thyssenkrupp nucera AG & Co. KGaA ($NCH2)

Hello, everyone, and a warm welcome. This is Hendrik Finger from Investor Relations. Thank you for joining this conference call at such short notice. I'm sure you've already seen our latest updates, and there have been quite a few developments since yesterday afternoon. As one research report put it, nucera is currently producing more news flow within 24 hours than it usually does over a couple of months. That is not entirely wrong, which is why we have stated this call in between quarters to provide further details and address any questions you may have. We will host the call in the usual setup. Our CEO, Werner Ponikwar; and our CFO, Stefan Hahn, will guide you through the presentation, which has been kept very brief given to the short lead time and to allow more time for Q&A. Now before we start the presentation, as always, some housekeeping. First, this call will be recorded and a replay will be made available on our website later. Second, 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 at the end of the slide deck. And with that, I hand over to our CEO, Werner Ponikwar, who will be starting the presentation.

Yes. Thank you, Hendrik, and welcome, everyone. Great to have you with us again. During the last 24 hours, we have to admit that there had been quite some news flow, and we are certainly happy to provide more color on these events today. So now today marks a truly exciting milestone for thyssenkrupp nucera on the project pipeline side. Moeve has selected us to deliver 300 megawatts of electrolysis capacity for the first phase of the Andalusian Green Hydrogen Valley. This is not just another project. It is a clear signal of a renewed commercial momentum for our company and strong recognition of our competitive product offering. This project known as Onuba, will become the largest green hydrogen installation in Southern Europe, being able to produce around 45,000 tonnes of green hydrogen per year and with that helping to avoid roughly 250,000 tonnes of CO2 annually. It will enable the production of sustainable fuels for transportation and also accelerate decarbonization in the chemical and also fertilizer industry. We are proud that Moeve has selected our technology, and we are very much looking forward to be shaping such a lighthouse project for Europe's energy transition. The order has a low triple-digit million euro value and will be booked in the second half of this fiscal year. This allows us to raise the lower end of our group order intake outlook for the current year. Phases for this project will largely materialize in the next financial year '26, '27, but the strategic significance is, of course, immediate. This is the kind of commercial traction we have worked for over the last months and quarters. It shows that the market is turning, and I firmly believe that we will see further project FIDs and further project wins for thyssenkrupp nucera in the next months and quarters. Further evidence supporting this view comes from the FEED study for a 260-megawatt green hydrogen project in India, which we announced yesterday. Europe remains the hottest market in the short-run, but green hydrogen will be rolled out globally. Now turning to the less pleasant news from last night. Let me walk you through the drivers behind our updated outlook for the fiscal year '25, '26 on Slide 3. Over the past months, we have seen strong commercial momentum driven by 2 major project wins, the large-scale chlor-alkali project in the Middle East booked in the second quarter and the new 300-megawatt green hydrogen project, which will be booked in the second half of this fiscal year. These projects give us a more solid commercial baseline, allowing us to raise the lower end of the order intake guidance range. And at the same time, several project-related factors influence our earnings. Some of our green hydrogen projects require higher implementation costs. These costs primarily relates to specific enhancement measures for already delivered electrolyzer modules, ensuring that the reliability and safety of our electrolyzers stay at the highest level. We're also seeing the financial impact of the termination of a 20-megawatt pilot project contract in the U.S. where the customer no longer saw sufficient return expectations. The combination of these factors results in a low double-digit million euro impact on our EBIT. Also, this additional cost caused technical timing effects in revenue recognition under IFRS 15. The higher costs associated with green hydrogen new build projects reduce the accounting percentage of completion, which in turn leads to a technical negative revenue effect in the low double-digit million euro. This is why we expect sales for the Green Hydrogen segment in the second quarter to be around 0. While technically -- technical, these effects still had to be reflected, of course, in our updated guidance. Taken together, this combination of positive commercial traction and higher project-related costs and timing effects explains the adjustments to our fiscal year '25, '26 outlook. The fundamentals of our business remains strong, and our focus remains on disciplined execution and delivering reliably on the projects that we have secured. And with that, I would hand over to Stefan for further color on the outlook.

