thyssenkrupp nucera AG & Co. KGaA (NCH2D.XC) Q3 FY2025 Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the thyssenkrupp nucera Q3 9 Months 2024-'25 Earnings Call. [Operator Instructions] Let me now turn the floor over to your host, Dr. Hendrik Finger.

Good morning, everyone, and welcome to the thyssenkrupp nucera Q3 and 9 Months Earnings Call. Thank you for joining us. We appreciate your interest in thyssenkrupp nucera. With me today are our CEO, Werner Ponikwar; and our CFO, Stefan Hahn. They will guide you through today's presentation. Before we start, let me briefly mention the usual formalities. First, this conference call is being recorded. A replay and a short summary in form of podcast 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 turn the presentation over to Werner Ponikwar.

All right. Thanks, Hendrik. Good morning, everyone. Great to have you with us. Let's kick things off with a look at our Q3 and 9 months highlights. Back in July, we shared preliminary results and updates -- updated our guidance for our fiscal year '24-'25. Thanks to a solid 9 months' performance, we are able to sharpen our sales outlook and slightly raise our EBIT expectations for both the group and our chlor-alkali segment. Stefan will provide additional information later on. In both our segments, we have made good progress over the last months. One standout is a paid FEED study for a 600 megawatt green hydrogen project which positions us as the preferred technology provider for projects totaling around 1.5 gigawatts in Europe already. In the chlor-alkali business, we continue to lead the market and have been awarded new build, expansion and also service projects around the world. thyssenkrupp nucera also reached important project milestones and continued to deliver on time. One example would be the NEOM project. The construction of the entire green hydrogen plant is more than 80% complete already. Furthermore, we are taking proactive steps to expand our market position as a globally leading player in the electrolysis technology. We acquired technology from Green Hydrogen Systems and launched our first SOEC pilot production plant last quarter. These activities align with our strategic goals of accelerating time to market for advanced electrolysis solutions and keeping our levelized cost of hydrogen best in class. Bottom line, we are staying focused, executing our strategy and positioning thyssenkrupp nucera to capture the significant long-term potential of this exciting market. Let's take a closer look at our operations and our project pipeline. Starting on Page 6 with chlor-alkali, where momentum remains strong. In our new build business, we successfully secured another project in June, the expansion of TGV's caustic soda plant in India. This project not only strengthens our presence in the region but also marks 20 years of successful collaboration with TGV. It demonstrates our ability to compete and also to win in international cost-sensitive markets. In Saudi Arabia, CMDC has commissioned us for the next phase of its planned expansion in Jubail Industrial City. We are supplying equipment, spare parts and engineering services, which is another vote of confidence in our capabilities. Looking ahead, the pipeline is promising, especially in the Middle East and China, with several large-scale opportunities on the horizon. A few words on project execution, which remains a key differentiator in the market. In South Korea, our customer KMCI just recently started operations of a plant we supplied with our electrolysis technology. Chlorum Solutions USA, in partnership with us, is also making significant strides on its chlor-alkali plant in Arizona. The project has progressed from the engineering phase and is now moving into the fabrication of skid-mounted modules. Upon completion, this will be Chlorum Solutions' first plant in the United States. The OxyChem Battleground project in the U.S. is also on track. All electrolyzer components are fabricated and 75% of deliveries are already complete. You can see that chlor-alkali business continues to have strong momentum. And our efficient electrolyzer plant's unique service know-how and reliable project execution guarantee our ability to continue this success in the future. Now let's talk green hydrogen. The project pipeline remains very sizable, though we've seen some delays and also cancellations. I would like to share a few key takeaways from our sales teams and provide more details on recent developments in this market. First of all, the currently most promising projects tend to be in the multi-hundred megawatt range. There are also selected gigawatt projects still moving forward, but in general, market environments for super large projects are more difficult with offtake risks, lack of infrastructure and regulatory uncertainty slowing things down for these highly complex projects. This is reflected in an on average smaller size of projects in our pipeline. Secondly, and as you surely know, the window of opportunity for U.S. projects, which can be executed swiftly, has reopened. Just a few months ago, the outlook was rather bleak, but now we see we are seeing some momentum again. Thirdly, although our pipeline remains to be extensive, the aggregated size of our pipeline has decreased slightly. This is primarily due to the increased focus on mature projects in the U.S., where hydrogen projects must have broken ground by the end of '27. And also in the Middle East, where we were streamlining our long list of projects to proceed only with the most viable ones. To sum it up, the green hydrogen space continues to offer huge opportunities, but what is also clear is that leveraging these opportunities will take more time and also patient than initially expected. Page 8 shows that even in the short term there is significant and tangible potential in our project pipeline. We are currently executing paid engineering contracts for projects with a total capacity of around 1.5 gigawatts in Europe alone. Under these engineering contracts, important cornerstones of the hydrogen plants are defined like the plant layout, the configuration, mass and heat balances, utility requirements and so on. This is a strong commitment of our customers to move jointly towards FID and typically also defines the electrolysis technology to be used in the respective projects as well. For those reasons, we are very confident that we will be able to convert paid engineering contracts into firm orders for large-scale electrolysis system within the next coming 6 to 12 months. This slide shows also another clear trend. Europe remains at the forefront of the green transformation and is currently the most promising green hydrogen region for us. Now to stay ahead in this fast-moving market, we need to lead on levelized cost of hydrogen and offer tailored solutions for specific applications. That's why we are expanding our technology portfolio. Our asset deal with Green Hydrogen System will accelerate our R&D efforts towards an advanced pressurized AWE system. Their technology helps us to fast track our new gen -- next gen systems and adds cost-effective option for applications requiring high hydrogen pressure. The same holds true for our SOEC collaboration with the Fraunhofer Institute. The opening of our SOEC pilot production plant in Germany is just another step towards the commercial and large-scale industrial use of SOEC technology and electrolysis systems which offer key cost advantages for specific applications with waste heat. In summary, we are committed to investing in innovation. It's how we stay ahead and meet our customers' evolving needs while maintaining our product philosophy, delivering the best possible electrolysis solutions for every application. Now, finally, let's have a look at our project under execution on Page 10. 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 already handed over more than 90 standardized 20 megawatt modules and the overall facility is now more than 80% complete as confirmed also by our partners. For Stegra, the cell fabrication and deliveries is on track. Four electrolyzer modules are already being erected at the plant in Boden in Sweden. In the months ahead, a total of 37 electrolyzers delivered as prefabricated modules will be assembled and installed to form the heart of Europe's largest green hydrogen facility. It is a great success so far and we are very happy to contribute to this amazing project. Last, but not least, all 10 electrolyzer modules for Shell's 200 megawatt project in the Port of Rotterdam have been erected on site. That means that our scope of the project is nearing completion. The start-up of the plant will happen in line with the customer schedule once the overall facility is ready to produce green hydrogen. And with that, I will hand over to our CFO, Stefan Hahn, who will walk you through the financials in more detail. Stefan, over to you.

