Nel ASA

Okay. Welcome everyone to the Second Quarter Presentation and welcome to those of you following this over the web and also welcome to everyone here in the room.

We are in the new location due to the COVID-19 situation. We are practicing social distancing and preregistration, but thank you very much for showing up.

We have a new location, so let me just start-off by pointing out the emergency exit, which is straight behind you. And then you have to leave the same way we came in not on the left-hand side, but straight off the back and the assembly point is in the front and there are no alarms planned for today.

We will go through the agenda today. We will go through the financial highlights of the second quarter, including the financial review.

We will also go through some of the highlights of key developments for the quarter after the general introduction about the company. We will finish off with the summary and outlook before we open up for questions.

And if you have questions, you can obviously ask them at the end, but you can also post them online during the presentation. So let’s start with the Q2 highlights.

The revenues were negatively affected by the COVID-19 situation, but grew with 21% compared to the same quarter last year, something that we are relatively happy about, even though we had expected more. The order backlog is again hitting all time high level and increased by as much as 75% from the end of the last quarter.

Orders are getting larger in size and there has been quite a lot of activity even though we were in the middle of the COVID-19 or the pandemic. As you know, we got PO from Nikola.

We got a very large station order for multiple stations and we got more station orders from South Korea. We got an order for 2.5-megawatt PEM electrolyser and we also took over the shares in Uno-X Hydrogen, the joint venture where -- and Uno-X is actually taking all the assets of Hvam and Åsane.

So we -- since I am not going to cover that later, I will cover that now, we will continue to run this entity and move forward with it and we will invite new investors into the JV going forward. After the quarter we also reported R&D grants, both on PEM and alkaline, I will cover all of these events in more detail later in the presentation.

So let’s move over to the financial review. In terms of response to COVID-19, we immediately reduced the numbers of hire personnel and contracted personnel down to a minimum.

However, we decided to keep and maintain our remaining workforce intact in hope for a faster recovery in the hygiene industry compared to some of the industries that you have seen. We will obviously keep assessing this situation going forward.

But so far, we are happy with that decision. EBITDA has improved but will still be and is negatively impacted by one-offs and ramp-up costs.

And I would like to point out that we expect that these ramp-up costs will increase going forward as we accelerate our organizational development and also now start to hire for the next wave of employees that is going into the Herøya expansion, which we will also talk about a bit later. Our reported net income is very positive and mainly related to the Nikola investment.

As you may know, we now have to do mark-to-market calculations every quarter and that has -- will generate swings, you can imagine. And if I were to give you a little tool, a $10 swing in the Nikola share price represents a roughly NOK100 million swing in the valuation.

So we will keep adjusting every quarter and if I were to do the same exact calculation today due to change in share price and dollar devaluation would have been NOK250 million to NOK300 million lower than we have recorded in our books. Our cash position is very strong, more than NOK2.5 billion.

This is increasingly important. In June, we were able to raise NOK1.3 billion in gross proceeds and the transaction attracted a lot of interest.

So it was oversubscribed, something that we are very happy about. It is important for us to have a strong financial position to be able to execute on our strategic plans and even more so during or through this Corona ‘19 pandemic, because we see coming out of these or some significant opportunities that we may need to address.

We will talk a bit more about that later. The funds will obviously be used to accelerate our organizational development in -- and technology development in response to long-term promising market.

But also gives us some more flexibility if there are strategic opportunities that may arise. In terms of order backlog, it is all time high second quarter 2020.

So far goes into the history books. In our company, we received more than NOK600 million worth in orders in this quarter alone, something that you cannot expect every quarter.

So let me point that out straight away. As the projects are getting bigger, it takes a bit longer time to agree on all the details, both financially and technology.

From a technology point of view, and therefore, this is something that we will be able to see. It will come in some quarters, you will see a lot of orders coming in and other the quarters it will be smaller and less so.