Yes. Thanks very much, Werner, and a warm welcome from my side as well. And based on what Werner just has explained, I will walk you through the adjustments of our full year guidance for 2025, 2026. First, we have refined our order intake outlook and significantly raised the lower end of the range. For the group, we now expect EUR 550 million to EUR 850 million, which is significantly above the EUR 348 million that have been realized in the prior fiscal year. This adjustment of the lower range especially reflects the Moeve order that has just been explained by Werner, hence the large contract in the Middle East that we've communicated in December in the last calender year. In the Green Hydrogen segment, we have lowered our sales and EBIT expectations. We now anticipate the green hydrogen sales of EUR 120 million to EUR [ 170 ] million based on the technical effects that were just explained. For the full year and EBIT expectation ranges between minus EUR 125 million to minus EUR 90 million. At the same time, the chlor-alkali segment continues to perform very well. Therefore, we have raised the lower end of the EBIT range to EUR 45 million to EUR 45 million, the upper range to EUR 65 million, while keeping the sales outlook for this segment unchanged. As a result, these adjustments flow through the group level. We now expect group sales of EUR 450 million to EUR 550 million and group EBIT in the range of minus EUR 80 million to minus EUR 30. Let me give you a quick rundown of what this means for the second quarter. We expect order intake to be strong, driven in particular by the [indiscernible] for order in the Middle East, which was booked in February and will hence be fully reflected in our Q2 figures. In total, we anticipate group order intake of more than EUR 150 million in the second quarter, placing us clearly above the prior year quarter and also meaningfully ahead of a sequential basis -- ahead on a sequential basis. On the sales side, the primarily accounting-related effects tied to the higher project costs in the green hydrogen segment, which were outlined earlier, will be recognized in the second quarter. As a result, the GH2 segment is expected to report sales of around EUR 0 million due to this technical effect. Chlor-alkali sales will be up on a quarter-to-quarter basis. The higher project-related expenses will also be booked in Q2, which means the EBIT loss at group level will increase accordingly. And with that, I will hand back to Werner, who will wrap up today's presentation.

Thanks, Stefan. Ladies and gentlemen, we are aware that the recent announcements are certainly a lot to digest. Let me briefly summarize the key messages for the group. Our new 300-megawatt green hydrogen order from Moeve demonstrates the strong trust the industry places in our technology. Together with the 260-megawatt FEED study from Juno Joule in India, it underscores that the positive momentum we are seeing at the green hydrogen market continues to mature. We are building on our proven track records and remain fully engaged with our customers as they move towards the finalization and commissioning of the first electrolyzer plant. At the same time, we are, of course, fully aware of the EBIT and cash impacts from the announced higher-than-expected project related costs. We are actively evaluating additional cost measures to mitigate these risks and maintain operating discipline. And importantly, our profitable cash-generating chlor-alkali business, together with our solid balance sheet gives us the stability and headroom to navigate the current environment with confidence while staying focused on long-term value creation. With that, we conclude today's presentation. Thank you for your attention, and we will now open the line for questions.

[Operator Instructions] The first question today comes from Marco Cristofori from Intesa.

Can you hear me?

Yes.

A couple of questions, if I may. The first one, if I see at the middle of the range, your reduction in EBIT is around EUR 40 million. And if it's possible to know the split between the project canceled in the U.S. and the higher implementation cost. And specifically higher implementation cost, do you think it was a one-off or there is a risk that also on other project, we can have higher implementation cost? And my second question is if this reduction can have any impact on the expected cash flow generation this year and on maybe net cash evolution.

