NEL ASA

Good morning and welcome to Nell's second quarter 2024 results presentation. Today, 17th of July 2024. My name is Håkon Voldahl. I am the CEO. With me today I have Kjell Christian Bjørnson, our CFO, and Vilhelm Flinter, our Head of Investor Relations. We have the following agenda. Nell in brief. highlights from the second quarter strategic and commercial update production update technology update and as usual we round it off with a q and a after the spin-off of uh cavendish hydrogen the former fueling division of nell we are now a fully dedicated electrolyzer technology company We have a century of electrolyzer innovation behind us, and we are pushing for new technologies. We have one single focus, and that is to deliver the most energy efficient and reliable electrolyzers in the world. And we do that together with world class partners in order to deliver the best in class turnkey systems. Nel is listed on the Oslo Stock Exchange as you might know and we have been listed there since 2014. We are a leading pure play electrolyzer manufacturer. We have installed more than three and a half thousand units in more than 80 countries since 1927. Manufacturing facilities in Norway and the US, Connecticut more specifically, We are investing heavily in R&D to develop next generation pressurized alkaline and PEM technologies. We have a global sales network and offices. We are now 430-ish employees. Nell is the preferred partner with the industry leaders in different sectors. And we have a cash balance of 2.2 billion NOC, which makes Nell a well-funded hydrogen company. Now on to the second quarter highlights. Revenues came in at 332 million NOK. EBITDA ended at minus 79 million NOK. We had an ordered intake in the quarter of 270 million NOK and ended the second quarter with an ordered backlog of 2 billion and 71 million NOK. At the end of the quarter, the cash balance was 2 billion 228 million. The key developments in the quarter were the following. Nel received 41 million US dollars in additional tax credits for manufacturing expansion in Michigan. Capacity reservation from high store energy for more than one gigawatt of alkaline electrolyzers. Nel entered into a technology licensing agreement with Reliance Industries, India's largest privately held company, and the fueling division was spun out and separately listed on the Oslo Stock Exchange as Cavendish Hydrogen. Subsequent to the end of the quarter, we received a follow-on contract for more than 7 million euros for electrolyser equipment. Some more details on the group financials. Revenues in the quarter down 10%, and we are now only talking about the electrolyser operation. All these figures are excluding fueling figures. They are reported as non-continued business. This is only ongoing operations. Revenues in the quarter down 10%. Revenues so far this year down 27 million NOK or roughly 4%. EBITDA in line with last quarter when we adjust for one-off expenses related to the listing of Cavendish Hydrogen and also some legal costs and expenses related to major agreements that we made in the quarter. If you look at the year-to-date figures, however, EBITDA is up from minus 133 million NOC at the end of June 2023 to minus 48 million NOC at the end of the second quarter this year. That also means the EBITDA margin has improved from minus 20% to minus 7%. EBITDA has also improved as a consequence of better EBITDA. It was flattish compared to the second quarter last year. Again, if we adjust for the one-off items and year-to-date, we are up from minus 217 to minus 138. Pre-tax income and net income improved in the quarter, primarily due to last year being impacted negatively by an evaluation of shares in Aerofuel. If we look at the cash balance, you can see that it's down from 4.1 billion NOC last year to 2.2 billion now. And a major reason for that is that we spent 650 million NOC on propping up Cavendish hydrogen prior to listing that on the Oslo Stock Exchange. But we are well capitalized now that also the burn rate will come down as fueling has been spun off. And we don't see a need to raise additional equity to finance our growth in the coming quarters. Utilization of the production capacity will, of course, be adjusted to market demand. And we've taken big investments so far to build out Haidoja in Norway for alkaline electrolyzers and also now Wallingford in the US for PEM electrolyzers. And a lot of those investments are now behind us. If we go into the details on alkaline electrolysers, we can see that the top line is flat compared to the previous quarters. It's down 13% year on year, flat versus the first quarter. steady EBITDA development over the past quarters except for the first quarter where we had one-off positive effects from renegotiation of past agreements and what we can see here is that the alkaline division with the current volumes that we are producing is close to break even and there's room to do more so with completion of the second line at Heria we can grow our order intake and revenues. We have the capacity to take on more business and also then to grow revenues. And with increased revenues, we will also improve profitability. So the business model for the alkaline electrolyzer division is, I think, proven. This is something we can build on. On the PEM side, we had a 4% decrease in revenue compared to the second quarter last year. It's up more than 50% from a weak first quarter this year. EBITDA again is flat. It has been flat in the past three quarters, also compared to the second quarter last year. What's