thyssenkrupp nucera AG & Co. KGaA (NCH2) Earnings Call Transcript & Summary

Thank you, and good morning, everyone. Welcome to our Q4 full year earnings call. We are delighted that so many of you have dialed in so close to Christmas, and we appreciate your interest in our company. With me today are our CEO, Werner Ponikwar, and our CFO, Arno Pfannschmidt, who will guide you through today's presentation. Now before we start, let me briefly address the usual formalities. Firstly, this call is being recorded, and a replay will be made available on our website later today. Secondly, don't forget that today's presentation and potentially some answers to your questions may contain forward-looking statements. For additional information in this regard, please refer to the disclaimer. And with that, let me hand over to our CEO, Werner Ponikwar.

All right. Thank you, Hendrik, and good morning, ladies and gentlemen, and a warm welcome also from my side. I'm very pleased that you are with us today for the presentation of our full year results. Let me start with the highlights of the past financial year on Page 5. In disputable, one of the most important highlights was our successful IPO on July 7. The IPO was a significant step for our company as we were able to raise primary proceeds of EUR 526 million in a challenging capital market environment. We will use these funds to systematically drive forward our growth strategy and to strengthen our market position in key markets. For our IPO recently received an award from Deutsche Borse and Weimer Media Group in the category Impact IPO. And this shows the great confidence placed in our ability to really make an impact through our technology to produce green hydrogen for the decarbonization of industries. Secondly, in the financial year '22, '23, we were able again to win large projects. In our chlor-alkali business, we have seen the highest order intake of all times. And in our alkaline water electrolysis business, we were awarded one of the largest, if not the largest European green hydrogen project to fuel the low emission steel plant of H2 Green Steel in Sweden. Thirdly, we were able to grow the organization by around 30% and to further increase our alkaline water electrolysis capacity, which is now exceeding 1.5 gigawatts. Moreover, we have delivered our first 20-megawatt modules to our customers as promised and are well underway with the execution of our projects. Let's turn to a snapshot of the strong financial performance in the past fiscal year on the next slide. Here, I just wanted to point out some of the developments before Arno goes into the details of our financials later on. Our group sales increased by 70% year-on-year, driven by a more than sixfold increase in green hydrogen sales. Order backlog stood at around EUR 1.4 billion at the end of September with the alkaline water electrolysis business contributing around EUR 0.9 billion. EBIT amounted to EUR 24 million, EUR 50 million above the corresponding prior year figure, thanks to higher sales in the AWE business and an improved project mix and project execution in both chlor-alkali and alkaline water electrolysis. These profits were only partly offset by higher costs for organizational capacity expansions for our future growth. Also worthwhile mentioning, EPS improved to EUR 0.21 on the back of the EBIT increase and higher interest income. Finally, Net financial assets were very strong with EUR 761 million at the end of September, a significant year-on-year increase largely, of course, driven by the IPO proceeds. On the following slides, I would like to outline some key aspects of our business development, starting with our continued strong momentum in our project pipeline on Page 7. We continue to see increased demand for green hydrogen electrolysis systems. The increase in potential contract value in our project pipeline is driven mainly by North America, where we see the strongest market dynamics. Project sizes have also risen considerably, confirming our strategic focus on large-scale solutions and industrial clients. I'm very optimistic that we will convert the extensive pipeline into further project wins for us in the future, whereby the capacity reservations you know about are the most likely ones in the short term, of course. To also give you a perspective on timing because there have been discussions on the growth rate of the hydrogen market just recently, around 2/3 of the actively pursued projects in our pipeline should reach effective contract date by the end of our financial year '24, '25. So it is roughly a 20-month horizon from today's perspective with some of the projects reaching contract signature earlier, some, of course, later. Now moving on to our order book on Page 8. Probably you already know most of the projects stated here as it is mainly a recap to the last financial year. I have mentioned the big projects we have won on the alkaline water electrolysis side and the record high for chlor-alkali. On top of that, in October, we have signed a reservation agreement with the Finnish Nestle Corporation to supply 620-megawatt scale modules with a total installed capacity of 120 megawatts for Nestle's refinery in Porvoo in Finland. Also on the chlor-alkali side, we were able to keep the momentum and signed another order in South America. And looking forward, we will work on converting the capacity reservation into firm contracts and, of course, also to attract further projects. Next, we want to provide you with an update on some of our ongoing projects. Regarding NEOM in Saudi Arabia, one of the world's biggest green hydrogen projects to date, we are well underway and in line with the customers' project time line. The first plot of modules was released for packaging to be shipped. When actually, I'm pleased to say that the first modules out of this slot were already shipped out of our module yard in Vietnam, and further modules are ready for shipment. The H2 Green steel project is also making progress. The H2 Green Steel recently communicated that they have started construction work on its site in Boden, installing the first building columns on their foundations and our work is well underway and according to plan. And I can also update you on the order intake for H2 Green Steel, which I think is something a lot of you wondered about. Just last week, we have started the next phase of the project and received additional payments and booked order intake in just slightly above EUR 100 million. The remainder of the project, which is still about 60% of the total contract value is expected to follow in the next few months. As far as the green ammonia electrolysis project of CF Industry is concerned, the erection of the module is completed. We expect cell assembly and commissioning