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

Good morning, ladies and gentlemen, and welcome to the thyssenkrupp nucera Q2 2024 H1 2025 Earnings Call. [Operator Instructions] Let me now turn the floor over to your host, Dr. Hendrik Finger.

Thank you, and good morning, everyone. Welcome to our Q2 earnings call, and thank you for joining us. We appreciate your interest in thyssenkrupp nucera. With me today are our CEO, Werner Ponikwar; and for the first time, our new CFO, Stefan. They will guide you through today's presentation. Before we start, let me briefly mention the usual formalities. First, this conference call will be recorded, and a replay will be available on our website later today. Secondly, don't forget that today's presentation and possibly some of the answers to your questions may contain forward-looking statements. Please refer to the disclaimer for further information. And with that, I would like to hand you over to our CEO, Werner Ponikwar.

Yes. Thank you, Hendrik. Good morning, ladies and gentlemen, and also a warm welcome from my side. Thank you all for joining us. It's really a privilege to share with you the latest update on our company's journey and guide you through the highlights of the second quarter and the first 6 months of our financial year '24-'25. Thyssenkrupp nucera has made further progress in executing its extensive order backlog across both business segments, chlor-alkali and green hydrogen, which is well underlined by the figures on the right-hand side. We posted strong sales growth and then a resilient EBIT performance, which was supported by active cost management as well. The chlor-alkali segment, the positive commercial development continued. We saw new orders in our service business and also won new build projects across the globe. Chlor-alkali, our profitable legacy business is also a key driver of the positive cash flow development we have seen so far in this financial year. Combined with our strong financial foundation and net financial assets of almost EUR 680 million, this puts us in a very good position for future growth and to withstand a slower ramp-up in the interim. It probably will not come as a big surprise that based on our performance in the first 6 months, we confidently confirm our guidance for the current financial year. From today's perspective and considering an unchanged high rate of project execution, we believe that the upper half of the group sales and EBIT guidance range can be achieved. Let me now walk you through a few more details on our operations and the project pipeline. First, I want to talk about the sound performance of our chlor-alkali segment. In the new build business, we have seen strong order intake in the second quarter with key contributions from projects in the U.S., Saudi Arabia and South America. Looking ahead, we are encouraged by an attractive pipeline of opportunities, including several large-scale projects in the Middle East and also in China. Turning to the service business. Demand continues to be high across the entire value chain. Central Europe, the U.S., China and the Middle East remain our largest and most dynamic service markets, where we continue to support our customers with innovative solutions. Turning now to project execution. Very important point I want to address early on is that as of now, we are exposed to very limited financial risks from U.S. tariffs in our projects under execution only. However, the existing uncertainties in terms of tariffs could cause chlor-alkali customers to try postponing new projects until a later date, but that is very difficult to predict right now. Nevertheless, our project pipeline is looking strong and the reliable project execution is playing a key role for our customers. A good example of our progress is the OxyChem Battleground conversion project, which already exceeds a 50% completion rate. All in all, we proved once again that we are ideally positioned to maintain and even expand our leading position in this market, thanks to our efficient electrolyzer plants, unique service know-how and also our reliable project execution. Ladies and gentlemen, let's continue with our green hydrogen projects on Page 7. The NEOM project, the world's largest green hydrogen plant currently under construction is progressing well with production, delivery and cell assembly all on schedule. We have handed over more than 80 standardized 20-megawatt modules to our customer already. For Stegra, as you might have already heard, I'm very pleased to announce that our first 20-megawatt module is on its way to the construction site in Boden in Sweden, which you can see on the picture as well. We are very proud to contribute to such an exciting project like the first green steel plant in Europe. Cell fabrication is also in full swing so that this electrolyzer plant, which is also the biggest in Europe, by the way, is now really coming to life. Last but not least, our project with Shell is nearing completion. With the final assembly of all 10 electrolyzer modules, we are getting closer to commissioning and to the completion of the 200-megawatt project in the Port of Rotterdam. And with that, let's move from projects under execution to potential new projects our sales teams are currently working on. Our project pipeline on Page 8 continues to show significant growth opportunities in green hydrogen. Out of our substantial pipeline of more than 150 