Thank you very much, Werner, and welcome also from my side. I'm pleased to present you the key developments in our financial figures for the third quarter and first 9 months of this fiscal year. Let me start by highlighting that we have delivered a resilient performance in the third quarter, with our financials broadly in line with expectations. This underscores the robustness of our operations even more in a challenging market environment. Looking at our order intake, the order volume in the chlor-alkali segment remained stable year-over-year. The overall decline was primarily driven by our green hydrogen business, which was impacted by project delays and a particularly strong prior year comparison. Looking forward, we expect further progress in our project pipeline and are confident that we will be awarded new customer contracts. However, given that we have only 1.5 months remaining in this fiscal year and considering a possible time gap between signing and FID, we expect order intake in Q4, particularly for green hydrogen, to remain subdued. Turning to sales. We saw a year-on-year decline in Q3, which was expected. This reflects both, the high base of comparison across both segments and the advanced stage of completion of our NEOM project, which contributed significantly to last year's top line. Current sales trading is in line with our full year expectations. We do not expect a further sequential decline in Q4. In fact, we expect Q4 sales to be at least on the level of Q3, but likely higher. Our EBIT in Q3 came in roughly at prior year levels. This was supported by an improved margin performance in the gH2 business, which helped to offset the impact of lower volumes. Coming to order intake on Page 13, we have a more detailed look on order intake. In the third quarter, order intake came in at EUR 63 million, of this EUR 13 million was attributable to the green hydrogen segment and EUR 50 million to the chlor-alkali segment. Order intake in the gH2 remained soft and was affected by project postponements in the context of the continuing challenging market environment for green hydrogen with ongoing reluctance to make final investment decisions. Please also keep in mind that in the same period last year, around EUR 200 million were recognized in order intake in connection with the Stegra project. In the chlor-alkali segment, the order volume from the service business increased, driven in particular by projects in the Middle East while orders in the new build business were below previous year. Cumulated over the first 9 months of the current fiscal year, order intake came in at EUR 241 million compared to EUR 522 million in the prior year period which included more than EUR 300 million in connection with the Stegra project. In the chlor-alkali segment, order intake in the 9-month period increased year-on-year, thanks to our strong service business with Central Europe, the U.S., China and Middle East as the largest markets. Looking at the order backlog, it amounted to around EUR 0.7 billion at the end of June 2025, of which roughly EUR 0.3 billion was attributable to green hydrogen business. The decline in order backlog compared to previous reporting periods is due to further progress in project execution which is reflected in the dynamic sales development in the 9-month period and also the current lack of large new gH2 orders. Now diving into our sales development on Page 14. In the third quarter, sales decreased by 22% compared to the same period last year, reaching EUR 184 million. The sales development reflect the high level of completion of contractually-agreed projects in both technology areas. Green hydrogen sales decreased by 22% to EUR 103 million. The ongoing progress of the Stegra project in Sweden had a positive effect, while sales from the NEOM project in Saudi Arabia declined year-on-year due to the high level of completion already achieved. Sales in the chlor-alkali segment amounted to EUR 97 million, representing a decline of 21% compared to the prior year period. Sales decreased in both the new build and the service business against a higher comparison base in the prior year. In the first 9 months of this fiscal year, group sales increased by 9% to EUR 663 million, thanks to the ongoing successful execution of our order backlog across both segments. Sales in the gH2 segment increased by 8% to EUR 377 million. The increase in sales is primarily attributable to progress in the execution of the Stegra project in Sweden. The NEOM project in Saudi Arabia continued to contribute the largest share to segment sales, but was already declining compared to the same period last year, as I mentioned earlier. Sales in the chlor-alkali segment rose by 11% year-on-year to EUR 286 million, thanks to an increase in both the new build and the service business. Overall, I'm pleased with our dynamic sales development in the 9-month period. It shows that we are on the right track to reach our sales target for this financial year. Moving on to the EBIT development on Page 15. In third quarter, group EBIT rose -- was roughly on the level of the prior year at EUR 0 million. EBIT in the gH2 segment increased by EUR 10 million to minus EUR 13 million, while EBIT in the chlor-alkali segment amounted to EUR 13 million. The