important to notice here is that while we have a gigawatt of production capacity for the alkaline division. We have so far only had roughly 50 to 100 megawatts available in Wallingford for production of PEM stacks. We are now increasing that to 500 megawatts and that will enable NEL to take bigger orders and also be perceived as a good candidate for customers that want to avoid larger projects and opportunities to electrolyse their OEMs. This expansion means that it will allow NEL to grow both order intake and revenues going forward. And this is what is needed in order to turn the negative EBITDA figures into positive EBITDA figures. This is a summary of our order intake and backlog. Order intake in the quarter came in at 270 million NOC. up versus second quarter last year, primarily due to order intake in the alkaline division and down from the first quarter this year. Order backlog also fairly flat development over the past couple of quarters with 2.1 billion NOK at the end of the second quarter. And as we have previously said, the order backlog is subject to risks such as delays and or cancellations. But we are also trying to be conservative when we put something into our order backlog. And you can see that most of the order backlog pertains to our alkaline operations, accounting for more than 80% of the backlog. Statistic and commercial updates in the quarter. We start with this. Cavendish was successfully spun out in June and that made Nell a fully dedicated electrolyser company yet again, I should add. It was spun out on the Oslo Stock Exchange on 12th of June and we are now dedicating all our capacities and energy and resources and hydrogen know-how to develop the world's most reliable and energy efficient electrolyzers. And I should add, following the spin-off, Nel takes a significant step towards profitability, and we will also reduce our cash burn. Here you can see an example of that. If you look at the EBITDA for Nel-Asa, what we have reported during the past four years, You can see that the greenish bars represent electrolyzer plus fueling, whereas the purple bars now represent only the electrolyzer activities. And what now remains in NEL-ASA are the purple bars. In 2023, the EBITDA would have been roughly 250 million NOC negative EBITDA as opposed to almost 500 million NOC negative EBITDA. So far in 2024, EBITDA for the fueling plus electrolyser division would be minus 150 million NOC. We are at minus 50 million NOC. So this makes it easier to see that we can actually move towards zero and of course positive figures over time. The challenge is Slightly less, I would say, than with a combined entity. So that's a positive thing. Another positive thing and maybe the most positive thing in the quarter, which I'm really proud about, is the technology licensing agreement with India's largest privately held company, Reliance Industries. Reliance is renowned for its ability to execute large-scale industrial strategies and is now building a multi-gigawatt fully integrated end-to-end new energy value chain consisting of production facilities for solar panels, batteries, electrolyzers, you name it. And this is, of course, on top of what they are already doing, including operating the world's largest refinery in Jamnagarh, India. having a large mobile operation and digital and retail business in India. With this licensing agreement, we give Reliance the opportunity to produce Nels Alkaline electrolysers for captive use globally. So they can produce electrolysers for own internal purposes for all their projects around the world and also for non-captive use in India only. They can sell electrolyzers to other companies in India. For that, Nel will receive a compensation. We will also collaborate on R&D, value engineering, standardization and modularization to improve the competitiveness of the electrolyzer platform. This means that this agreement generates an attractive new revenue stream for Nell from a market that would be very difficult for us to access without a partner. And on top of that, we team up with a highly capable and competent partner to develop our alkaline electrolyzer offering to become even more competitive. And that is something that will benefit all of Nell's customers globally. A significant achievement. i would say and um also quite i think uh amazing that out of all the electrolyzer oems worldwide reliance chose to to work with nell that makes us feel proud and i think that's a testimony to to the fact that we're doing something right in nell Another major achievement is the capacity reservation agreement for more than a gigawatt of alkaline electrolysis from High Store Energy. High Store Energy is a project developer. They are developing the Mississippi Clean Hydrogen Hub, which aims to become the largest zero carbon off grid hydrogen production and salt cavern storage hub in the US. The MCHH project will supply renewable hydrogen to support the production of, among other things, green steel in North America. Neland High Store signed a feed contract back in December 2023, and we are now the exclusive electrolyser partner for phase one of this massive project and will provide alkaline and PEM technologies at scale for more than one gigawatt. If the project moves forward, Nel will provide the electrolyzer equipment. So three major commercial achievements in the quarter. We have also a couple of production updates when it comes to our manufacturing capacity around the world. This is a picture of a beautiful line two at Heidøya. We have now established an