So there will be swings just to point that out. Also note that, a lot of the backlog here relates to 2021 and beyond.

So we still need to close some more orders throughout the second half of this year to be able to maintain the revenue that we hope to have. We also have been given some more insight into the Clearstream account, which is a nominee account that is controlled by Deutsche Börse.

It’s an account that supports a kind of marketplace for Nel share in Central Europe and we -- it has grown quite significantly over the since 2018 and it is now approximately 44% or slightly more than 44% of our shareholding. Nel has asked for insight into this account and we have been given that and we can now report that there is about more than 140,000 private shareholders and more than 160 institutional shareholders.

And as far as we can understand the biggest shareholding from a private is in the range of 2 million shares and the biggest shareholding from an institutional is slightly north of 30 million Nel shares. So, with that, let me move over then to the Nel in brief for new listeners in particular and here what makes Nel different to many other is that we are integrated, we deliver both electrolyzers and fueling stations.

We are also a pure-play hydrogen technology company that do in-house development, the in-house production of our own technology and we put these together in the packages and that we can deliver, which makes us different to many others. We are also becoming increasingly global.

We have facilities in Norway, Denmark and in the United States. We also have people and organization in many other relevant markets in California, Korea, Japan, China and other markets where we need a presence.

We are the world’s largest electrolyzer manufacturer. We have delivered more than three and half thousand systems in more than 80 countries.

On fueling stations, we have slightly lower track record. We are -- but we are working on more than 80 stations now in different parts of the world, in nine different countries.

We -- on the electrolyzer side, we are present on both relevant platforms, both PEM and alkaline and we have the target to have the most attractive product offering on both platforms. So in other words, we are working very hard every day to improve the TCO, the total cost of ownership for our customers of equipment and then that means reducing CapEx and improving efficiency at the same time.

That is basically what we are doing. On the fueling station, we already have a portfolio of technology or products that address light-duty vehicles, in other words, cars.

These units are pre-certified for Europe and Korea and in the United States, which makes it easy for the end customer to get them installed and approved, but we are now developing a range of technology components or elements, which will be relevant for heavy duty applications and that is to support the market development and the accelerated development that we see there, but also to support, obviously, our partner Nikola with their ambitious targets. We are also working in general to improve the performance of the equipment to increase the reliability and robustness of the fueling station technology.

As mentioned, we have three main locations -- manufacturing locations. We have Wallingford, Connecticut, where we have slightly more than 40-megawatt PEM electrolyser capacity.

We have -- are working on expansion in Norway, where we have facilities in Notodden/Herøya and then obviously we have our new facility in Denmark, or maybe not so new anymore, where we can produce more than 300 stations per year. We have a long track record and a long history, the longest in the industry, we have 20 years, 30 years on PEM, we have more than 90 years in alkaline and we have approximately or more than 15 years on fueling station.

And that means that we also have a lot of equipment sitting in the field as you can understand, where customers -- new customers can come and see. They can talk to an existing customer, they can come and see an existing facility that’s been sitting there for many years and they give us good references.

So with that, let’s turn to some of the key developments of the quarter and let me start by congratulating our partner Nikol with a fantastic listing, listing on NASDAQ. Nikola also raised a lot of capital in the transaction, now holds a lot of cash, which will enable them to execute on their strategic business plan and that we think is really good.

We also want to thank them for the order that we got the more than $30 million PO for electrolyzer equipment. This initial order will allow Nikola to produce more than 40,000 kilos of hydrogen every day in five different locations and to support a lot of fuel cell electric truck.

This will also support the ramp-up of the Herøya facility, which will hit commercial production in the third quarter next year. Test production and testing of the line in the second quarter and commercial ramp-up from the third quarter next year.

We are still working on the final design and technical solutions related to the downstream fueling equipment for Nikola and this part of the equipment will be placed in the PO when Nikola knows more exactly the sites that they will choose and the order of those sites. We received a large station order from an international company, undisclosed for the time being, the value of the PO was more than NOK150 million and it -- this is equipment for light-duty Vehicles, in other words, cars, which will be installed in multiple locations throughout 2021.