projects where we had first interactions with potential project partners, we are currently pursuing 40 projects actively. What does actively pursued mean exactly? It means that we are intensively engaged with clients about how our project can be realized. For the more advanced projects out of this bucket, we are negotiating contracts. For some, we are executing our planning FEED studies. And for others, it is already about discussing specifications and engineering designs. In total, those projects have an aggregated size of 22 gigawatts and offer a potential contract value of EUR 12 billion. Obviously, not all of these projects in the pipeline will be awarded to us. and some of them may not be realized at all. But it is a very significant market opportunity we are talking about. In the short term, we see the strongest potential in European projects. And I will provide more details on the regional distribution of our project pipeline in the next slide. Like I said, Europe is for us currently the most attractive region for green hydrogen projects. This is well reflected in the high share of European projects in our actively pursued pipeline, which has even increased from around 1/3 to almost 50%. At the same time, considering the ongoing regulatory uncertainty as well as project delays and cancellations in the U.S., the share of North America projects in our actively pursued project pipeline has declined from 1/3 to less than 20%. The current proposal regarding an early termination of the so-called 45V, it may even go further down. Don't get me wrong, we still see the U.S. market as one with large potential for green hydrogen production in the long term. But currently, other markets are more promising and our global presence allows us to quickly adapt to such changes in the market conditions and also in attractiveness. This is one of our company's strengths and one that should not be underestimated. Looking at the time line, up to 60% of the actively pursued projects could reach their effective contract date by the end of the fiscal year '25-'26, and we are confident in winning our fair share of orders for large-scale green hydrogen plants. In fact, we have already been named preferred technology provider for European projects of more than 1 gigawatt. These projects are located in Southern Europe and the Nordics. Also, other regions like the Middle East, India and Australia are expected to pick up pace as well. Final investment decisions for green hydrogen projects are still heavily dependent on the right framework conditions. For that reason, on Page 10, I want to dive a little bit deeper into some of the recent regulatory developments, mainly in Europe because we currently see strong support from governments for green hydrogen development here. The different policies and initiatives taken on by the European Union are aimed at stimulating clean hydrogen demand. And they are pointing to electrolysis as the key technology for clean hydrogen scale-up. We certainly support that view, and we also support the implementation of industry quotas and simplified electricity sourcing criteria. Not all of that is happening as fast as we and also the wider green hydrogen sector would wish for, but things are moving into a promising direction in terms of creating additional demand for green hydrogen. Other positive developments on EU level include the introduction of Clean Lead Markets and the Low-Carbon Delegated Act as they show again a clear commitment to clean hydrogen and the willingness to ensure growing demand for clean products. In Germany, we have seen that the new German federal government commits to a long-term transition to climate-neutral hydrogen. Also, first sections of the planned national hydrogen core network are becoming operational. And this is a particular positive development as transport infrastructure for hydrogen is likely to be the second most important catalyst for the growth of the hydrogen industry after regulatory support measures. On the side of potential key offtakers for green fuels, the International Maritime Organization's approval of the so-called net zero regulations for global shipping stands out. We expect that such agreements will drive significant demand for hydrogen and its derivatives. The overall trend is clear. Green hydrogen is an essential part of decarbonization strategies around the globe and as such, expected to grow significantly in terms of installed capacities and demand. By looking at the most relevant markets and the projections for installed capacities in 2030, one will see significant growth opportunities in Europe, in the Middle East and Asia and in North America and Australia, all summing up to an expected capacity somewhere in between 50 to 80 gigawatts. The key factors for this ramp-up are clear as well. Projects need to be FID-ed, offtake need to be enabled with competitive pricing and practical transportation means for hydrogen, which ultimately is linked to regulation, funding schemes and infrastructure buildup. We are confident that the delays in FIDs and in achieving regulatory clarity will be overcome in the coming quarters for many of the key regions as -- and that the green hydrogen sector will return to dynamic growth. And this is ultimately the basis for achieving the ambitious projections outlined on this slide. With that, I hand over to our CFO, Stefan Hahn, who will walk you through the financials in details.

