NEL ASA

Good morning from sunny Oslo. We are ready to present Nell's second quarter 2025 results. My name is Håkon Voldahl. I am the CEO. With me today, I have our CFO, Kjell-Christian Bjørnsen, and our head of IR and communication, Vilhelm Flinders. We have the following agenda. I'll skip the nailing brief section today. We will focus on the second quarter 2025 highlights. We'll have a commercial update, a technology update, and as usual at the end, a Q&A session. The quarterly highlights are as follows. We had the revenue from contracts with customers of 174 million NOC. We had a negative EBITDA of 86 million NOC. Order intake, 71 million NOC. Order backlog ended at 1.25 billion NOC. And the cash balance at 1.9 billion NOC. Among the highlights in the second quarter, we, our partners, Samsung E&A, launched its COMPASS H2 hydrogen plant solution with Nel Insight. Statcraft canceled, unfortunately, the 40 megawatt alkaline electrolyzer contract they signed back in 2022. And we also signed an MOU with High Point to co-develop modular hydrogen systems for offshore and nearshore environments. Looking at the group financials, we are more or less spot on. Analyst consensus for the quarter. Deviations of 1% for most items. As I said, revenues from contracts with customers down from 332 million NOC. Last year to 174, the quarterly decline of 48% is largely driven by lower project activity in the alkaline segment and previously announced contract cancellations. EBITDA came in line with the last year, mostly due to higher gross margin on products sold in the quarter. and also reduced costs that we will get back to EBIT ended at minus 153 million NOC pre-tax income minus 132 net income minus 131 cash flow from operating activities was minus 53 million NOC solid cash balance at the end of the quarter If we decompose the Group Financials into our two segments, looking at Alkaline Financials first, we see that both the first and second quarter had low revenues in comparison to our performance in 2024. In the second quarter, we had a few project milestones bringing total revenues in at 65 million NOK. Despite that, EBITDA was minus 26 million NOC, a decrease of 23 million NOC compared to last year, but an improvement of 26 million NOC over the previous quarter. We have started cost reduction activities and also adjusted our capacity. We did that in the first quarter. This is now starting to take effect and will reduce costs into the second half of 2025. For PEM, the story is a bit more positive. Revenue in line with the same quarter last year, mainly driven by sales and deliveries of containerized systems. Increase of 23 million NOK over the previous quarter. EBITDA improved 5 million NOK compared to last year due to better gross margins on products sold. overall pem products and project margins are improving on the back of more favorable contractual terms and conditions and also better execution with less rework less quality issues and also fewer people involved in the delivery of our various projects Order intake in the quarter was low at 71 million NOC compared to 311 in the first quarter. Limited order intake on the Alkaline side. Better intake on the PEM side. Order backlog is now at 1.25 billion NOC. I would like to comment that a lot of the decline that you see here is due to the fact that we have taken out cancelled contracts and revenues at risk. So the contracts where we previously included the contract values and listed them as values at risk, that amount has come down by more than 400 million NOC compared to the first time we presented that table. I think it was the fourth quarter of 24. So a lot of cleaning up in the backlog. Which means that the backlog that we have now is of higher quality than what we had a year ago. Cash burn rate is coming down. The cash burn rate, if we simplify it, it's basically the EBITDA plus CAPEX investments. And we can see that in the first and second quarter of 2025, we are around minus 120 million NOC in the quarter. And that compares to quarters historically where we have burned almost 500 million NOC. The reason for this is, of course, not that EBITDA has improved tremendously in 2025, but we no longer need to spend as much money as we did in the previous quarters on production line equipment and ramping up capacity. One gigawatt of production capacity at Haidoja. We have half a gigawatt for PEM in the United States. Our need to invest further into additional production line equipment is limited. That means most of our investments today go into technology development, and we expect the cash burn rate to continue to develop favorably compared to the previous years. We have already executed on a cost reduction program. And you now start to see it in the reported figures. We peaked at around 430 employees around the end of third quarter 2024. We were 361 employees at the end of the second quarter of 2025. And that number still includes some people. that still are employed by Nell due to mandatory notice periods. We expect this number to continue downward and that also means that our personnel expenses have started to decline. That in combination with the halting production at Heria will lead to a lower cost base in the second half compared to in the first half, in particular for the alkaline segment. Moving on to the commercial update, we will start with the short market perspective. Nel's pipeline of projects is large and it is also increasing, but final investment decisions continue to be pushed out in time. We would like to say that the quality of the projects we are targeting and pursuing are or is higher than in the past due to stricter FID criteria. Several of our target projects are in the 20 to 200 megawatt range, and they are expected to take final investments decision in the next quarters. One important step towards reaching final investment decision is to conclude a feed study. We are currently involved in 540 megawatt of paid feed studies, for large-scale electrolyzer systems, and some of our EPC partners are involved in additional studies for hundreds of megawatts. That, of course, is a good signal that we are moving towards FIDs in the coming quarters. If we combine that also with the improved clarity around US regulations, that is expected to help demand and also improve market conditions going forward. And on that note, when we say that there is increased visibility around US political regulations, it is related to the extended visibility and clarity on the 45V hydrogen tax credit. This is a production tax credit, which is now secured through the end of 2027. It means that projects that meet