Sure. So I'm happy to answer your questions. First question was on the mid-range EBIT minus EUR 40 million and the split between the 2 topics mentioned here. We are not disclosing detailed figures this time. And as you are well aware, of course, all the figures are still not audited and preliminary. That's the main reason. But what I can say here, and I'm sure that this already sufficiently answers your question is that the major part of this loss is related to the cost overruns that we've seen in the projects. That is the major part. Directly related to that is your third question regarding the cash effects. And as you are well aware and also in the past quarters, we are very focused on our free cash flow. And of course, it's always our aim to have a more or less balanced free cash flow. And also here, the cash effect from the cost that we see now will realize over the next 3 quarters. So it will not be a one-time cash effect inching into Q2. Rather, the impact on Q2 is pretty much close to 0, and we will see first impacts over the next 2 to 3 quarters. That doesn't necessarily mean that free cash flow in these quarters has to be significantly negative. So this will be a bit more stretched over a longer period. But surely, sooner or later, that will realize. And then your second question was, is it a one-off. Of course, the cost that we booked right now is our expectation that we have in the projects and it also shows one other thing, and that projects are now close to being -- close to commissioning and they have a very high percentage of completion. That is also the reason why a big part of these losses are now directly hitting into our P&L. If we were at a much earlier stage in our projects, they wouldn't directly into our P&L. That is just a common practice in POC accounting. And currently, this is our -- this reflects our expectation. But as you know, the projects that we are working on are reference projects and now it is important and this is what really [ met us ] that the plants are commissioned and running. And then the projects will be finalized. And hence, we cannot fully exclude that additional costs might realize to finalization of these [indiscernible] current reference projects, which is also not typical for these kind of projects we are working on.

The next question comes from Kevin Roger with Kepler Cheuvreux.

Can you hear me?

Yes, we do. I can.

If maybe we can start from what you mean in terms of specific announcements because it's very vague for us to understand what it means exactly because you have delivered a number of modules, everything on site. So what does it mean exactly? You need to change the project, you need to change some elements, you need additional equipment on site? So just to understand exactly what you mean by a specific [indiscernible] measure on those projects and notably the one in the Middle East [ NEM. ] And as a kind of second derivative, what does it mean exactly for the performance of your 20-megawatt electrolyzer? Because on one side, you have those additional costs on the big project. You have the termination of the contract with CF Industries that basically are telling us that the performance is not good enough. So implicitly as a second derivative, based on what you need to do and what you mean by specific announcement, what does it mean for the performance of your 20-megawatt electrolyzer module, please? And the second one is maybe on how you protect yourself in the contracts, things like that. But how is it possible that basically CF Industries moving away from a contract like that and that you have to pay the bill at the end on something that you were working on with a contract. So how do you protect yourself in the future in the terms and condition of the contract that I don't know, sorry for that, but I'm going to make a stupid example, but -- and maybe a very impossible one. But that on this 300-megawatt contract that you announced this morning, the client will not in a 6 or 12 months' time, move away, and we're going to see exactly the same thing again.

Okay. Thank you for the questions. This is Werner. Let me elaborate a little bit on the specific enhancements that we're planning. And I cannot go into all technical details here. But clearly, to start with actually, let's not forget that technological improvements are always part of a maturing of a technology in an industry. And it's not very uncommon that you identify over a period of time over the last months and quarters, improvement potentials and you need to think, okay, and we do that together with our clients, with our customers, how to deal with that. Do we want to do that right now? Or is it something that we would tend to do later. And let's not forget that these -- our systems are made for operation for 20 to 30 years. So it's rather now if you want sort of a pre-invest into the future of our systems than anything else to ensure that these systems will be working safely and reliable over the course of the next 20 to 30 years. And this is why we have decided also together with our customers to invest now in these additional enhancements, if you want, that in generally are targeted on 3 different things. One is certainly -- we see that there are potential regulations upcoming actually that we sooner or later will have -- the whole industry will have to comply with. And that's certainly something that we want to proactively now improve in our system. Certainly, in addition to that, we also learned over the last year that there's still room for improvement when it comes to safety. There always is. I'm not saying that our systems were unsafe, but you can certainly always enhance and improve in terms of safety of the overall system, making sure that actually you can minimize the risk to lowest maximum extent here as well. And that's certainly something that we have decided to do as well together with our clients. And then thirdly, actually, that certainly also has an impact on reliability and also that is something that we are typically trying to keep at the highest possible level. And with that certainly also a part of these specific enhancements are targeted in these directions. Now that's sort of how we -- the different specific measures that we want to take. And there's a number of -- they are not only equipment and hardware, but it's also on the software side. So there's a big, I would say, update, if you want that we are doing actually on both ends here. It certainly -- and coming back to your concern about [indiscernible] has nothing to do with the performance of our systems. Our systems are working. They're working properly, and we have also demonstrated already that they're working according to the expectations that we have and that our clients do have. And that was basically the same also in the U.S. with CF. CF has announced, they don't see economical justification anymore to continue actually with the plant. That has certainly a lot to do with also, I would say, the market in the U.S. actually and how they look at green hydrogen and sustainable energy right now that was driving this decision on their side. But this has an impact on us contractually, yes, it's something that is certainly not in our favor. But you can be rest assured that with every contract that is in place right now after CF, and don't forget that CF was the first one that we ever have established in the field of green hydrogen that with every contract that was agreed after that, the clauses are different.

