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

Good morning, everyone. Thank you for standing by. This is Hendrik Finger from Investor Relations.

A warm welcome from my side as well. My name is Evelin Veit. I'm Head of Communications at thyssenkrupp nucera. Welcome to thyssenkrupp nucera's joint press, analyst and investor Conference on our Q3 and first 9 months 2025-2026 results. We are pleased you could join us today.

Our CEO, Werner Ponikwar; and our CFO, Stefan Hahn, will guide you through the presentation, covering key business developments and the financial figures for the past quarter. Colleagues from Communications and Investor Relations are also here with us today. Now before we start the presentation, 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. As usual, the presentation will be followed by a question-and-answer session for journalists and analysts. And with that, I'll hand over to you, Werner, for starting the presentation.

Well, thank you, Evelin. Thank you, Hendrik. Good morning, everyone. Great to have you with us. Let me start by pointing out the main developments since the last quarterly update before deep diving into some of them. Several of these developments have already been communicated. And today, we will place them in the broader context of our third quarter and first 9 months performance. We delivered another solid quarter, supported by the continued strong performance of our Chlor-Alkali business and disciplined project execution across both segments. Speaking of project execution, I would like to briefly draw your attention to the picture in the upper right corner. This image showcases the NEOM project and highlights the strong progress and momentum of our hydrogen projects as they enter the final development stages with the 2.2 gigawatt electrolysis plant nearing completion. Overall, we expect the first hydrogen to be produced at some of our projects before the end of this calendar year. During the quarter, we have also prepared our emerging service business in green hydrogen forward. The service agreement with Moeve marks an important milestone for our service strategy and underscores the strategic value of our growing installed base of 3.5 gigawatts. Furthermore, we are strengthening our position in India, one of the most promising hydrogen markets in the world through our partnership with BHEL. This collaboration enables us to capitalize on expanding public sector opportunities in India as the market evolves unlocking new growth potential for us. Additionally, green hydrogen market activities are gaining momentum driven by the growing implementation of policy measures, funding programs and offtake mechanisms, which are strengthening investment security for many projects in our pipeline. Lastly, we took the strategic decision to no longer pursue our plans to invest in our own mass production facilities for SOEC stacks due to insufficient short-term market readiness. At the same time, we will evaluate alternative attractive opportunities to valorize the solid oxide technology and also related IP. This decision will lead to onetime EBIT impact in the next quarter and consequently is affecting our outlook for the financial year. Stefan will have all the details on that later. Overall, we continue to execute our strategy of building a leading green hydrogen business while remaining disciplined in the deployment of capital. This quarter delivered further proof points of our strategic progress through our first noticeable service agreements and hence, market access in attractive growth regions, and relentless execution of our large-scale green hydrogen projects. Now let's turn to our Chlor-Alkali segment, which continues to show strong momentum and provides execution reliability. Starting with the sales pipeline, we secured a new order in China for a large-scale Chlor-Alkali plant, underlining both the competitiveness of our technology and our strong positioning in key growth markets. Beyond this project award, we continue to see an attractive pipeline of new build opportunities providing confidence in the underlying demand environment. At the same time, our service business continues to perform strongly. Service order intake remains above the prior year level, driven by increasing customer demand for efficiency enhancements, maintenance services and life cycle support. Activity has been particularly strong in China and in Europe, highlighting the value of our installed base and the strength of our long-standing customer relationships. We are making solid progress on our ongoing Chlor-Alkali projects, reflecting strong execution. Let me highlight 2 recent examples. In Brazil, the chlorum solution plant has been successfully commissioned and is now fully operational. The project demonstrates the advantages of our proven skid-mounted plant concept and the high energy efficiency of our technology supporting environmentally friendly and competitive Chlor-Alkali production. In the United States, we reached another important milestone with OxyChem. Joint onsite training has been completed successfully, and the project is progressing towards the start of commissioning. This reflects the strong execution capabilities of our teams and the close collaboration we maintain with our customers. The segment remains well positioned to deliver profitable growth, create value and continue serving as a strong and reliable pillar of our company. Now coming back to the first notable long-term service agreement in our Green Hydrogen business. This contract represents an important strategic milestone in the evolution of our business model for green hydrogen. With Moeve, we signed an 8-year long-term service agreement for the 300-megawatt project in Spain with a total contract value of approximately EUR 12 million. And I would like to add a technical comment on that matter. The order is not yet part of the order backlog or the order intake because the services typically start once projects move closer to completion. So the contract value will add to the order backlog in the coming years. The financial contribution is, of course, meaningful, but the strategic value of the agreement even extends significantly beyond that. With this first major long-term service contract, we are sending a clear message. Thyssenkrupp nucera is not only a technology supplier, but also a reliable partner for the successful operation of large hydrogen plants. And this perfectly matches a growing customer preference for long-term partnerships to maximize plant performance and availability across the full life cycle of their assets. For the customer, the benefits are clear, higher reliability, improved operational efficiency, reduced operational risk and continuous performance monitoring. And for us, it strengthens our relationship with the customer while creating recurring revenue