increase in EBIT in the gH2 segment is mainly attributable to an improved gross margin in the AWE business as a result of a more profitable project mix. EBIT in the chlor-alkali segment declined due to the negative sales development in the quarter coupled with a lower gross margin in the execution of existing projects. Please also take into account that in the same quarter of the previous year, EBIT in the chlor-alkali segment included positive one-off effects. In the first 9 months of this fiscal year, group EBIT rose by EUR 17 million to EUR 4 million. EBIT in the gH2 segment improved by EUR 22 million to minus EUR 39 million. EBIT in the chlor-alkali segment came in at EUR 43 million. We were able to significantly 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. In the chlor-alkali segment, the increase in sales was more than offset by a lower gross margin on the existing projects. In addition, EBIT in the 9-month period of the previous year also benefited from positive one-off effects in quarter 3. All in all, this development puts us in a very good position to reach our specified and slightly improved full-year EBIT guidance. On Page 16, let's take a look at our cost development in the 9-month period. Cost of goods sold increased in absolute terms in line with higher sales, but improved slightly as a percentage of sales. The project mix in our green hydrogen segment had a positive impact here. SG&A was stable year-on-year in absolute terms, but the cost ratio improved, thanks to active cost management in the gH2 segment. In the upcoming quarters, we will continue to work on cost containment to mitigate effects of the slowdown and sales growth on cost absorption. Research and development expenses decreased marginally in absolute terms yet remained stable in percentage of sales. This depiction is slightly misleading because our R&D efforts have increased overall, but expenses have been capitalized to a higher extent as in previous year. Moving on from EBIT to earnings per share on Page 17. In the third quarter, we recorded a positive financial income of EUR 3 million compared to EUR 7 million in the prior year period. The decline in financial results 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 2 million, EUR 8 million lower than in the previous year due to the lower financial result and higher income taxes. Accordingly, earnings per share declined to minus EUR 0.01. In the 9-month period, net income was positive at EUR 4 million, thanks to the EBIT improvement over-compensating lower financial income and higher tax expenses. This leads to a positive earnings per share of EUR 0.04 compared to minus EUR 0.01 in the prior year period. Net working capital improvement led to a cash-in of EUR 11 million, mainly due to less advance payments to suppliers which offset the increase in inventories at the end of June. Cash flow from operating activities improved strongly in the first 9-month of fiscal year '24-'25. It stood at EUR 32 million compared to minus EUR 49 million in the prior year period. This improvement is mainly linked to lower advance payments to suppliers and increased earnings compared to last year. Cash flow from investing activities increased slightly to minus EUR 17 million in the 9-month period, mainly due to higher investments in intangible assets and higher expenditure on property, plant and equipment. Overall, this resulted in a positive free cash flow of EUR 15 million compared to minus EUR 57 million in the prior year period. This underlines our strong financial position. We are able to finance our business from operating activities. Net financial assets totaled EUR 660 million at the end of June 2025, remaining stable at a high level. This is a solid financial foundation. It supports future growth and resilience. Ladies and gentlemen, our company is uniquely positioned in the green hydrogen sector, also in terms of its financial strength. Let's continue with the outlook for this fiscal -- financial year on Page 20. Based on our solid business development during the first 9-month, we published an ad hoc release in July revising our guidance for this financial year. Specifically, we narrowed the original guidance range and partially raised the outlook for our key performance indicators, sales and EBIT. At group level, we now expect sales in between EUR 850 million and EUR 920 million, while we have raised the EBIT expectation to a range of minus EUR 7 million to plus EUR 7 million. Sales and EBIT will be driven by the execution of project already contracted. In the gH2 segment, sales of between EUR 450 million and EUR 510 million are now expected with an EBIT of between minus EUR 75 million and minus EUR 55 million. In the chlor-alkali segment, we continue to expect sales to range between EUR 380 million and EUR 420 million. The EBIT outlook has been raised. EBIT in the chlor-alkali segment is now expected to come in between EUR 55 million and EUR 75 million. The upward revision of our group in chlor-alkali EBIT guidance underscores the resilience of our business model. And as we approach the end of this financial year, I'm pleased to report that our solid performance thus far has us fully on track to reach the targets set previously. And now back to Werner to his closing remarks.