Thank you very much, Werner, and welcome from my side as well. Before I start, let me say some brief words. I'm very glad to be with thyssenkrupp nucera. And during my first month here, I have met many talented and very engaged colleagues. Hence, I'm fully convinced that we will achieve great things for thyssenkrupp nucera together. I've had the pleasure to meet some of you on the line already virtually or in person, and I'm committed to continuing and intensifying the dialogue in the coming weeks and months. Now let me present the financial performance of thyssenkrupp nucera for the second quarter and first 6 months of the fiscal year and share some key highlights with you on Page 13. Ladies and gentlemen, thyssenkrupp nucera posted a sound financial performance in the second quarter of 2024-'25. We saw improvements in almost all KPIs compared to the prior year's quarter, though we fell slightly short to the first quarter, which experienced several record highs. Order intake reached EUR 83 million, driven by an increase in chlor-alkali new build business, while on the green hydrogen side, order intake was rather soft. Group sales grew dynamically to EUR 260 million, an increase of 31% compared to the previous year. It was driven by further progress in the execution of contractually agreed projects, both in the field of chlor-alkali and green hydrogen. Our EBIT performance was once again robust and fully in line with the assumptions our full year guidance is based on. EBIT increased by EUR 10 million year-on-year to minus EUR 4 million. The increase in EBIT is primarily attributable to higher sales combined with an improved gross margin and stringent cost discipline. On Page 14, we have a more detailed look on order intake. In the second quarter, our order intake increased by 11% year-on-year to EUR 83 million. The chlor-alkali segment drove group order intake and posted 25% year-on-year increase resulting from the new build business. As we highlighted already in our Q1 earnings call in February, a contract with Chrome Solutions USA, which has selected thyssenkrupp nucera's technology for the development of its first U.S. chlor-alkali plant in Casa Grande, Arizona was recognized in the second quarter. Moreover, we have been awarded new build projects in Saudi Arabia and South America. Order intake in the gH2 segment remained rather soft in the second quarter. This is due to the usual volatility in the project business and to projects being postponed. Cumulated over the first 6 months of the current fiscal year, order intake declined by 29% to EUR 179 million, driven by lower order intake in the gH2 segment. Keep in mind, the previous year figures included around EUR 100 million in connection with the Stegra project. Looking at the order backlog, it amounted to around EUR 0.8 billion at the end of March 2025, which is roughly EUR 0.4 billion was attributable to the green hydrogen business. At the end of December 2024, order backlog still amounted to around EUR 1 billion, including roughly EUR 0.6 billion for green hydrogen. The decline in order backlog is obviously due to the further progress in project execution, which is reflected in the dynamic sales development and also the current lack of large new gH2 orders. Now driving into our sales development on Page 15. In the second quarter, sales rose by 31% year-on-year to EUR 260 million. The year-on-year increase is attributable to both technologies. Green hydrogen sales increased by 23% and reached EUR 120 million, driven by the ongoing execution of our projects in Saudi Arabia and Sweden. Sales in the chlor-alkali segment amounted to EUR 97 million, 42% above the prior year figure. Sales improved both in the new build business, driven by the ongoing implementation of projects in Brazil and the U.S. as well as in the service business due to projects in Germany, China and the Middle East. In the first 6 months of this fiscal year, group sales increased by strongly 29% to EUR 479 million, thanks to the successful execution of our order backlog across both segments. For the second half of this fiscal year, the Stegra project will continue to drive green hydrogen sales, while revenues from the NEOM project are expected to decline year-on-year, but also sequentially due to the high degree of completion already achieved. Overall, on group level, based on an unchanged high rate of project execution, we expect sales in the next 2 quarters of this fiscal year to come in roughly on similar level as in Q2. Moving on to the EBIT development on Page 16. In the second quarter, group EBIT increased by EUR 10 million to minus EUR 4 million, thanks to higher sales, combined with an improved gross margin and our cost containment measures. EBIT in the chlor-alkali segment was EUR 6 million above the corresponding prior year figure. It benefited from higher sales and a stable gross margin, while the EUR 4 million increase in earnings in the gH2 segment was particularly due to an improved gross margin and a lower cost ratio. In the first 6 months of this fiscal year, group EBIT rose by EUR 19 million to EUR 4 million. We were able to reduce the operating loss in the gH2 segment, driven by an improved gross margin in the AWE business as a result of a more profitable project mix. EBIT in the chlor-alkali segment also improved mainly due to the positive sales development. This development puts us in a very good position to reach our full year EBIT guidance. On Page 17, let's take a look at our COGS development in the 6-month period. Cost of goods sold increased in absolute terms in line with higher sales but improved slightly as a percentage of sales. SG&A was stable year-on-year in absolute terms, but the COGS ratio improved, thanks to active cost management. In the upcoming quarters, we will continue to synchronize our organizational and operational expansion with market development and work on cost containment to mitigate effects of a temporary slowdown in sales growth and cost absorption. We have seen a similar development for R&D expenses, which were stable in absolute terms but declined in percent of sales. Technology and R&D are and remain the heart of our company. We have not stopped our R&D efforts. In contrary, our R&D efforts have increased overall, but expenses have partially been capitalized. In the coming quarters, we will continue to increase our R&D efforts, particularly in the gH2 for AWE stack, AWE module development and our test center, but also in SOEC. Moving on from EBIT to earnings per share on Page 18. In the second quarter, we recorded a positive financial income of EUR 4 million compared to EUR 6 million in the prior year period. The slight decline in financial result stems from lower interest income earned on our cash positions due to lower interest rates compared to the prior year. Net income came in at minus EUR 3 million, EUR 7 million higher than in the previous year, thanks to the EBIT improvement. Accordingly, earnings per share increased to minus EUR 0.03 compared to minus EUR 0.08 in the previous year. In the 6-month period, net income was positive at EUR 6 million, leading to an earnings per share of EUR 0.05. Net working capital led to a cash out of EUR 8 million, mainly to the lower contributions from contract liabilities and trade accounts. Also, inventory stood at higher levels at the end of March. Cash flow from operating activities, however, improved in the first 6 months of fiscal year '24/'25. It stood at EUR 36 million compared to minus EUR 4 million in the prior year period, which represents a significant increase despite the negative contribution from change in net working capital. This improvement is mainly linked to lower advanced payments to suppliers and increased earnings compared to last year. Cash flows from investing activities increased slightly to minus EUR 11 million in the 6-month period, mainly due to higher investments in intangible assets and higher expenditures on property, plant and equipment. This resulted in a positive cash flow of EUR 25 million compared to minus EUR 9 million in the prior year period. As you can see, we have cash flow well under control. Thanks to our chlor-alkali business, we are able to finance ourselves largely from operating activities. This is also reflected on the next page in our strong net financial position. Net financial assets totaled EUR 676 million at the end of March '25 and thus remained stable at a high level. That substantial amount is sufficient to withstand current market headwinds and to finance future growth. It clearly sets us apart in the hydrogen space. Let's continue with the outlook for this financial year on Page 21. Based on our sales and EBIT performance in the first 6 months, we confirm the outlook. We continue to anticipate group sales between EUR 850 million and EUR 950 million, driven essentially by the execution of our existing order backlog. Moreover, we continue to expect group EBIT to be between minus EUR 30 million and plus EUR 5 million. Based on the assumption of an unchanged rate of execution of our existing order backlog, the upper half of the group sales and EBIT guidance seems to be achievable from today's perspective. As for the Green Hydrogen segment, we expect sales to come in between EUR 450 million and EUR 550 million and EBIT to improve to a negative mid-double-digit million euro amount. In the chlor-alkali segment, we expect sales to increase between EUR 380 million and EUR 420 million and a positive EBIT figure in the mid-double-digit million euro range, yet likely below the figure for the past financial year. To conclude, I'm very pleased with our financial performance for the first half of this fiscal year. Not only does it show that we are on track to meet our targets for this financial year, we also continue to benefit from a strong balance sheet and the ability to fund our operations internally, which is an important asset to have. And now back to Werner for his closing remarks.