streams that complement our project business. And this shift towards recurring subscription-based service models create an ongoing value for both, our customers and, of course, also for us. Next, let me do a deep dive on India, which we consider one of the most promising green hydrogen markets globally and a key focus area for thyssenkrupp nucera. During the quarter, we signed a strategic collaboration agreement with BHEL, one of India's leading engineering and manufacturing companies with strong relationships across both public and also private sector customers. We believe this partnership provides us with an attractive platform to participate in India's growing green hydrogen market. It combines our proven large-scale alkaline water electrolysis technology with BHEL's strong local manufacturing capacities, EPC expertise and also market access. A key element of this collaboration will be the phased localization of electrolyzer manufacturing in India which is well aligned with the country's ambition to establish a domestic hydrogen value chain and increasingly favors solutions with local content. This partnership extends beyond manufacturing, positioning us to jointly pursue public tenders and advance large-scale green hydrogen projects nationwide. India represents a compelling opportunity driven by supportive government initiatives, favorable renewable power economics and robust industrial demand especially in segments like refining, chemicals, fertilizers and also steel. Through this collaboration, we are strengthening our presence in a dynamically growing market and underscoring our long-term commitment to actively shaping the emerging green hydrogen economy in India. Not only India is showing promising developments of its green hydrogen market, we are currently seeing that in key regions, regulation and financing are no longer merely setting the direction, but are beginning to create tangible demand for green hydrogen. Starting with Europe, several regulatory funding initiatives are progressing simultaneously. In particular, hydrogen demand mandates under RED III are getting fully implemented as just recently announced for Germany and Spain for the transport sector. Together with further initiatives like the Lead Market framework, this is creating greater visibility for future hydrogen consumption and enhancing investment security. At the same time, funding mechanisms such as contracts for difference and national support programs backed by substantial funding budgets are helping to bridge the remaining economic gap and improve project economics. Together, these measures increase confidence for project developers, for offtakers and also for financing partners. We are also encouraged by developments in India. The SECI tender model is an interesting example of how governments can actively facilitate market development by aggregating demand and creating visible offtake structures for projects in sectors such as ammonia and methanol. In addition, export-oriented projects continue to secure long-term demand commitments. Another positive example is Japan. A substantial funding support is being deployed to improve the bankability of low-carbon ammonia project and accelerate investment decisions across the value chain. What is particularly encouraging is that we are no longer seeing isolated initiatives on the production side on, instead, multiple demand drivers are developing in parallel across key regions, including regulation, funding support, offtake frameworks and industrial decarbolization targets. These developments are contributing to a more favorable environment for project FIDs and with that, the advancement of electrolyzer deployment. While the timing of individual projects will, of course, continue to vary, we see increasing evidence that the key building blocks for our scalable green hydrogen markets are being put in place. Let me briefly update you on our green hydrogen project pipeline now. Compared to our last update, the overall picture remains stable with around 57 gigawatts on our total pipeline and approximately 14 gigawatts under actively pursued. This is reflecting a market that is increasingly focused on the most viable opportunities. We continue to see encouraging momentum in selected regions, particularly in Europe and in India. The supportive policy frameworks and funding mechanisms are helping projects move forward. A key highlight is the continued growth in our portfolio of paid engineering contracts under execution, now representing approximately 1.9 gigawatt already. These projects underline the continued progress and increasing tangibility of our pipeline, demonstrating its evolving strengths. These are not just announced opportunities, but projects where we are already deeply engaged with customers and supporting project developments based on our technology and also our expertise. These paid engineering contracts, combined with the 3.5 gigawatt already under execution demonstrate a clear path to future EPC awards and growing service opportunity. As a result, we remain confident that the next green hydrogen order could emerge from this portfolio in the foreseeable future. Now let me address our SOEC activities to follow up on the statements we have just published yesterday evening. After comprehensive strategic review, we have decided not to pursue the buildup of in-house mass production facilities for SOEC stacks any longer. We continue to believe that SOEC is a promising long-term technology, however, the mark today is not yet sufficiently mature to justify the significant investments required for industrial-scale stack manufacturing. Capital allocation is a key focus for our company. Given the current level of market uncertainty, and the timing of commercial demand, we believe this is the right decision to protect shareholder value and focus resources on opportunities with a clearer path to return. At the same time, and let me stress that, we keep the strategic optionality, and we will continue to evaluate asset-light approaches to valorize our solid-oxide technology and IP in line with market developments. Financially, the decision will result in a onetime EBIT impact of around EUR 30 million in the fourth quarter. And this is largely related to asset impairments. There will be no significant cash impact in the fourth quarter as the lower cash outflows are expected to be offset by minor restructuring costs. Looking ahead, the financial benefits of this decision becomes visible quickly. From fiscal year '26, '27 onwards, we expect lower operating expenses and reduced capital requirements supporting EBIT by up to EUR 10 million annually and improving cash flow by approximately EUR 20 million per year. And with that, let me hand over to Stefan who will walk you through our financial results and of course, also the outlook. Stefan, over to you.