Okay. And sorry, just to follow up, just to be sure I understand, when you say that those specific announcement stuff have been done together with the clients, does it mean that the costs are shared and that the client is also paying or it's in a way, an open discussion that you had. And at the end, it's only you that are paying for the additional improvements that you placed on the electrolyzer.

There's certainly an expectation that this is not only on our shoulders. So this is certainly something where we also see that our clients take a share in these additional costs because it's, of course, in our joint interest here as well.

The next question comes from Martin Wilkie with Citi. [Operator Instructions]

Can you hear me now?

Yes.

Just a question just on the timing. I think some of the deliveries for the project where you have the overruns were going to be in 2027. So just to clarify, when you talk that -- obviously, you can't rule out that there could be some more cost adjustments later. Is it possible that could impact 2027? Or is it more that you see the impact of this if there were to be future impacts, it would still be within the current fiscal '26 year? That was my first question.

Martin, it's Stefan speaking. So as it is common practice in POC accounting, the cost that we are realizing right now, our expectation for expenditures that -- our expectation for expenditures that we realize in the future. That is common practice in POC, and that also explains why the cash out will be stretched over 2 to 3 quarters. What has been described by Werner will be implemented over probably within the next 3 to 9 months. And there is a corresponding cash out behind it. But the EBIT effect that is realized right now as is common practice in POC accounting and the reason for that is that we have a very mature project pipeline with a very high POC percentage. And in these cases, these kinds of expectations are realizing directly in P&L. That is not unusual. So to put in short, from what we see right now, there will be no further effects in the next fiscal year.

Great. No, that's really helpful. And the second question I had was -- and maybe this is not the right forum for it, given we'll have an earnings call coming up in the near future. But obviously, with the changes to the sort of macro backdrop with higher energy costs and so forth, and we're going to have an EU summit in the next couple of days where we expect the EU to sort of double down on green energy and energy efficiency and all these kind of things. What's the sort of mood of your customers now in terms of delivering or accelerating your pipeline? Obviously, you do give us quite a lot of detail on your pipeline. Has there been any sort of sense of acceleration of conversion? Or is it just simply too early to tell as to what the impact from the current conflict could be?

This is Werner. I mean we certainly, I would say, see some tailwinds already, but it's too early to tell whether that is sustainable really. I mean it's a bit like we've seen also in other occasions where there was flooding and everyone was discussing climate change and now we need to do something urgently and so on and so forth. This typically holds for a couple of months and then things are changing again and different topics are of more interest. So I would be a bit cautious. It's certainly now initiating again a discussion of sovereign, resilience, energy independency, in particular, of course, in Europe, as you can imagine. And that certainly, I would say, supports projects that are close to FID. Let's put it that way. And that's also why I was mentioning we are confident that there's still more to come. But how much that is really sustainable and will be dominating, I would say, discussions and political decisions going forward remains to be seen.

Thanks, Martin. There seems to be no more questions at this point in time. For that reason, I hand over to Werner one last time, and you will conclude this.

Thank you very much for joining this call, of course. Again, I think there's a lot to digest. I hope that we could shed some more light on the events now with this call. In any case, if you have further questions, then please do not hesitate to contact our Investor Relationship team. Certainly you know pretty well anyway. And with that, yes, thank you for joining, and let's stay in touch, looking forward for our next events as well. Thank you very much.