The commenced construction requirement by this date will be eligible for up to $3 per kilogram of hydrogen produced. Qualifying projects can claim the credit for a 10-year period once they are placed in service. What we still need a bit more clarifications on would be what does it specifically mean to commence construction, but We know that the tax credit allows for foreign equipment. The credit now enjoys a high degree of political stability with no foreseeable efforts to roll it back before 2028. Overall, this is a very positive development compared to some of the worst case scenarios that analysts and media expected just a few weeks or months ago. This was a key highlight of the quarter. Samsung E&A, our EPC partner, unveiled the Compass H2 concept. It's a 100 megawatt full plant powered by Nel. As you can see on the picture, the Nel brick is the electrolyzer building with our equipment inside. The rest has been designed by Samsung to optimize the efficiency overall for the system to reduce and minimize footprint requirements, to offer system level performance guarantees, comprehensive engineering support and end to end solution offering. So this is a full blown hydrogen plant consisting of 100 megawatt of electrolyzer capacity. This concept is marketed by Samsung worldwide. And we expect this to be highly attractive to customers that would like to have an end-to-end solution that do not have in-house competence, or even if they have it, do not want to spend a lot of time and effort on building their own hydrogen plants, but rather buy something that is backed by performance guarantees. Performance guarantees that are trustworthy and credible because they're backed by a big balance sheet. So a very positive development for Nel and in line or in accordance with our strategy to focus on making the best electrolysis in the world and partner with companies that can put together a complete package. Samsung is one example. Saipem is another example of Nel's EBC strategic partners. The technology update, this is what excites us these days, and it's because of the progress we are making. If we're honest, first-generation technology is definitely proven. It has been around for decades, and Nel has sold more than 7,000 electrolyzers globally to more than 80 markets around the world. But the levelized cost of hydrogen is still high. These figures are from McKinsey. There are numerous studies out there showing similar results. But if you look at even a large scale project in the US Gulf Coast, the cost per kilogram of hydrogen is around $5. The key cost driver is electricity, followed by capex, not for the electrolyzer only, but for the entire project. operation and maintenance and financing cost it amounts to five dollars and if you look specifically at the capex portion the 1.7 us dollar per kilogram you can see the details on the right hand side we are around 2 000 us dollars per kilowatt for large-scale projects and we're probably closer to 3 000 today per kilowatt for small projects it's not due to the electrolyzer system itself From this analysis, you can see that the electrolyzer system is $750 out of the 1800 to 2200. But the electrolyzer system dictates how much time and money you need to spend on materials, construction, engineering and other hardware equipment. And that's why the electrolyzer is key to solving this cost problem. Nel's approach to lowering or reducing the levelized cost of hydrogen is the following. When you look at OPEX, you need to improve the energy efficiency. The less energy you need to spend per kilogram of hydrogen produced, of course, the less electricity you need and the less money you spend on electricity. You also need to extend the operating range and you need to enable quick ramp up and ramp down because that allows customers to take advantage of periods when electricity prices are low. It means that you can produce most of your hydrogen during off-peak hours and maybe even turn the equipment off when electricity prices are high. To enable that, you of course also need low capex. If you intend to operate your system let's say 30, 40, 50% of the time, CAPEX is even more critical when it comes to the levelized cost of hydrogen than what we saw on the previous page. Then CAPEX is actually more important than energy consumption. The way to reduce CAPEX is, of course, to reduce the cost of the different modules, but We also believe that we need to enable outdoor operation with no building. The building itself can be extremely expensive. The building that will house all the electrolyzers and other equipment. If we can make that compliant with outdoor operation, it will save a lot of money. We need to standardize the equipment. We need to take out thousands and thousands of engineering hours needed to put together a hydrogen plant today. and we need to reduce the footprint and we need to modularize to reduce the site work the construction work the thousands of hours going into putting the different bits and pieces together testing it and commissioning it that's our approach we have looked in detail at the opex drivers and capex drivers for our future systems and the one concept which is first in line is our next generation pressurized alkaline system I have presented this before, but just to do a quick recap, this is a 25 megawatt building block or a 10 ton per day building block. And you can fit this into an area below 230 square meters. everything is packaged inside 20 foot containers why well it enables outdoor operation it reduces shipping and logistics costs and it also forces you to standardize the setup meaning there's limited engineering involved there's a limiting site work you just connect these modules together in the center of this setup you have the process kit this is where the gas is separated so we have oxygen and you have hydrogen gas inside the process kit and you do various treatment of all the gases feeding this process kit you have four stack skids so each stack skid each 20 foot container has a capacity of 6.25 megawatt and on the outside you have the power electronics you have the transformers and you have the rectifiers the beauty about this concept is that it reduces footprint by 80 percent compared to today's atmospheric solutions not only does that mean that your cost of land goes down but the ground works that you need to do the site preparation the civil work the cabling the piping the concrete slabs all of that work all of that cost comes down system capex comes down by 40 to 60 percent compared to today's atmospheric alkaline solution. Cost reduced, I should say, atmospheric alkaline