to start in the first quarter of calendar year '24. And overall, the project is on track for start-up in spring '24 and to produce first green hydrogen molecules. As you can see, our project execution is well underway. This holds true also for the project I have not mentioned here and we are excited for the months of progress to come. Now we are actively also responding to the acceleration in the market by expanding our operations. As you know, One focus of ours is the strengthening and expansion of our supply chain to 5 gigawatt by the end of our fiscal year '25, '26. We are well on track to achieve this. And as I said earlier, our alkaline water electrolysis capacity is now already exceeding 1.5 gigawatts. Moreover, we made good progress in the module yards. The module yard in Vietnam is already able to manufacture 18 AWE modules in parallel. And keep in mind that one module is 40 meters long. So that gives you an idea of the dimensions of those yards. And this is only one of the yards that we have. I'm also delighted to announce the successful completion of our product manufacturing certification for the 20-megawatt electrolyzer unit according to the ISO standard. This is an important proof point of our unwavering commitment to safety, quality and state-of-the-art manufacturing. This milestone underscores our dedication to delivering products that meet the highest industry standards, ensuring the best performance for our customers. The certification process rigorously assessed and validated our product design and manufacturing processes affirming our commitment to excellence and innovation. With this achievement, our customers can trust in the quality and reliability of our products, setting a new benchmark mark for safety and engineering in the market. Overall, we are well on track with our capacity increase across all parts of the value chain to meet increasing customer demand for our solutions. Well, further to our operational buildup, let us take a closer look at one key area of our continuous improvement in technology and publication, cell assembly. On Page 11, we share a snapshot of our assembly lab, which just recently started its operation. We aim for an increased level of automation in the cell assembly process because today, a relevant share of the process is still including manual labor. For that reason, we are now testing robots like the guys here in nucera purple on the left in our assembly lab in order to consistently provide the highest quality and also to increase efficiency, to lower cost per unit as well as overall to decrease the cycle times. To successfully implement our growth strategy, we also need sufficient manpower. Robots alone will certainly not get us there. Therefore, I'm happy to say that we also made visible progress in that area. Overall, we were able to attract many new talents. At the end of September, we had 675 employees on board. This means that we have grown by around 1/3 in just 1 year. And today, almost 750 people already work for nucera. We also continue to actively press ahead with our geographical expansion plans. We recently opened an office in Mumbai in India, which help us in both the chlor-alkali and also the alkaline water electrolysis business. The hub in Mumbai will predominantly support our global activities in the areas of engineering and project execution, especially in the Middle East, Asia and also Australia. In Mumbai, we started out with around 30 employees and expect to have more than 60 until the end of this fiscal year, making this location one of nucera's fastest-growing international offices. Also around ESG, important steps were taken in the past financial year. At thyssenkrupp nucera, we strongly believe that a responsible and sustainable approach to business is not only essential for the well-being of our planet and communities but also a fundamental driver of long-term value creation. We worked intensively on our sustainability strategy, knowing that with our electrolyzer technology for the production of green hydrogen, we are a key driver for the decarbonization and sustainability of global industries. For us, anchoring our ESG goals into our core corporate management processes is one of our top priorities. This is intended to ensure effective measurement, management and external ESG reporting and to reduce the scope 1 and 2 footprint of thyssenkrupp nucera to 0 in the long term. Key measures include continuously reducing emissions across the entire product life cycle from production -- product development to manufacturing and then further to recycling. Ensuring the health and safety of employees using responsible sourcing practices across the supplier network and implementing strict governance standards, including diversity, transparency and accountability. We will present our ongoing activities in this field at various touch points throughout the next quarters and specifically with an ESG report in accordance with the GRI standards for financial year '23, '24. From financial year '24, '25 onwards, we will then report and publish an integrated financial and ESG report according to the European Sustainability Reporting Standards. Ladies and gentlemen, before we move on to the financial section, I would like to take a brief moment to recap the value proposition of thyssenkrupp nucera and how we win in this marketplace. We are the leading industrial scale electrolyzer technology provider with a high growing alkaline water electrolysis business alongside an established and also profitable alkaline business. Our competitive edge is built on experience. We have decades of experience in delivering reliable and high-performance electrolysis technology at industrial scale and in building a network of supply chain relationships and aftermarket services. We also have well-established and strategic partnerships with both suppliers and customers, giving us a crucial head start over smaller electrolyzer companies and new entrants. We have a global presence with a network close to our customers, and we continue to actively press ahead with our geographically expansion plans. We will rigorously pursue our growth strategy to expand our electrolyzer capacity to drive the shift in the energy mix away from fossil fuels towards sustainable energy sources such as green hydrogen. Our robust financial position, which was significantly strengthened by the IPO proceeds, allows us to do so. And it is also seen as a differentiator in our industry. Lastly, we do not only have the largest contracted order backlog, but also a sustainable pipeline ahead of us, where we are very confident of winning further orders. With that, I will hand over to our CFO, Arno Pfannschmidt, to provide you with an update on our financials and outlook. Arno, over to you.