Thank you very much, Werner, and a warm welcome from my side as well. Ladies and gentlemen, let me walk you through the financial developments of the third quarter and the 9 months period. The third quarter showed encouraging order momentum and resilient earnings, while sales reflected lower year-on-year volumes. EBIT remained broadly stable year-on-year, even with the lower sales base. This was supported by an improved gross margin and a resilient contribution from our Chlor-Alkali business, which largely compensated for lower volume and weaker cost absorption in the green hydrogen. Free cash flow was negative in the third quarter, reflecting the expected timing of project-related cash flows. This development aligns with the normal quarterly volatility in our project business and reaffirms the strength of our financial position. Looking ahead, we expect free cash flow to improve and return to positive territory in the fourth quarter. In summary, the quarter highlights 3 key messages: improving order momentum, resilient earnings despite our sales volumes and a strong balance sheet that continues to support our growth strategy. Let me now take you through the individual KPIs in more detail, starting with order intake on Page 14. In the third quarter, order intake reached EUR 81 million, up 29% year-on-year. Chlor-Alkali contributed EUR 78 million, an increase of 56% supported by both New Build and Service. Green hydrogen order intake reflected the project-driven nature of the business, where larger awards can fluctuate significantly by quarter. Looking at the first 9 months, order intake nearly doubled to EUR 471 million. This was primarily supported by the award of the 300-megawatt project from Moeve in Spain in the second quarter alongside strong growth of 32% in the Chlor-Alkali business. Overall, the order backlog stood at EUR 638 million at the end of June, providing a strong foundation for the coming quarters. Let me turn to sales performance. As shown on Slide 15, sales in the third quarter declined 21% year-on-year to EUR 145 million. In our green hydrogen business, sales amounted to EUR 36 million, down from EUR 103 million a year ago. This decline was mainly driven by lower sales contributions from our reference AWE projects reflecting the higher maturity as well as the lower intake in the previous year. By contrast, Chlor-Alkali delivered a strong performance. Sales increased by 34% year-on-year to EUR 109 million supported by growth in both the New Build and Service businesses. This development was partly supported by an earlier-than-expected recognition of sales from major new build projects where project contributions originally anticipated or were originally anticipated for the fourth quarter of 2025, '26 were already realized in the third quarter. Looking at the 9 months period, group sales declined 47% year-on-year to EUR 354 million. Green hydrogen sales declined as the contribution from the highly mature NEOM project reduced and as onetime effects recognized in Q2 continued to influence the year-to-date comparison. In Chlor-Alkali, sales declined by 5% in the first 9 months. While the Service business achieved sales growth, the New Build business saw a decline compared to the previous year. Sales development continues to reflect the expected trends in green hydrogen as large reference projects mature and with strong underlying demand and a resilient service base in our Chlor-Alkali business. Moving on to EBIT on Page 16. Starting with the third quarter, group EBIT was broadly stable year-on-year at minus EUR 2 million, demonstrating the resilience of our business mix despite lower sales volumes. The key positive factor was a 3 percentage point improvement in gross margin at group level, supported by a higher contribution from our Chlor-Alkali business. In Chlor-Alkali, EBIT improved from EUR 30 million to EUR 50 million, reflecting higher sales volumes. In green hydrogen, EBIT declined moderately from minus EUR 13 million to minus EUR 17 million, mainly due to lower sales volumes. Overall, improved earnings in Chlor-Alkali largely compensated for the softer market environment in green hydrogen, resulting in a broadly unchanged EBIT performance for the quarter. For the first 9 months, group EBIT was minus EUR 69 million compared to EUR 4 million in the prior year period, primarily reflecting the EUR 50 million of onetime project-related costs recognized in Q2 in green hydrogen. Excluding these one-off effects, the underlying operational performance developed more favorably than the reported figures suggest. Now let me walk you through our operating cost development in the first 9 months. Starting with cost of goods sold, COGS declined year-on-year, largely in line with the lower business volume, particularly in green hydrogen. The decline was supported by the implemented cost-saving measures. At the same time, we achieved an improvement in gross margin quality, especially in Chlor-Alkali, supported by a more favorable project mix. SG&A costs remained stable at EUR 56 