Yes. Ladies and gentlemen, as we look ahead, we are incredibly excited about the tremendous opportunities unfolding in the green hydrogen sector. Our green hydrogen pipeline is maturing towards further project FIDs and Europe is emerging as the region with the largest potential in the short term. The shift towards cleaner energy solutions is accelerating and green hydrogen is poised to play a pivotal role in its transformation. Our ongoing efforts to expand our portfolio of green hydrogen projects positions us well to capture this growing demand, which promises significant long-term value for our stakeholders. We understand that navigating through the uncertainties of the green hydrogen market that is still ramping up requires discipline. We have managed costs effectively while remaining agile in our operations. Our approach has allowed us to deliver strong results even in challenging times. In this regard, I want to highlight a key aspect of our business model, which is flexibility. In uncertain times, the ability to rapidly adapt our operations is an invaluable advantage. Our business model is inherently flexible, allowing us to efficiently ramp up production and capitalize on new opportunities as they arise. This adaptability has been crucial as we navigate a constantly evolving market landscape. Finally, I want to emphasize the strength of our financial position. Our substantial cash reserves sets us apart from many of our competitors and provides us with a unique advantage. This financial resilience provides a profound basis to weather challenges and remain on track with our strategic goals. To conclude, I'm confident that we are on the right path. Together, we will continue to innovate, adapt and lead the way towards a greener, more sustainable future. Thank you very much for your attention, and we now look forward for your questions.