The customer has also remained unnamed for still some time, but I think you will learn more about this in the second half -- sometime during the second half of this year. We have been working for quite some time also with a company called Lhyfe, French company.

They have already given us a small order, but this small order has now been incorporated into frame agreement of 60-megawatt electrolyzers. Lhyfe will mainly focus on the French market and will develop projects and target to be an owner operator of green hydrogen production facilities in France, which is good for us to have a partner in France like that, because the French market can be a bit difficult sometimes for non-French companies and now we have someone that we can work with systematically to address different projects in that part of the world.

We also received the order for three additional stations to South Korea. You know that the South Korea has very ambitious targets in terms of growing their infrastructure for fueling station infrastructure, more than 300 stations by the end of 2022.

So they are in a hurry. This order came from HyNet, which is a JV where we are also a partner and HyNet has a target to install 100 of these 300 plus stations.

We are very obviously, very happy with the development that we have seen in Korea so far. And this picture is actually from the team when they hit the button on the first station and turn it into -- turn it on and open it up for the public.

They were celebrating a bit here just a few months ago. We received purchase order for 2.5 megawatt PEM electrolyzer also in the quarter from a customer in Central Europe.

Also here, the customer has also remained unnamed for the time being simply because this project will be officially launched a bit later this year and then they will do it with a big splash, but they have already placed the order for the PEM electrolyzer for us and you will probably hear more about that relatively soon. After the end of the quarter, we secured two separate development grants, one in Norway amounting to around NOK16 million for the next-generation alkaline electrolyzer.

This is the technology that will be tried and tested in Yara’s facility at Herøya and go into the production of green ammonia. We also received a grant from DOE, Department of Energy in the United States for the development of next-generation PEM electrolyzers.

And as you understand, we pushed very hard to have the most attractive portfolio of technologies, both on existing platforms but obviously always standing for what could be the next platform and that is basically what we are doing here also. The Herøya expansion is moving forward.

We are designing the largest production facility in the world for electrolyzers. This will consist of a fully automated chemical line with supporting robot cells and it will be unlike anything the world has seen before.

The plant will run according to the latest and best lean manufacturing principles, and it will significantly reduce the cost of our products. It is a very important step forward for Nel.

The expansion team has now run simulations in 3D models with the new line. And have already been able to identify a number of improvements of the line.

So they now see that the line that we have designed, we can push more material, we can have faster throughput of the material in the line. So they have been able to recalculate the capacity of the first line that we are now installing and that’s why we today can communicate to you that we are no longer talking about 360-megawatt.

We are talking about 500-megawatt and we believe that we can get out of that same exact line. And that is good news for cost and good news for improvements and that is basically what you see when you put a great team together that works systematically at looking, constantly chasing improvements.

And they are actually -- this is actually before they even started the line, before it’s installed. That means that we room to expand at Herøya.

If we add another three lines, this facility could potentially end up being -- more than 1 -- more than 2-gigawatt of capacity. So that’s a positive news.

On the negative side, we see very little momentum in Norway and we have to be honest about this. We have to tell you straight out.

This strategy that we saw, that was launched on the 3rd of June is basically nothing. It doesn’t include any concrete plans.

It doesn’t support rollout of infrastructure for green hydrogen production. It only focuses on small pilots and from that perspective, it’s quite a disappointment.

It will leave Norway behind and we have to just tell it as it is. We have had meetings with the various ministers, the Ministry of Climate and Energy -- Climate and Environment, Petroleum and Energy, try to explain the situation.

We see that the mandate that the government has given Enova, which is a funding agency will not allow them to do what they would like. I think Enova would like to support more projects but they are limited by their mandate, so that has to be changed and it is a massive contrast to what we see in other parts of the world.