Thank you very much, Werner. A warm welcome also from my side. I would like to outline the key developments in our financial figures. Looking at the fourth quarter and the full year 2022, '23. Afterwards, I will provide an outlook for the new fiscal year. Ladies and gentlemen, in the fourth quarter, thyssenkrupp nucera demonstrated once more a strong performance and showed further progress to deliver on its growth strategy. While order intake came in below previous year's level, reflecting usual fluctuations. It is important to keep in mind that the order from H2 Green Steel is yet to be reflected in the order intake in full. Like Werner mentioned earlier, we will see a significant portion of that already in quarter 1, 2023, '24. Group sales grew by 47% and in the fourth quarter compared to the previous year, driven by the ongoing execution of our substantial AWE order backlog. In EBIT, we recorded a year-on-year increase of EUR 6 million for the quarter, driven by strong operational performance, non-recurring effects and a favorable order mix. Also in the fourth quarter, we recorded a significant cash in, thanks to the proceeds of our IPO in July. On Page 17, we have a more detailed look on order intake. In the fourth quarter, order intake reached EUR 79 million. 35% below the corresponding prior year figure. Order intake of both chlor-alkali and the Green Hydrogen business was below previous year, reflecting usual fluctuations. On a full year basis, order intake of the chlor-alkali business reached a record high with EUR 408 million, 10% above the prior year figure. Interest in our chlor-alkali Products was particularly high in North and South America. In contrast, order intake for the group declined by 54% to EUR 613 million. The year-on-year decline was as expected due to the lower order intake in the AWE business. In the previous year, we had reached a record level for AWE, which had been dominated by the NEOM project in Saudi Arabia. In the fiscal year 2023, '24, we expect order intake to grow significantly, driven by the 700-megawatt H2 Green Steel project and the successful conversion of capacity reservation agreements. The order backlog at the end of September 2023 stood at around EUR 1.4 billion with the water electrolysis business contributing around EUR 0.9 billion. Now diving into our sales development on Page 18. In the fourth quarter, sales increased by 47% to EUR 159 million, driven by the ongoing execution of our AWE order backlog. In chlor-alkali, sales came in almost at the same level as prior year. Here, the growing newbuild business was offset by lower service sales. Looking at the financial year 2022, '23, we recorded an accelerated increase of group sales. High growth in the green hydrogen sector boosted sales by 70% to EUR 653 million. The sixfold increase in the alkaline water electronics business was mainly driven by the projects in Saudi Arabia and the Netherlands. In the chlor-alkali sector, sales came in at EUR 330 million, roughly on prior year's level. Overall, we continue to grow the business, proving that we are on the right track, and we also expect strong sales growth in the new financial year. Moving to the EBIT development on Page 19. In the fourth quarter, EBIT turned out slightly better than what we had expected. EBIT reached EUR 4 million compared with minus EUR 3 million in the previous year. This was driven by strong operational performance onetime effects related to year-end closing and favorable order mix. EBIT for the full year increased by EUR 15 million to EUR 24 million. This corresponds to an EBIT margin of 3.6% compared with 2.3% a year earlier. The main driver for this pleasing development was the acceleration in AWE project mix and successful project execution. These positive developments were only partly offset by higher costs for organizational capacity expansion for further -- for future growth. Compared to previous year, this was supported also by lower expenses for the spin-off of thyssenkrupp nucera in preparation for the IPO. As we have communicated before, these ramp-up costs are expected to accelerate during 2023, '24, which will temporarily impact profitability. I will shed more light on this in a moment. Let's first finish with the developments of the past financial year and take a quick look at the performance of the geographical segments. Key highlights to note include the performance of the segments Germany and Italy, both in quarter 4 and the full year. Please keep in mind that the segment Germany serves mainly customers located in Europe and the Middle East. Thus, sales were driven especially by the progress made with the projects in the Netherlands and Saudi Arabia. The performance of the segment Italy is particularly to be seen in connection with the project in South America and Sweden. Moving to the net results on Page 21. In addition to group EBIT, the financial result also improved mainly due to the interest earned on our strong cash position. As a result, earnings before taxes reached EUR 34 million, EUR 24 million above the corresponding prior year figure. Deducting income taxes, net income amounted to EUR 22 million, an increase of EUR 60 million compared to the previous year. Earnings per share increased accordingly from EUR 0.06 to EUR 0.21. We have mentioned our very solid balance sheet already on already. And on Page 22, we wanted to show the year-on-year development. On top of an already strong and very positive cash position, the IPO proceeds were added which led to an increase in net financial assets to EUR 761 million at the end of the last fiscal year. These funds available, we will finance our strong growth in the AWE business and as a company. We are well capitalized to leverage from the opportunities ahead. And I will go into more details on what that means for us in the short and midterm on the next page. Let me briefly confirm our planned use of proceeds because we are getting that question frequently, we will use big parts of the primary proceeds of EUR 526 million to finance our strong growth in Green Hydrogen and the corresponding CapEx and R&D. As previously disclosed EUR 300 million to EUR 500 million in the 4-year period until 2025, '26, will go into automation and serial fabrication, strengthening and widening of our supply chain development. I don't want to make it too complicated at this point, but just to give you an idea, automation and serial fabrication as well as the supply chain will see higher share of CapEx compared to technology developments where the R&D share will be higher. Werner has shown to us the assembly lab which is a real great example, by the way, because every improvement in cell assembly will lead to better cost efficiency and higher capacity. Other use cases are, for example, improvements we try to achieve with regards to our 20-megawatt module, the development of the next generation of electrolyzers and also the production of half shells. Lastly, maintaining our strong financial position is of great importance. We are well capitalized. And with that, we meet the requirements of our business partners for industrial scale projects. In light of the economic conditions expected at the time of the forecast, and the underlying assumptions. Let me now present you the outlook for the fiscal year 2023, '24. We expect a significant increase in group sales in the mid-double-digit percentage range compared to previous year. The execution of already contractually agreed AWE projects is expected to be the major driver here. As previously stated, we assume AWE sales in the range of EUR 600 million to EUR 700 million in financial year 2023, '24. Given the growing nature of our business, we expect the later quarters in that business here to be higher in sales as the earlier ones. But there is also some volatility among the quarters due to the applied revenue recognition logic, which is percentage of completion. For group EBIT, we expect a negative figure in the mid-double-digit million euro range. As we have communicated before, gross margin in percent of sales will be lower in the financial year '23, '24 due to a change in the order mix for both chlor-alkali in AWE. In chlor-alkali, we will have a higher share of new build projects, which come with a lower margin and also for the strong growing AWE business, we calculate with lower margins compared to the previous year due to the higher sales share of the NEOM project. On top of that, we plan with a significant increase, especially in research and development expenses and higher administrative and selling expenses for the implementation of the growth strategy and the organizational buildup. Ladies and gentlemen, let me reiterate that this negative EBIT is only temporary and the result of necessary start-up costs. It is in line with the implementation of our growth strategy and the scaling of our business. and it will sustainably improve our competitiveness and profitability in the long term. With that, I hand back to Werner, who will summarize our full year update.