annual production of more than one gigawatt. The second line was completed in June and we now have, as I said, one gigawatt of real fully automated production capacity for our atmospheric alkaline electrolyzers at our disposal and again having a gigawatt is important because customers need to know that we are capable of producing and delivering high volumes without spending years doing it 500 megawatt is nice one gigawatt is much better in terms of giving customers confidence that we would be a strategic partner for large-scale projects going forward There are no further major capex commitments at Haidoja. We will expand production capacity in line with demand. As you know, demand is not there to support more than a gigawatt at the moment, and that gigawatt will also be utilized by Nel in line with our order intake or demand. We will not have an organization to support the gigawatt if there's not demand for it. At the same time, we have the opportunity to expand Haria to two gigawatts if there is sufficient market demand. So we're happy for now. It's fully built out to match demand that we see in at the moment based on the pipeline that we have. And if there's a need to go to two gigawatts, we can do that quite quickly. Because line one was a pioneering initiative. Line two is more of a copy paste. A line three would be again a copy paste. We have a very short implementation time for new lines at Haida. And we have a very skilled organization now able to operate these production lines almost flawlessly around the clock, seven days a week, which means we are confident that we can ramp up very quickly if needed. This is a picture from Wallingford where we produce our PEM electrolyzers, and the goal here is to increase capacity from 50 to 100 megawatt annually to 500 megawatt annually. This is progressing according to plan. All major production steps will be optimized and automated, and some previously outsourced processes will also be insourced. Remaining committed investment capex to completion for this expansion is roughly 120 million NOK. We've taken the lion's share of this investment already. There's roughly 10-11 million dollars left of equipment to purchase to complete this and we aim to have this up and running at full speed towards the end of the year. This will not only improve our capacity, it will also improve the quality of what we produce, and it will also significantly reduce the cost of our PEM stacks. Because it's not only about automation, it's also about enabling new technologies to use new materials to optimize the cell or stack design in order to get the cost down and the efficiency up. In the quarter, we also secured an additional $41 million in support for the planned electrolyzer facility in Michigan. And that brings the total support program for a potential Michigan plant to $170 million. Roughly half of that amount is cash incentives. The Michigan plant, we have planned to be around four gigawatts, and we are looking to manufacture our next generation products in that facility. But again, final investment decision is not yet taken and will only be taken if we see that demand is there to support it. Hi there, up and running at one gigawatt, Wallingford on its way to 500 megawatts and a significant support package to support potential expansion in Michigan if needed. Now onto technology updates, and this is what maybe excites me the most about what is happening in Nell at the moment, because we are really onto something exciting when it comes to technologies development for the coming decades. When we talk about technology developments, I wanted to show you this because it's not only Nell's R&D engineers that are driving innovation in Nell. Yes, we have a big team of R&D people with proven track records and a long experience in the industry, but we're also developing groundbreaking technology together with many, many, many world class partners around the world. And you see some examples here. This is a selection of our partners in Europe, in the US, in Asia, from research institutions to universities to commercial companies that you might not have heard about to large household names like Reliance, GM, etc. So quite an impressive list, I will say, of R&D partners. And we tend to tap into this partner network and use our own engineers to deliver on this plan. We believe that we are on the first S-curve for alkaline and PEM stacks. The alkaline offering is a bit more mature than the PEM offering, but even though it's mature, it's It's possible to squeeze more out of this technology. We can get the cost down still. We are every day reducing the cost of our alkaline technology and our PEM technology. We can get the efficiency up. We can spend fewer kilowatt hours per kilo of hydrogen produced. It's still possible. So we are driving this every single day to make our existing portfolio better. And as we now outsource or license the production of, for example, the atmospheric alkaline technology to Reliance, it's possible to tap into a completely different sourcing supply chain and also continued electoral advancements will improve the efficiency. So the S curve can actually be shifted out to the right through this low cost country sourcing setup and partnership with Reliance. However, we believe that in order to fundamentally shift the performance over time, we need to get on to the next S-curve. And we plan to do that with our next generation PEM technology developed in collaboration with General Motors based on their long experience with fuel cell technology