What we see especially in Europe where country after country, including European Union are setting really ambitious targets to turn hydrogen into becoming a part of the future and accelerating the energy transition. If this remains unchanged, Nel will have to consider evaluating whether we should move our facilities or do expansions other places closer to the customer.

That is the consequence at the end of the day. But obviously, we need to evaluate the situation how this develops going forward, but that is the status in Norway as of today.

There is much more positive to look to Europe, very encouraging developments and we have been so fortunate that we have now been elected into the Board of Hydrogen Europe. That gives us a chance to influence.

But also gives a chance to push the hydrogen industry forward in Europe, which is great. And if you go into the webpage of Hydrogen Europe, you will see they have more than 160 members and we are talking about the biggest companies in the world here, automotive, energy, gas companies, a very impressive list.

And for those of you that followed our Q1 presentation, you may remember, Jorgo. We invited him to talk about the 2x40-gigawatt initiative and Jorgo is the Secretary General of Hydrogen Europe, very enthusiastic, good guy, and the 2x40-gigawatt electrolyzer initiatives, if you don’t know it, you should take a look at it, very encouraging development in Europe.

And then, obviously, we have the great Frans Timmermans, number two in the European Union. He says hydrogen rocks and is really positive about hydrogen.

He wants to make hydrogen a part of the corona recovery plan. And that will solve two issues, he says, at the same time.

It will create massive amount of new jobs which Europe needs, but it will also accelerate the energy transition and the turn to a zero carbon emission environment. Hydrogen is now a part of the European Green Deal and that will ensure and support Europe’s ambitions to become the first carbon neutral continent in the world.

And from that perspective, I don’t think, I mean, it’s been frustrating with COVID-19 situation, but from that perspective we could not have asked for a better kind of outcome if this pans out the way it looks to do now. Obviously, a lot of work remains, I mean, we obviously need to support this position ourselves accordingly.

Okay, so let’s finish off with summary and outlook before we open up for questions. So despite the COVID-19 situation, fundamentally we have not changed our strategy.

We still focus strongly on becoming or being world-class on safety. We are working very hard to maintain the cost leadership.

We are pushing hard to be a technology front-runner. That means both related to CapEx and OpEx for customers.

We want to be the preferred partner, we want to be trustworthy and we want to be able to offer reliable and unique products and services for our customers. We want to have a strong finance -- be financially strong so we can execute on our plans and that people actually believe that we have the funding to do so, and becoming increasingly important with larger and larger projects and bigger customers, and we want to continue to develop our global presence in the relevant markets.

When it comes to the COVID-19 pandemic, safety is, obviously, number one, safety for our employees, safety for their families and for other stakeholders around Nel. Our results will continue to be negatively impacted by COVID-19 pandemic.

It will most likely last until the end of 2020. It will most likely continue to negatively impact the business -- general business environment, orders received, installations, commissioning and hence also the resulting revenue recognition.

As you know, Nel is geared for growth. So when we carry additional indirect costs and the topline doesn’t follow, you will see a negative impact also on net results.

But it is not all negative as we talked about, it seems like hydrogen will -- and related activities are accelerating. And we have seen the green recovery is now widely supported in different parts of the world, and therefore, we reiterate our confidence on the long-term potential and we obviously maintain the overall Nel strategy.

And that means that we will accelerate our investments into organizations, technology and partnerships. It means that we will continue to push to have a leading position on both PEM and alkaline, and also push to transition our technology portfolio from light-duty, and more and more over to heavy-duty applications when it comes to fueling stations to support the underlying growth ambitions and the market developments that we see longer term.

So but do remember then that short-term and throughout the rest of this year, we will most likely see negative impact and hence you shouldn’t expect that the coming couple of quarters will be significantly different than the quarter that we just left behind. We had ambitions to have a Capital Markets Day in June and that obviously didn’t happen due to the COVID-19 situation.