Well, thank you, Arno. Wrapping up this full year earnings call, I would like to reiterate some of our key messages. The past fiscal year '22-'23 was a very successful one for thyssenkrupp nucera. First of all, from a financial perspective. We grew sales and earnings strongly. We have seen a more than sixfold increase in alkaline water electrolysis sales and a record high alkali order intake. At least equally important is the progress in our operations where I'm especially proud of our colleagues and the entire organization. Project execution is well on track. We have produced and delivered the first modules. And we will prove in '24 that these modules will be as reliable as everyone expects them to be. And that's also, of course, in the light of our decade-long experience in chlor-alkali. Also, our organization has made tremendous steps forward, which first and foremost, was demonstrated with our IPO. Many smaller but not less important steps forward we've taken and will make us even more effective going forward. And that brings me to my last point. In the current financial year, we will continue to grow our business strongly. And as Arno explained, this will lead to a dip in earnings. But it is -- it also comes with a very clear conviction to reach EBIT breakeven for the AWE business, in the financial year '24-'25. And let us not forget our strong pipeline that will fuel future growth and our strong balance sheet that will fund that growth. With that, I can very confidently say that we are in a great position to leverage the huge opportunity in green hydrogen. And everyone in our organization is fully committed to that. Thank you for your attention, and we now look forward to receiving your questions.