[Operator Instructions] And the first question comes from Erwan Kerouredan, RBC.

So I've got 2, please. The first one on the pipeline. Can you just clarify why -- let me go back to the slide. Just one second. I'm having a bit of a technical issue. I'll go ahead with the other question first. Can you give me an update, please, on the on the prospects of purchase orders and, I would say, broader commercial conversations with prospective customers in Europe. So you talked about substantial capacity reservations in Spain a couple of months ago. And also commercial conversations in the Middle East, especially with Oman, if in your view, commercial conversations are not going as fast as expected. This is my first question, and then I'll follow up with the second one.

So your second question is coming later now. Okay. Sorry, I was just waiting. Yes. I mean, in general, as already explained, we currently see actually most progress in commercial discussions on our European potential customer bases. This is certainly actually due to, I would say, the consistently and strong support in Europe for green hydrogen value chains still, which is really standing out and which obviously also needs some acceleration of project maturing in this market. So I think we have also, in the past, talked about, for example, a project in Spain, where we together Huelva are developing a 300-megawatt electrolyzer projects where Huelva also has reserved manufacturing capacities with us. So these are these kind of projects which we see now maturing quickly and where we are confident that within '25, we will be also able to sign contracts here. In other regions of the world, and you were mentioning in particular, Oman, I would also say that projects are maturing, but these projects are typically very large, in particular, in Oman. And the nature of large project is also that they are more complex when it comes to financing, more complex when it comes to designing and execution. And with that, we see them actually progressing slower than if that would be smaller projects as well. So again, the Middle East is also constituting for us quite a substantial opportunity. We believe in the short term, the projects actually will, in particular, actually move towards FID in Europe.

Understood. And on my first question, it's on the pipeline, please, and on active purchase projects. But I guess the question also applies on the broader substantial pipeline. There's a significant reduction in the aggregated size in gigawatts from the previous quarter, like from basically 25 gigawatts to 22 gigawatts, but the contract value remains broadly around EUR 12 billion. Can you just walk through the economics and why there's no significant change in the contract value?

If you want -- these are, I would say, classical portfolio shifts, if you want. So I would say, project costs are not similar actually around the world for various reasons. First of all, actually, scope of projects is different. So -- and in this particular case, actually, there have been -- there were projects actually moved out of our actively pursued pipeline with smaller scope actually -- or the other way around with larger scope actually and projects were moved in with smaller scope. However, if you then look actually at the revenues, actually, that remains quite stable because the scope that was moved in actually is a more expensive scope, if you want. So that's, I would say, the key reason why we see a little bit of a shift here. But in general, actually, it remains on the same level...

The next question comes from Michael Kuhn, Deutsche Bank.

First one would be on P&L and cost discipline. I think better-than-expected OpEx development in the past quarter. And basically, on a year-on-year comparison, you've pretty much frozen the cost growth. Is that currently a run rate that you can keep maybe even into next year? Or should we expect OpEx to pick up to some extent into next year? And in connection with that, gross margin also was a positive development. There was some restatements, of kind of difficult to read. But still, I think the market expectation was a bit higher. Should we expect based on project mix, a further improvement in the gross margin in the second half? So that would be the first question.

So on your first question, you noted well that OpEx development is rather positive, and we've pretty much frozen the operational cost. This is, of course, something that we are currently very focused on and that we are also trying to the maximum possible extent for all future quarters. We will adjust that, of course, to the development in the top line. So I hope that answers your question on the OpEx development. On gross margin, also here, we see a positive effect from the product mix, as you also well noted. We expect this development also to continue in the next quarters as lower-margin projects will slowly phase out.