We then reassessed it to see whether we could do it in September and now we are targeting to do it at the end of November. And that will give us a chance to assemble the whole management team, so you will have the chance to meet everyone and hear them speak about technology developments, what happens in the various facilities, expansion plans, cost reductions and all of those elements.

So our target is to invite you back late November for a full-fledged Capital Markets Day and we hope that nothing unexpected will happen in the meantime, so we can actually keep that target. So with that, that completes the formal part of the presentation, and I think, we can open up for some questions both here in the room, if anyone has any, or if there were questions on online, Bjørn.

Yeah. Let’s start with questions in the room.

Are there any questions we have Tiete [ph] here that has a microphone, so you can hold it in a good distance, so you can ask your question. If not we will just start...

You can warm up…

...with some questions from the web. We have as usual quite a few.

So there is several questions around the Herøya expansion. We have one from Anders Rosenlund.

He is asking how much money has been spent at the Herøya plant as of the end of Q2 2020. We have James Carmichael, which is asking what will be the cost implications of going to 500 megawatts?

So the majority of the investment is still ahead of us not behind us related to the Herøya expansion. When you order equipment you typically order a down payment and then you order -- and then you pay as you move through the cycle.

The last piece is when the equipment is installed and commissioned and up and running. So, I would say, that the majority of the investment is still in front of us.

When it comes to the cost of going to 500-megawatt, I mean, the investment is not -- it’s exactly the same. What -- the cost would then relate to adding more people.

But obviously, you get more capacity out of the same indirect cost. So we think that rather than being more costly.

It will give us a better cost position by running a 500-megawatt, compared to 360-megawatt and that’s obviously the start. We think that the team when they start working with the line and tweaking it and pushing it, I think, we can get even more out but that we can get back to later.

Then we have a question about the Nel shareholding in Nikola from Shi Wang [ph], which is asking, could you please give us more details how much shareholding Nel has in Nikola?

I think, Christian, we have made now a pretty detailed note, haven’t we?

There is a very good note in the quarterly report.

Right. So, there’s a good note in the quarterly report.

So you are encouraged to look further into that. We have approximately 1.1 million shares in Nikola.

So it’s fairly easy to figure out the percentage of that. Do we have any questions here in the room?

All right. Let’s go for another one on the web.

Then, there are some questions on the Nikola order. Mikkel Nyholt is asking about the order you already covered, when we can expect the station order and he is also asking on what is the expected CapEx on the total stations?

I think you need to talk to Nikola about the total CapEx. We are, obviously, a supplier and we, obviously, know the part that we deliver.

But probably more around the station, you need to have asphalt and you need to prepare the groundwork and et cetera, et cetera. So I think that’s better that we leave that question to Nikola.

Let’s see. And then there are a couple questions also related to currency exchange rates and what influence does that have on topline, order backlog and so forth?

Maybe Kjell Christian...

Maybe, Kjell Christian, you can answer that?

Okay. So we do, of course, report in Norwegian kroner whereas most of our orders and sales are in euros and dollars.

That means that we will have fluctuations based on that. We haven’t started reporting it.

When the Norwegian krona weakens as it did in quarter one, we have a positive impact on the order backlog of that. That has been less now in the second quarter.

Right. Do we have any questions here?

I did get a question about the RotoLyzer. What’s the status on that?

So I actually asked one of our R&D people and we are still working on it. We have now initiated a project where we are improving the electrodes of the RotoLyzer.

So the metal plates inside it where you have the oxygen and hydrogen forming up on either side. So we are now looking at various electrode coatings to improve the efficiency of the unit.

So we now have it disassembled. We are working on that.

We are going to assemble that again and then start it up to see how it works. And I think those are the most common questions among the most have asked.

So I think unless there are any questions here, I think, we will just wrap it up there.

Wonderful. Thank you very much for coming to see us and we will come back again in the -- on the third quarter.