Yes. Thank you, Stefan. Ladies and gentlemen, we have shown you why we are convinced of the opportunities in the market for green hydrogen and chlor-alkali's electrolysis, and how we will consistently seize these opportunities. thyssenkrupp nucera is very well-positioned in the market and enjoys a high demand for its efficient electrolysis technologies. Paid FEED contracts with a capacity of around 1.5 gigawatts in the green hydrogen segment and new orders in the chlor-alkali business demonstrate that. We are intensively working towards our goal to be leading in levelized cost of hydrogen. Therefore, we invest in our technologies via our own R&D initiatives, but also through external additions. We are progressing in terms of project execution with NEOM, the flagship project in the green hydrogen sector, reaching 80% completion. More than 90 of the 110 modules have been handed over to our customers. Also, chlor-alkali is keeping up the good momentum with the successful start of the KMCl plant in South Korea just as one example. Lastly, we are on track to meet our updated targets for the financial year. And in the light of the improved outlook for group EBIT, I want to highlight again our stringent cost discipline. In times like this, being profitable and being able to generate a positive cash flow is a strong sign of robustness in a volatile market and ultimately is also a competitive advantage. To conclude, yes, there are challenges in the market, but we are in control and we keep executing our projects, improving our technology and leading the way to a greener, more sustainable future. Thank you very much for your attention and now we look forward to your questions.