All right. And then on specific projects, let's say, past projects, there was obviously the project in Brazil, Unigel, where you couldn't deliver the equipment ultimately. Is there any news on that one? And there was this one kind of prototype project in the U.S. with CF Industries. And I was wondering whether this electrolyzer is running in the meantime and what the experiences with that one has been?

Yes. Michael, this is Werner. To your first question with Unigel, the status is unchanged in the sense that the 3 electrolyzers are still stored actually and have not been delivered to the customer. However, in the meantime, we have received our final payments out of the letter of credit actually that was issued for the purpose. And we are now discussing actually how we finally want to proceed with these assets together with Unigel. On the project in the U.S., this prototype project with CF Industries, and I think that has been also disclosed by CFI in February already. We had during the commissioning of this electrolyzer an incident. There was no injuries occurred and the situation was also very quickly contained. However, actually, as you can imagine, there is an investigation, which is still ongoing to really understand also with independent experts and partners and so on and so forth, the root cause of that actually and potential learnings, of course, out of that. That is still ongoing, and this is why the system still is not finally up and running.

Right. May I ask because, honestly, I overlooked that piece of news. What kind of incidents? So was it, let's say, failure of your equipment? Or is that still, let's say, too early to say?

No. I mean, as I said, the investigation is ongoing. So it's maybe too early to really come to final conclusions. But as it looks like, actually, it was caused by human error, which has nothing to do actually with our technology and the safety of our technology.

The next question comes from Marco Cristofori from Intesa.

The first one is that on May 12, the House Committee for Ways and Means in the U.S. introduced a legislation that significantly amend the Inflation Reduction Act on clean energy and manufacturing tax credit. And it seems that the draft of legislation repeats credits related to green hydrogen beginning in January 2026. So just to understand if this change can have any impact on your future product in the U.S.? And my second question is on CapEx. You reported EUR 11 million in the first half of the year. Just to understand if you expect an acceleration in the coming months or if we can simply double the level of the first half?

Let me first take the first question and then Stefan will answer on the CapEx side. So in terms of U.S. administrations on what they might do and not do, we don't see value in any speculations right now. So I mean, clearly, actually, in the long term, we believe that the U.S. market is a very promising one, and we see a lot of projects being currently developed. Clearly also is, of course, that many of these projects are in Republican states, which can also play a role in the discussion that you were mentioning, which is currently still ongoing when it comes to actually a potential early termination of the so-called 45B rules, which would be the ones actually that would make projects eligible for tax credits, which would produce ultimately clean hydrogen. Clearly also, if -- and this is a bit of speculation, but clearly also, if this would actually fall into place, then we believe, of course, that in the short term, project FIDs will be very unlikely in the U.S. Clearly also actually, and I think I've mentioned that our business model is very flexible in this respect. There is a lot of other regions actually that show also in the short term, in particular, in Europe, a greater potential, and we would then certainly also quite flexibly react to that and focus actually on other regions to fill our order books. Second question was on CapEx.

So second question was on CapEx. Here, of course, you had a look probably at the cash flow statement, which shows cash from investing activities of minus EUR 11 million. Our actual CapEx in the first period was, first of all, maybe a comment on the EUR 11 million cash out. This is mainly related to R&D invest -- in regard to R&D activities. The actual CapEx was a little higher because we had several lease agreements that were closed in the first half of this fiscal year. We had, for example, our new Dortmund office, which was a larger lease and some offices in foreign locations. For the second half of this fiscal year, we actually expect CapEx on a similar level because we will have invest further R&D investments that will also lead to probably a slightly higher invest cash out in the second half of this fiscal year.

[Operator Instructions] And there is another question coming from Martin Wilkie with Citi.

It's Martin from Citi. Just one question in terms of the outlook for next year. I realize obviously too early to talk about guidance or anything like that. But just to understand a little bit about the timing of how quickly orders would turn into revenue. Obviously, now the backlog a couple of years ago getting delivered, then the remaining backlog at the end of this year in green hydrogen would obviously then look lower. And just to understand how soon do you need orders this year to deliver in 2026? Is it typically a sort of 3- to 6-month lead time? Is it longer? Just to understand a little bit about the timing dynamics of orders into revenue.