Okay. So the first question comes from Michael Kuhn.

A couple of questions. Maybe firstly, starting with deliveries. You mentioned CF Industries and that the module is about to start operation in the first quarter. Looking at the other smaller projects you've worked on over previous quarters, how many modules would you expect to start operation over the upcoming months?

Yes. Michael, this is Werner. Thank you for the question. As mentioned, for CF Industries, it is planned that this one module will start up in spring '24. As you also were rightfully mentioning, we have a couple of other projects that will start off or where we believe that startup will happen during the first half of the year -- of the next year, which is the one module that we have in Saudi Arabia that is also expected to start in the next half year and also the modules that we have supplied in the U.S. to Arizona to Air Products. These modules are also expected to start up within this year. Apart from that, also in Saudi -- sorry, in South America, with Unigel, the 3 modules are expected also to go into commissioning within this year as well. Sorry, I'm already in '24. So of course, in '24, all of what I was saying actually, is certainly for '24. And along with that...

Financial year '23-'24.

Financial year '23-'24, yes, that's correct. But as none of those have already now reached start-up, all of them will be starting up in '24. In the calendar year '24.

Okay. And one comment was made on H2 Green Steel we said EUR 100 million of order intake were booked this month. And then I think you said another 60% was still to be booked. So that does that mean that good EUR 100 million is roughly equivalent to 40% of the contract value?

We had already booked in quarter 3 small amount. And we said that this is overall less than 10% of the total contract value. So you have to take also this into account.

All right. Okay. But you're not willing to share the actual contract amount.

Right. It's not the most difficult calculation in the world, I would believe.

Yes, yes. No, no. For sure. One more on the pipeline of actively pursued project where the number of projects actually came down. The overall volume and contract value actually up, obviously, you cannot name specific contracts or projects. But can you give us an idea, let's say, how the pipeline evolved over the past 3 months? And what significant changes you saw in the market?

Yes. I'm certainly happy to do that. I mean it's, of course, obvious. I mean if you look at our substantial pipeline, as you were saying, it remains from the sheer number of projects pretty stable. But if you look at actually the potential value or the size, the aggregated size, actually, it has grown quite significantly. Reason for that is, of course, that this is actually not a -- if you want stable picture, it is a very dynamic pipeline actually that we are also actively managing. And as such, there were projects actually that were discontinued in our pipeline. So we took them out of our pipeline and other ones actually made it through the different development gates, into the pipeline and the ones that made it into the pipeline were considerably larger than the ones actually that we're getting out of our pipeline. So as such, basically, the number did not increase, but with that the potential contract value and the size of the project overall increase. And that is also true for the actively pursued projects. So the projects actually that we are really actively working on. You see it's also more or less a stable number of projects, but also here, the value increased significantly, which means that there are now larger projects that made it actually also our actively pursued project pipeline.

Great. The last one -- sorry.

No, I was just -- I think that maybe also important to mention is that a considerable amount of those larger scale projects actually that are now in the pit coming from the North American area.

Excellent. And that was actually one I was about to ask because there was, yes, plenty of discussions lately about how quickly we would see the ramp-up in the hydrogen industry and making there discussions in the U.S. about the IRA and the implementation rules. So looking at the environment at the tool set of available subsidies, et cetera, is now everything in place. So are we still waiting for major measures and what, let's say, dynamics we should expect over the upcoming quarters. And what progress have we made as of late?