[Operator Instructions] And the first question comes from Michael Kuhn, Deutsche Bank.

Essentially 2, maybe 3. You commented already on your project pipeline, whether the number is up but the total value is down and let's say, the refocusing and streamlining on the pipeline. Regarding the U.S. specifically where the time window has opened again, what's -- let's say, what timing would be needed to meet that time window and accordingly, what would be the time window when we could expect order intake for you to be reported?

Michael, this is Werner. Do you want me to answer this one first and then you do the other questions or?

I would say one by one, ideally.

Okay, let's take that one by one. So U.S., you are absolutely right. We see here a new momentum actually coming up with more certainty now around actually the eligibility of funding for green hydrogen projects in the U.S. Certainly, the timing is quite challenging, in particular for projects actually that are not progressed that far right now. So you would typically actually would have to do your FEED engineering and your FEED study actually, I would say, within the next 6 to 9 months to be able, actually, to conclude on financing, et cetera, actually early enough to break ground in the year '27. There's a number of projects out there in the U.S. that are already, I would say, well progressed and that would be able to reach these time lines. Certainly, actually, one obstacle will be permitting. That's certainly something actually which is difficult also to estimate. But in terms of the project work, actually we see a number of projects actually being well advanced and that could be able to reach this time line. And as you can imagine, we are now in intensive discussions actually with many of them already.

All right. And on, let's say, the number of projects up and value down, I mean, you mentioned a streamlining of the pipeline in the Middle East. Was this the major factor behind that development, or were there other, let's say, major projects that dropped out of the pipeline as well?

Well, this is particularly actually the -- I would say, our cleanup of U.S. projects, where we were basically screening through our pipeline and sorting out those projects which we believe do not have a realistic chance to meet this new deadline. And then secondly, actually, we had, I would say, a very long list of projects in the Middle East, and we have also there sorted out those ones which we believe realistically they have just limited chances. And that is sort of why this is now coming in in terms of our pipeline being slightly below what we have communicated over the last couple of quarters.

All right. Then one on profitability. Obviously, your workload in green hydrogen is coming down now and accordingly also the fixed cost absorption. Is there any short-term measures you can take you to, let's say, limit the potential losses in that area? Or let's say, what is your game plan in terms of cost containment over the next few quarters until hopefully the workload picks up again?

Michael, it's Stefan here. I think also in previous quarters, we've always highlighted that we have some flexibility to react to that. And of course, we are very focused on our quotes. I think it's very visible that all our quotes, especially the SG&A quotes, have improved in relative terms compared to previous periods. We are very focused on that. And of course, also going forward, we will adapt them to the current sales levels. But already said -- as already said, especially in Q4, we expect sales to be at least on similar level as Q3, possibly even higher.

And maybe, Michael, to add on that, certainly there are a number of components actually that contribute to that. First of all, of course, this is something where we believe we are very good at is actually we need to seamlessly and smoothly execute our projects in a profitable manner. So really, actually meeting and maintaining our cost and budget here because that is certainly at the end basically paying all our bills. So that's our key focus and will remain key focus actually in particular in the phase in which we are right now. And then, of course, we certainly also have intensified our work on the top line, bringing in new large-scale projects. I think the FEED contracts that we have just mentioned as well actually are really, I would say, a proof point of these activities, actually. And we are confident that this will basically also contribute to the top line going forward within the next 6 to 12 months. But then of course actually we have a foot on the brake when it comes to costs. Very clearly, actually, this is what Stefan was also mentioning here. That's essential. We have some flexibility in particular actually based on our asset-light model -- business model as well, where we can certainly now utilize, I would say, the flexibility in terms of capacities that we have basically outsourced and which is not weighing heavy on our own costs.

Perfect. And last question, promise. Any news from Spain? Because that, let's say, used to be on top of the agenda over the past few months and I think I haven't heard anything or any update on it today.

Yes, I guess, you don't want to hear the weather forecast for Spain. So it's about projects, I guess. And here definitely -- I mean, you see that -- we see that these projects are progressing. However, we also see that the significant blackout, actually, that happened in Spain has certainly also driven, I would say, additional requirements actually for new consumers of the grid. And it apparently actually is also something that projects in Spain currently have to consider and are sort of leading to additional [ delays ] as well. But again, in general, actually, we are very positive that these projects are very much on top of the list actually when it comes to FIDs. And we are also confident that within the next months we will see here also positive developments for our own order intake.