million, reflecting strong cost discipline amid inflationary pressures. Our cost reduction initiatives are underway and are expected to contribute increasingly over the coming quarters. Finally, on R&D, expenses increased from EUR 24 million to EUR 29 million, reflecting our continued commitment to technology leadership and the development of our future product portfolio. Part of these development activities has been capitalized as in prior periods. Following the elevated activity level during the first 9 months, we expect R&D spending to decline sequentially in the fourth quarter. Let me now briefly walk you through the bridge from EBIT to net income and earnings per share on Page 18. The newly stable EBIT, along with the financial result that match last year's and lower tax expenses led to an improved net income in the third quarter, reaching the breakeven point. Net income in the 9 months period amounted to EUR 64 million, with earnings per share declining accordingly to minus EUR 0.51. Here, there's a substantial decline in EBIT after project-related one-off costs occurred -- I'm sorry, after one-off costs occurred translated directly into negative net income. Positive financial income, driven by interest earned on our cash position provided a slight offset. Moving on to cash flow and our balance sheet position. Free cash flow was negative in the first 9 months and amounted to minus EUR 26 million compared with plus EUR 15 million in the prior year period. The development was primarily driven by lower operating cash flow, which reflects the usual timing effects of project execution and milestone payments. The third quarter included higher periodic project-related cash outflows. Operating cash flow declined from EUR 32 million to minus EUR 3 million, mainly reflecting these timing-related effects rather than a structural change in cash generation. Investing cash flow amounted to minus EUR 23 million compared with minus EUR 17 million in prior year period. The investments are driving progress in technology development with a focus on enhancing module and stack stabilities. We expect a recovery in free cash flow during the fourth quarter as project-related payments profiles normalize. Net financial assets were EUR 627 million at the end of June 2026, a decrease from EUR 656 million at the end of September 2025. The reduction is largely explained by the negative free cash flow during the period. Importantly, our net financial assets remain at a very high level and underlines the strength of our balance sheet. This financial position provides sufficient headroom to support the execution of our strategy, invest in future growth opportunities and maintain resilience in a still evolving market environment. Lastly, I would like to explain our outlook for the current year, which we updated in our ad hoc announcement yesterday evening. Following our strategic decision not to establish in-house mass production capacity for SOEC stacks, we have incorporated the associated asset impairments into the updated EBIT outlook. In addition, we've also reviewed the remaining guidance ranges and refined some of them based on business development in the first 10 months of fiscal year 2025, '26. For the group, we now expect order intake in the range of EUR 550 million to EUR 670 million compared to EUR 348 million in the prior fiscal year. Based on performance to date and given that the financial year already ends in 7 weeks, we have narrowed the range from the previous forecast of EUR 550 million to EUR 850 million. For group sales, we now expect EUR 450 million to EUR 500 million, which is attributable to projects already under contract. The previous guidance range was EUR 450 million to EUR 500 million. Following the SOEC decision, we now expect group EBIT to range from minus EUR 105 million to minus EUR 75 million. At segment level, we anticipate gH2 sales of EUR 100 million to EUR 130 million. The reduction versus previous expectations reflects the timing of revenue recognition from existing large-scale hydrogen projects, part of which has shifted into the next fiscal year, while commissioning continues to progress. The new 300-megawatt green hydrogen project by Moeve in Spain will also see majority of sales in the next fiscal year. EBIT in the gH2 segment is expected to come in between minus EUR 155 million to minus EUR 135 million, reduced compared to the previous outlook due to the onetime EBIT effect impact from the SOEC impairments. Finally, a comment on the Chlor-Alkali segment for which the former outlook was confirmed. We expect Chlor-Alkali sales of EUR 320 million to EUR 400 million and EBIT between EUR 45 million and EUR 65 million. For both KPIs, we anticipate reaching the middle of the range. Overall, the underlying operating performance remains solid, particularly in the Chlor-Alkali segment by sales and earnings for the current fiscal year were influenced by onetime effects from the green hydrogen business. And with that, I'll hand back to Werner, who will wrap up today's presentation.