Yes. You have potentially -- I mean, you obviously followed also the discussion in the US and you -- with that, you certainly also are aware that the legislation around the IRA is still not finalized. I think that they are now in the -- talking about the last 5%, if you want. So we would expect that this is finalized now very soon. In Europe, we have also seen a considerable movement with [indiscernible] also with the NetZero Industry Act and the Hydrogen bank, which we see actually as a very positive development and also signal to the market, which should going forward also further increased the dynamic in the market. That's at least our expectation, and that is actually what we also can see in our project pipeline so far. Maybe just one more comment on that. In particular, when it comes to what we have also heard a lot actually with projects that are delayed. We are very actively actually selecting projects, which make it to our pipeline. Deliberately look at the maturity grade of those projects. And along with that, certainly also how concrete and how substantial they are in their efforts actually to mature. And we typically see products which have -- which are developing, if you want, a complete ecosystem include also offtake who are moving very much faster than the ones actually that typically do have to look for offtake still which certainly has an impact on the bankability of such projects. And that is maybe why other than maybe our peers, we are not so negative about the development in the market. because the project that we see in our pipeline, we don't see really substantial delays right now, and we are very confident that we will be able to grow as we have planned and expected.

The next question comes from Deepa Venkateswaran.

This is Deepa Venkateswaran from Bernstein. I have a similar question. And here, I'm not talking about peers, but I'm talking about your key supplier, De Nora, who also in their 9-month call, talked about lowering their revenue guidance for 2025 as they see a slower growth guidance. Obviously, given that there's a very strong relation between their revenues and your revenues, I was just wondering if you are able to reconcile your view that things haven't really changed compared to your expectations at IPO where De Nora seems to be going a bit softer. Could you please comment on that?

I'm certainly happy to do that. This is Werner. Good to have you in the call. So very quickly, of course, I'm certainly -- I'm sure you can understand that we are not commenting on anyone else in the market actually doing statement on how they are doing and what they are planning for. So I can also not do that for De Nora, of course. What is very clear is actually when it comes to our own growth expectations and plans, we are very, very well aligned with De Nora. We have to, of course, because they are part of our supply chain. And in such, basically, here, we have a very synchronized planning. You certainly also know that we are not the only customers of De Nora, so they also have other customers, and we have actually, of course, no knowledge of any developments with those customers, but that might have been actually the reason why they have started to soften the expectations. I can only say, from our perspective, we are very confident that our growth plans and the project pipe we have is very solid and will progress and move ahead as we are expecting that. And you can also see actually from the developments of our reservation agreements that there are also very, very concrete projects in the pipeline. Actually, we believe we will be able to convert into fully fledged contracts even in the short term.

And the next question is come from Kevin Roger.

I just wanted to come back on the commercial pipeline that you presented on Slide 9 and the question that has just been asked. So we understand that there has been a lot of change in the project that makes this pipeline, but can you give us the reasons for that is it related to the economics around the project, the economics on your side or just the fact that basically the pipeline is so big that you have a lot of optionality. That's the first reason to try to understand why you have such a, let's say, mix change in the commercial pipeline in 3 months' time.

Are you now referring to our actively pursued project pipeline?

Yes, probably, yes, because this is where you exceed the average price is at EUR 550 million versus EUR 360 million, so a lot of change. So what are the big push forward for that, the economics of the project, the economics on your side, what makes that?

Well, actually, the push is very much coming from the market and from the project side. We're continuously evaluating the projects that we have in our pipeline and that's assessing them actually in terms of their maturity and concreteness. And that is certainly driving actually here the snapshot out of our system that you see here in this pipeline chart. Which certainly means that -- and that is very much in line actually with our own strategy and our focus that we are actively also selecting and pushing those projects actually which are large scale. Why? Because we -- this is basically our sweet spots. We believe that we are very competitive in the field of industrial scale, large scale projects. And of course, actually, we are actively selected as those projects as the ones that we want to grow with and that we want to further develop together with our clients. So that explains actually why we have such an increase in the average project size from EUR 360 million now to EUR 550 million because we're actively selecting those projects as well. When it comes to the contract value, I think I'll stay with the comments that I have made already, this is, in fact, also an expression actually of that product, which are obviously growing now substantially, and they have to because that is actually the only way to reach levelized cost of hydrogen actually in -- which is competitive, you need large-scale projects for that. That is something that we see more and more being reflected also in our project pipeline. That also contract value and the average aggregated sizes have significantly increased.

