrogen mobility is a junk market, but we have been there from the beginning, collecting experiences the last 20 years. to make sure that we are learning and moving forward in this market. Our current technologies and patents are protected worldwide, and our team of R&D professionals is more than 60 people strong. So it goes without saying that both from a competence point of view and capacity point of view as an organization, we have what it takes to meet these demands. And speaking about capacity, from a capacity point of view, we are well positioned in our current facilities in Härning for the next coming years. This is, by the way, also one of the world's largest hydrogen mobility production facilities. Limited investments are needed for adapting to the new type of products that we will be supplying going forward. And at this facility, we have everything from design and testing to production and service. So the full value chain under the same roof, which is a great advantage. Currently, yeah, as I said, this is one of the largest facilities for production in the world. And of course, again, to meet the requirements of AFIR and other regulations that are coming right now, one of the major things that we are working on right now is of course the high capacity fueling station. And it's important to point out that this will be one of the first real high capacity fueling stations that will be put into the market. It will have a capacity of 4,000 kilos per day, corresponding to 260 kilos per hour. It's roughly four trucks per hour, and that's what you can do on a normal diesel station as well. And this is important because from a commercial point of view, you really need to be at diesel parity when it comes to fueling trucks like this. Looking at the specs of the station, we can connect up to six dispensers, which is also an important facility or important feature, so that we can, depending on what you want to fill on these fueling stations, we can connect either high capacity dispensers or LDV dispensers. Important is also that this station will be compliant with a newly defined standard for high capacity filling in Europe and the US, which is the SAEJ 2605-1. So that's super important that we are compliant to that. So, this capacity of the new high-capacity fueling station does not only meet the demand of AFIR and the 10T rollout, but it is also what we believe putting us in the sweet spot for high-pressure gaseous delivery, which is around 4,000 kilos per day. So to summarize, in 2023, we started the development of the high capacity fueling stations. Since the beginning, we have capitalized on our learnings from the LDV market, and we are taking all of that and putting it into the case for high capacity to de-risk the business case and to make sure that this is a successful launch. The next generation of product is expected to be commercialized in 2025. And our ambition is to grab a fairly modest 15% of the market as a starting point here. But that's where we are today. So with that, I would like to say thank you for listening this morning and hand back over to Håkon again.

Thank you, Robert. Then the only thing left for me before we go to Q&A is to summarize the main takeaways from the quarter. And I think the positive EBITDA in the alkaline electrolysis segment, even adjusting for the one-off effects you can see from the Details we've now provided on this segment specifically that we are very close to break even over a long period of time. And that's also using less than one full line at Herøya. So the argument that we need gigawatts and gigawatts of production capacity to get to black figures in the alkaline division is not really true. We've proven that over many quarters that we're getting very close. We need more orders, but when we get them, this business scales well. We reversed the negative trend on the order intake side. We're back on track with... with 459 million NOC in order intake. That's the highest quarterly order intake since a year ago. We have maintained our cash position, 3.3 billion NOC, no near-term need to raise additional cash. We received a lot of government support in the US for funding the planned electrolyzer facility in Michigan. And we've now accumulated $170 million in support. And that, of course, comes on top of the cash reserves that we have. And as Robert just explained, we continue to explore a spinoff and separate listing of our fueling division. We believe that the fueling business will have a higher likelihood of being successful in the market on its own, and that it's beneficial to the electrolyser business that we can focus on that also. So two separate entities that can explore their own strategies and plans without trying to create synergies between two businesses that are not really there. Then I would like to invite my colleagues up on stage so we can get going with the Q&A.