solutions. So the standardization of the system and the 15 bar pressure enables the removal of several modules. It reduces the size of the modules. And due to our smart setup, we can reduce engineering and site work, as I said. So the total impact is a 40 to 60% reduction, taking us very close to less than $1,000 per kilowatt, which is the holy grail because below $1,000 per kilowatt, you are extremely cost competitive with green hydrogen. and finally system energy consumption below 50 kilowatt hours per kilogram so that's at least a 10 percent sometimes 20 to 30 percent improvement compared to existing systems on the market that of course will reduce your electricity bill your opex but this setup helps you address both the capex portion of the equation and the opex portion On the right hand side, you see a live, not a lie, but you see a real picture because in Nell we sell real products and not just PowerPoint concepts. This is the gas processing unit, SKID, being installed at Harøya Industry Park. we will validate this setup we will put next to this our pressurized electrolyzer stacks we will put in the already procured and secured transformer rectifiers and validate the entire prototype during the third quarter we will take fid on gigawatt production setup in q3 Remember that this production line equipment is way cheaper per megawatt than what we have at Harajan today. It's mostly robotic assembly and it's also to a large extent paid for by the EU grant that Nell received last year. We will validate a full 25 megawatt pilot in 26 together with a customer. We have an agreement with Norwegian Hydrogen to test this at Rukan for the project they are planning there. We will launch this as a commercial product and start to sell it and deliver the first units next year. And we will deliver at scale. And what does that mean? Well, it means hundreds of megawatts in 2027. But it's not only that platform we are progressing. You could argue that today's solutions are high CAPEX, high OPEX solutions, with the atmospheric alkaline system being one example, or today's PEM platforms. With the pressurized alkaline system, we develop a low OPEX, medium to low CAPEX solution. But ultimately what we want to have is a super low CapEx, super low OpEx solution. And one such solution could be our next generation PEM stack. This is, as we have commented on earlier, a product we are developing in collaboration with General Motors, leaning on their vast experience in fuel cell technology. And it excites me to see that we are now really making big steps forward on the technology. We have 140% higher capacity on the same footprint. The factor is 2.4. On the left hand side, you see a 1.25 megawatt stack. On the right hand side, you see a three plus megawatt stack. They have the same footprint. Stack capex reduction is 70% compared to today's PEM stacks. That's a big, big saving for the component that is the key cost driver for any PEM system, whereas an alkaline system consists of different parts and modules, and the stack is just one out of many, many modules and not always the key cost driver for a PEM system. The stack is indeed the most important cost driver. To achieve a 70% reduction on that module is a gigantic step forward. And the stack energy consumption will be below 48 kilowatt hours per kilogram and paralleled in the market. All this will make a new PEM system from Nel, a low CAPEX, a low OPEX concept. And it's not only a concept anymore because we have passed a key design review that has allowed us to verify the initial cost estimate that we have. We have now a stack based on real quotes for real components from suppliers. We have started to put together a real stack with real components. and we have initiated procurement of full-scale prototype components. We will continue to invest in test infrastructure and full-scale test stands to simulate varying duty cycles because we don't want to release this product unless we know for sure that it will also have the durability that we need it to have. We have started, as I said, to build small stacks, put them together timing-wise, This product is probably one year behind the pressurized alkaline concept, but with a fantastic potential when we launch it and industrialize it. As I said, it could be the low capex, low opex solution that is needed to unlock the potential in Europe and several other regions to develop green hydrogen projects profitably. That's what we have prepared for today. As I said, the numbers are in line with the analyst consensus, of course, impacted by previously announced order cancellations and postponements, but we continue to make great progress with our new technology and we'll be ready to offer solutions that are unparalleled and I would say unique in the market when it comes back. I will be joined by our CFO Kjell-Christian Björnsson shortly to answer your questions. But before that, Vilhelm, maybe you want to repeat the rules of engagement for the Q&A session.

Thank you, Håkon. Some general info before we kick off. The ones that wants to ask questions, please use the raise hand function and we will call up the name and activate the microphone to the one next in line. Please make sure to activate the microphone on your end as well, as this will likely be muted also. Please also give maximum one question per person due to time constraints. And if more time, you can always go back in line. If we have time, we will also take written questions submitted through the Q&A function. And 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 specific contracts, as well as questions on specific markets. Modeling questions we would also appreciate is taken offline. So with that, we're going to kick off with Elliot, uh, P uh, Jeffrey, Peter, Joel Smith. Please, uh, please go ahead.

Hey, morning guys. Thanks for saying the full name there. Well, I appreciate that. Um, no, um, uh, just a quick on the order intake. Um, also that was a bit lower this quarter, given the clarity that you've seen from the U S now, What are you hearing from customers? Are they already getting excited about it and moving forward? Or are you expecting this to kind of be, you know, more, you know, order intake to pick up maybe at the end of the year, beginning of 2026? And on that note, with these orders, are you, with the lead times, are you still expecting these lead times to be kind of, you know, nine months to a year, you know, with regards to getting the order and then seeing that come into the revenue line item, or is it longer than that now or shorter? Just any kind of colour on those two things would be great.