Yes. Thank you very much, Stefan. Ladies and gentlemen, let me conclude today's presentation by reiterating our key messages. Our Chlor-Alkali business is well on track as it has been over the last years. The segment has again demonstrated consistent profitability combined with sustained market momentum and successful execution. We also observed positive market momentum in green hydrogen and expect electrolyzer deployment to gain momentum over the next quarters. And more specifically for thyssenkrupp nucera, we expect to be awarded a new green hydrogen project still within calendar year 2026. In the last quarter, we have taken important steps in our emerging green hydrogen service business and strengthened market access. By doing so, we built the foundation for margins and sales growth in green hydrogen. Lastly, our financial situation remains strong. We will continue to keep a consistent and sharp focus on cash flow while maintaining strategic flexibility and optimizing our product portfolio. And that concludes our presentation. Thank you for your attention, and we are now happy to take your questions. Hendrik, over to you.

Thanks, Werner. [Operator Instructions] We are aware that it might take a few seconds to get everything going also depending on the settings on your side. So no worries about that. The first question today comes from Skye Landon with Rothschild.

Firstly, on the next project award that you're expecting during calendar year 2026, are you able to share with us kind of roughly how large projects that would be. Clearly, you have quite a lot of confidence over the idea that you will make the award given that your -- given the kind of description that you've made, but any size kind of indications would be useful. And then secondly, still on kind of like the pipeline side of things. I noticed that the value of the actively pursued projects has dropped down to circa EUR 7 billion from circa EUR 8 billion at 2Q despite the kind of the aggregate size of the pipeline of that actively pursued project list remaining the same. So just wondering if there's kind of like a change in scope, lower sales prices per megawatt or anything that you can describe to us on that, that would be great.

All right. Skye, this is Werner. Just quickly on the project that we expect to be awarded in due course, if you want. If you look at our guidance for order intake and if you look at the interval from EUR 550 million to EUR 670 million, this would certainly push us more actually to the middle of the guidance, so to speak. And that's sort of the order of magnitude also in terms of project size that we would have potentially expected also for this year already, but believe now it's going to be part of this calendar year, but most probably not anymore actually within this financial year.

Okay. So just is that the midpoint of the kind of the old guidance then, if you like? You mean so basically this project...

Yes.

As previously expected to fall in the fiscal year. It's now going to probably fall in the calendar year, so i.e., in the next fiscal year. So if we take the old guidance, we could then infer the project size. Okay. Got it.