Okay. Okay. Understood. And as a follow-up, you just mentioned that 2/3 of those projects are expected to be sanctioned over the next 2 years maximum with a big scope in North America. But I guess North America is not related to the IRA as we just mentioned. We have seen that on carbon capture, basically, a lot of people appear to be, let's say, waiting for the next election with potentially some candidates that will push out the IRA, things like that. So what's your view on the hydrogen. So do you see a kind of break in the development of the distribution because of the election next year?

I think you're referring, in particular, to the gas then because I don't see that actually the areas of the work. I mean, of course, with the change in the government after the election that there will be also some changes to those kind of policies. We would not expect them, I would believe, because what we have seen so far, actually that the policies that have been put in place were actually bipartisan. So actually, all the parties were sort of an agreement and consensus with that. Wouldn't say that there's a big risk that this is changing completely. There could be potential impacts there. Still, we believe that also the outer world. So the rest of the world will very much also drive these kind of developments you might know, for example, in Europe, there have been -- there are now developments like the so-called CBAM. So the Carbon Border Adjustment Mechanism that will be put in place in Europe, which will certainly mean that everyone actually wants to import green hydrogen or hydrogen into the EU will see carbon taxes actually depending on the carbon entity of the production. And these are mechanisms. I would also believe that will also help actually to further also outside of the European Union, for example deliver those green hydrogen projects. So again, I think that I don't see that this will be a significant impact depending on what we're going to see in the U.S.

Okay. Understood. And the last one for me, a clear guidance that you provide on the a bit for next year. I was just wondering, is there any, let's say, seasonality or things like that, that we play along the year with maybe a majority of the losses to incur in H1? Or you will stay with the more structurally balance between Q1, Q2, Q3, Q4?

I've not fully understood -- Arno speaking here. If your question was on the [ splits ] into the quarters?

Yes. On the EBIT loss that you provided, is there a kind of phasing, let's say, concentration in H1 or in H2 are kind of very well balanced with let's say, shared between all the quarters, just if there is a kind of seasonality or whatever that we play next year?

We have, on the one hand, development in a growth situation where we would expect relatively higher sales in the second half of the year compared to the first half of the year. So that trend, of course, and that would apply, by the way, also for the ramp-up cost that they have indeed an acceleration in the second half of the year. So they would definitely not be split evenly, but they have a higher portion in the second half of the year, in the later quarters.

Okay. And the next question is coming from Martin Wilkie.

It's Martin from Citi. My first question was just to clarify. You talked about 2/3 of your reservation agreements have been converted by the end of 2025. Just to clarify, the scope of projects that you're referring with that conversion, just so we can think about what the order intake could be over the next couple of years? That was the first question.

Martin, I think there was a little bit of misunderstanding. I was talking with the reservation agreements of those reservation agreements that we have already announced and which should be known to you. For those, we believe that we will be able to convert them into full contracts in the short term. For the majority of our actively pursued project, and we're talking here about those 33 projects, where the reservation agreements are still a part of that. That's a different story, of course. Here, I was saying that we see that 2/3 of our overall pipeline is actually -- we believe we'll be able to sign contracts actually within the next 20 months. So to give you a little bit of a horizon when we believe those things will happen and can happen in terms of contracts. But in general, actually, I cannot tell you when specifically part of that pipeline will materialize because that's, of course, depending on various factors that today is very difficult to estimate.

Okay. That's helpful clarification. In terms of the conversion, I mean, you touched already with things like there's still a little bit of detail on the Inflation Reduction Act to get result, but a lot of it's done already. What other dependencies should we be looking out for? Normally, what is the catalyst or perhaps the bottleneck that prevents an order getting booked today? Is it grid connections for green hydrogen? What is the sort of decision tree before the customer signed a contract. The things that we can look out for, that can help us understand when some of those contracts might be signed.

Yes. I think the decision tree is a little bit different for different customer groups. In particular, those ones. And this is also where we have also our reservation agreements on. The customers, actually, they typically -- have they develop their whole ecosystem. So they have their offtake. They want to produce the hydrogen for them. It's seems to be way easier to come to a bankable project and with that basically progress pretty quickly. The ones which we face I would say, a number of challenges are certainly, if you want the project development group of customers, which typically do not have immediately also offtake. So they need to search for that offtake. We typically have also a couple of, I would say, more technical issues. Actually, that needs to be resolved. And they typically are also more dependent on funding, which they need to apply for that needs to be available before they basically can even go to the banks and try to reach financial closure. So those are -- we will see the typical obstacles that we also see for projects in the market.

Okay. And the next question comes from Marco Cristofori.