So yes, timing of orders into revenue is certainly very much depending, first of all, actually when -- so to sort of detail that a little bit, at a certain point in time, actually, we are concluding on a contract and we are signing a contract. That doesn't necessarily mean that at the same time, actually, FID is taking on a project actually, and we are able to start working on the project. Typically, there is a phase between a contract being signed and the commencement date when really actually the project is starting, and we are also starting actually to make progress. And since our sales or our revenues are based on a process of completion, actually, this is also the time where we will start to recognize sales, of course. This period of time between contract signature actually and commencement date can vary quite a lot. It can basically fall on the same date, and it can also take more than half a year actually before things are starting to move, which certainly has an impact actually on when we are able to recognize sales in our P&L. And once that has happened actually, then it's -- from a recognition perspective, actually, it starts rather slow because at the initial phase, we are doing mainly engineering hours, so working on engineering documents. And once this is moving into really then purchasing equipment, then it's quickly picking up and it's a very steep and accelerating revenue curve. And then once we are moving closer to commissioning work, then it typically ends up also being engineering hours. And then, of course, this curve is flattening out. And this whole realization period can be depending on the size of the project between, I would say, 2 and even 4 to 5 years. So with that, it's, of course, from today's perspective now very difficult actually to provide further details actually on next year. We will certainly release the guidance for our next year as well at our, I think, December conference call on our full year results. And until then, I hope for your understanding that we will not be able to provide any guidance right now.

No, of course. And that's very helpful color. If I could have a follow-up, you sound obviously more optimistic on Europe compared to some other reasons -- regions, sorry. In Europe, there are a number of things happening in the background on policy, whether it's the German infrastructure bill. Obviously, the EU has various Clean Industry Act. Those pieces of government decision effectively bottleneck to customers making decisions just in terms of how -- when you're having conversations with customers, are they waiting for regulatory clarity or even subsidy clarity? Or are these decisions kind of in the hands of the customers? Just to understand what would convert the backlog or the pipeline into orders in Europe?

So we -- as you were saying, actually, we have seen a lot of movement actually also when it comes to regulatory aspects and funding in Europe. Also in terms of providing more clarity to regulations, actually, that has improved. Still, we believe there are some bits and pieces actually that needs more clarity, in particular, when it comes to some regulation. But we see this on a good path right now. And that is also why we see real progress actually on projects that we have in our pipelines in Europe. And that is why we firmly believe that for this year, we will be able also to announce a few positive news also on order intake actually coming out of European projects.

The next question comes from Skye Landon, Redburn Atlantic.

Just a follow-up on some of those questions really. In terms of different nations within Europe, we've seen various countries give negative updates regarding kind of the Renewable Energy Directive, RED, III, but we've also seen France give a positive update in terms of how much of green hydrogen they expect to make up in the transport fuel by 2030. What kind of changes do these have in terms of progressing projects quickly and which countries within Europe are you most positive about going forward?

Yes. I think that -- and I would say this is almost by nature, actually, we see most of the progress being made in Southern Europe and in the Nordics and by nature, because they certainly have the best prerequisites actually for these kind of projects with renewables actually being -- can be produced quite cheaply in those areas. This is, again, why we see projects in these areas now really moving. And of course, actually, the impact on regulation and funding schemes actually, I would say, are a little bit different. There is a number of projects actually that have been already confirmed fundings. And these are the ones actually that we see moving now very quickly. We are involved in many of these, as you can imagine, actually, and this is why we're looking rather positive on that development, in particular, in Southern Europe and in the Nordics. Central Europe is, again, also by nature, actually a bit more difficult when it comes to electricity prices. So as the key cost input factor actually also for the production of green hydrogen. This is why we see here rather smaller projects that have been also currently announced. We don't see too much larger developments here. There's a few ones actually that we also have in our pipeline, I have to say. But it's -- the majority is actually really in those 2 areas that I've just mentioned.

Okay. Thank you, everyone, for today's Q&A session. And I'd now like to hand it back to you, Mr. Ponikwar and Mr. Finger for some closing remarks.

Yes. Then thank you very much also from our side. Ladies and gentlemen, thank you for your time and also for your questions, of course. With that, let me conclude today's earnings call. Maybe we will meet each other on the road in the next weeks because typically, we are on the road actually and hoping to see you there. And in any case, you still have open questions, please reach out to our Investor Relations. Thank you again, and goodbye, all the best.