The next question then comes from James Carmichael, Berenberg.

Just had a quick question, I guess, on the sort of the outlook, you're obviously not going to give us guidance for next year, we're just looking at sort of where consensus is in terms of sales versus the backlog and just sort of wondering how confident you are in getting enough orders in in the near-term to sort of sustain market expectations essentially? And then just a quick follow-up on Spain, just wondering whether your comments there, sort of, impact the capacity reservation agreement you've got in place with Moeve? And then just on the sort of the product outlook, I forget the exact timing on the sort of scalum 2.0 module that you're working on. We're just wondering what the status is there and what impact the acquisition of the Green Hydrogen Systems portfolio will have on that?

Yes, James. Thank you very much for your questions. I would start and then maybe Stefan will chip in on when it gets more into the financials. In terms of the outlook for next year, I think that's again, with the FEED contracts that we are currently working on, we see quite good chances that we'll be able to convert them actually into fully fledged orders within the next, I'd say, 6 to 12 months. It's really -- very much depending on the project and how our customers are able to move them forward. That certainly means that actually for the contribution in terms of sales, these projects actually will contribute but maybe only to a minor extent, yes? So we will certainly have next year also a phase actually where we will see a slowdown in sales based on the, I would say, slow order intake for this year. This is by nature and we can do hardly anything against that. Maybe to comment a little bit on Spain/Moeve, here the reservation agreement is still active of course. Also here we are making good progress. Again, I think that the impact or the potential impact and new requirements coming from the blackout is something that is certainly also driving speeds in terms of the Moeve project, but also here we are still very confident that within the next couple of months actually we will see here good progress and hopefully also see an FID. In terms of our scalum 2.0, yes, indeed the acquisition of the technology of Green Hydrogen Systems we believe will help us to shorten time to market for this technology as well. There's a number of, I would say, good technological features actually that this technology is bringing to the table actually that we had -- we would have to otherwise have to further develop on our own, which we are now combining into our own platform. And with that we hope that we can save a number of years in terms of -- before we can really fully commercialize that. So that was part of the intention to do that. In addition to that, as mentioned as well, we believe that a pressurized alkaline water electrolysis system is in specific application the best solution that can be, potentially be offered and used. And we certainly actually want to address these specific applications because at the end, basically it's all about levelized cost of hydrogen and we need to be able to offer here best in class. And it is something that we are targeting with scalum 2.0 for those specific applications as well.

And to specify on your question on the -- regarding the outlook and consensus, of course, we haven't issued an outlook for next fiscal year. However, looking at the sales consensus of roughly EUR 780 million, we can compare that to our today's order backlog of EUR 0.7 billion. And I think that should give a lot of confidence for the next fiscal year and first [ end ]. And of course, in the next month we will specify on that.

[Operator Instructions] And there's one question coming in from Klaus Ringel, ODDO BHF.

Actually it's just 2 topics as a reminder. Maybe starting with the impact of U.S. tariffs on your business would be the first one. And the second one, the impact of the big moves we have seen in FX recently and yes, how you may be able to counter this.

Yes. So to answer on the first question here, the answer is the same as last quarter. Currently, we have really very, very minor impacts from U.S. tariffs on our running projects. And for the projects under contract, we will not be impacted significantly. So, minor. I'm really saying not even low EUR 1 million figures. So going forward, of course, for new contracts that might have an impact, but nothing that is currently contracted. On FX, I'm not quite sure what exactly you are pointing at. Our FX effects during the first 9 months were so far a positive, amounting to a positive contribution of EUR 4 million EBIT roughly.

Okay. That's what I meant, yes.

Okay. So at this point, there are no further questions. So I'd like to hand it back to the speakers for some closing remarks.

Yes. Thank you very much for your questions. This is Werner again. And of course, if you have any additional questions, then please reach out to Investor Relations. They're always there for you. And with that, I would like to conclude the call. As well thank you for attending our [ little ] presentation and the Q&A, and maybe see you on the road within the next couple of weeks. And until then, thanks very much, and bye-bye.