A couple of questions, if I may. The first one is on the chlorine business. last year we just closed, you received a lot of orders. Can this means that this translates into new building. And therefore, there will be lower maintenance revenues in '24, and this could translate in a lower profitability in the sector. Very first question. And the second one is on EBIT, which was impacted by one-off items. Can you give more color on this, please?

I think these questions go to myself, Arno speaking here. So yes, I think you're right regarding the chlor-alkali business. Indeed, we have here mix effect moving from the last fiscal year to the new fiscal year '23, '24. Indeed, we have a significant higher share of new build sales and less service sales, and that has an impact, indeed, on the margin. And regarding the EBIT one-offs, I would assume you referred to quarter 4 of the last fiscal year, we had here effects like exchange effects coming from the rate evaluation, which were positive -- we have here a reversal of provisions, which were reestimating the cost to come for projects which have been completed. So where the risks did not realize so-called provision releases. And we also had here inventory effects. All the 3 of them were positive and kind of unexpected, and that was also the main reason why contrary to our guidance where we had expected low minus result in quarter 4, we now show low positive result.

But can you quantify the amount of the one-off?

Yes, I would say it's a mid-single-digit million euro mark.

Okay. And if I may, another question and it's mostly on North Africa, it seems to me that can be an attractive area for Green Hydrogen, particularly for the low cost of renewables in the area. So just to know if you have any plan to develop in North Africa.

Just -- Marco, thank you for the question. Just very quickly, I mean, we always said and we stay with that, that in the short term, our focus will be on Europe and North America. However, and that was also stated, we certainly -- while we are increasing our capacities and while we are also ramping up our organizations, we want to cover also all other key markets in terms of green hydrogen up and until 2030. And that would certainly also include North Africa. Currently, we don't see North Africa being developing very quickly. But of course, they are on our radar screen. And again, in a sequence, actually, we will also look at North Africa and certainly will be present there as well going forward.

And the next question comes from James Carmichael.

A couple of quick ones. I guess just really sort of going back to the IPO guidance and I think you've spoken about still being confident in the outlook, but I just wanted to clarify whether you're happy to sort of reiterate the '25-'26 revenue guidance that you gave at if that sort of still stands? And then also just on EBIT as well, helpful to get the outlook this year, but FY '23, '24, are you still comfortable again that, that should reverse and we should see sort of positive EBIT from FY '25-'26 -- sorry, '24-'25.

As mentioned, we are confident to achieve also the midterm ambition and the targets which we had communicated during the IPO.

Okay. Great. And then I guess just one very quick last one. Also interesting to see the automation that you're putting to the factories with the robots doing the bolts, et cetera. How much of that overall manufacturing process can be automated? Will there be some sort of manual elements left at the end. And have you done any work in sort of quantifying what that might mean for margins over the long term?

Yes, James, a good one. Of course, the -- and what you have seen here actually is the cell assembly, the robots. We believe that's a manufacturing process that can be to a very large extent automized. And it's certainly something that we are currently working on. As mentioned, there was quite, I would say, significant amount of manual labor still involved here and as we certainly improve in terms of cycle times, but also actually in cost per unit quite a lot. Apart from the sales. As you certainly know, we are manufacturing modules in module yards and you've seen also a picture actually of those module yards. These are very classical module yards. And of course, also here, we are striving for further automation, which is possible because we are also here have repetitive works in the module yards. But by nature of the modules, actually, there's certainly something that can be -- that cannot be fully automized. I mean, to be very clear on that. Also the design that we are using for our modules is not fully geared towards fully automated manufacturing for good reasons because we were deliberately deciding on using designs and processes actually, which are well known and well established in the industry. And is such providing high reliability and performance going forward, and we have also, maybe not this time, mentioned several times that we are working on a new generation of alkaline water electrolysis technology that will certainly also feature way more opportunities also for automation of manufacturing. So here, we are really looking right at the beginning for design to manufacturing as well. So that will further help us to decrease the cost of the systems.

Okay. I think there are no further questions left, and I will give the word back to Dr. Werner Ponikwar.

Okay. Thank you very much then. Ladies and gentlemen, thank you for your time and also your questions, of course. Maybe we will meet each other on the road in January together with Mr. Hendrik traveling and seeing investors in, I think, the U.S. in January. And in case you still have open questions, then please reach out to Investor Relations, of course. And with that, let me conclude today's earnings call. Goodbye, Merry Christmas, a happy year to everyone here and all the best, and talk to you soon. Thank you very much.