and our pressurized alkaline stacks, which we are developing internally. as these technologies mature towards 2030 and into the next decade, there might be other future technology solutions that could disrupt the technology platforms that we see today. And these enabling technologies could be AEM or solid oxides or other technologies. So we keep an eye on these technologies. AEM is something we have looked into for more than a decade, is closely related to development of PEM stacks. So Nel is not only developing better existing products, we are pushing the envelope when it comes to next generation technologies and future generation technologies. Then, how you package this is important. When you look at the existing products that we have, the Alkaline stack and the PEM stack, Yes, we work to get the cost of those stacks down and the performance up. But it's also about the complete solution that we deliver to a customer. And we are now developing 100 megawatt turnkey modules in partnership with leading world-class EPC companies around the world. We have signed, in the quarter, multiple strategic partnership agreements with world-class EPC partners, which cover different geographies. for developing 100 megawatt alkaline and PEM turnkey solutions. By doing that, we reduce both the price and footprint of large-scale electrolyzer plants, and we allow Nel to focus its R&D on stack and balance of stack. We can focus our energy and resources on what we do best, and we can tap into the know-how and knowledge of the EPC companies when it comes to balance of plant solutions. More details on different collaborations will be announced shortly. You can see an example over 100 megawatt PEM building block to the right. The first part is the power supply to site. This can be consolidated in different ways and it's really not part of the balance of plant or NEL scope. But if you exclude the power supply setup on On the left, then you see the power electronics, the transformer rectifier feeding the electrolysis stacks, pipe racks, storage tanks, cooling, etc. The footprint for this is significantly down compared to existing solutions. And it's done in a cost effective and smart way to reduce the number of components, to reduce the layout, and to ensure that you have safe reliable operation of something which delivers 100 megawatt. This is another example of what we're doing. This is our concept for pressurized alkaline technology. And following a successful stack test of full sized pressurized electrodes in the first half of 24, a turnkey pressurized alkaline prototype will now be built at Heria in the second half of 24. This is a SCID based solution where the power electronics, the stacks and the gas separation is all inside 20 foot containers, reducing the time spent on site, the engineering hours, the complexity for the customer and gets the cost significantly down compared to existing technologies. So this is a very smart way of delivering a complete solution to a customer that Nell is exploring. The footprint is maybe 20% of our existing alkaline atmospheric solution. And it's meant to take Nell into the next era of competitive electrolyzer technologies. So this is a very exciting project where we are delivering on the design criteria for the stacks and now on to building a prototype to verify that the complete design actually works. And it's attracting a lot of interest from partners and potential customers that we have shared this concept with already. That concludes the quarterly presentation for the second quarter. And to sum it up, we completed the spin-off and separate listing of the fueling division, creating a fully dedicated electrolyser company that is now Nel-Asa. We signed a licensing agreement with Reliance for production and collaboration of technology development. We completed construction of line two at Haerøya, bringing annual alkaline production capacity to one gigawatt. And we are on track with the PEM expansion in Wallingford. Significantly improved year to date financials and shorter road to profitability and a lower cash burn rate following the spin off of fueling. And with 2.2 billion NOK in cash reserves and a lot of big investments behind us, there's no near-term need to raise additional cash. With that, I invite our CFO, Kjell Christian Bjørnson, on stage together with me to answer questions from the audience. And you, Vilhelm, will do the normal introduction, I guess.

Thank you, Håkon. I see we have some questions coming in already. And as a reminder, for the ones that wants to ask a question, please use the hand raise function. And we will call up the name and activate the microphone to the one next in line. Important, please make sure to activate the microphone on your end as well. Note that we will keep the camera off for the ones dialing in Please also keep a maximum of one question per person due to time constraints. If there's more time, you can always go back in the line. If we have time, we will also take written questions submitted through the Q&A function. If there are questions we don't have time to answer, please reach out to us on ir.nellhydrogen.com. And as a reminder from previous quarterly presentations, we will not comment on outlook specific targets, detailed terms and conditions on contracts, as well as questions on specific markets. Modeling questions, we would also appreciate is taken offline. So we'll start with a question from Irvin Caroridon. We have activated the microphone on our end. Please, please go ahead.

Thanks, Rogel. Can you hear me?