Good day, and welcome to NX Filtration H1 conference call. My name is Priscilla, and I'll be your coordinator for today's event. Please note this call is being recorded, and for the duration of 15-20 minutes of the presentation, your lines will be in listen-only mode, and you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you'll be connected to an operator. I will now hand you over to your host, Mr. Jeroen Pynenburg, the CEO, to begin today's conference. Please go ahead, sir. Thank you.
Thank you, Priscilla, for that introduction, and welcome to the webcast, where we will present the key highlights of the first half year of 2023, our strategic progress, financials, and of course, the outlook for the remainder of 2023. In the call today, we have our board present, our founder and CTO, Erik Roesink, CFO, Marc Luttikhuis, COO, Michiel Staatsen, and I am Jeroen Pynenburg, as I said, in the role of CEO and an addition to the team since May this year. For me personally, it has been an exciting ride, the few months on the job. I made a move from the energy transition with EV charging business with ABB and Alfen to the world of the water transition with our technology of hollow fiber nanofiltration.
The personality, the professionality and the drive of our team in all functional areas, makes me humbly proud and very confident for our next stages of growth. The global team here in Amsterdam and their regional sales and application teams worldwide are passionate about making clean and affordable water available to every person on the globe. The concern about availability of clean water, are mounting, and the technology of NX Filtration has a key role to play in bringing solutions to the market. We remain very confident about developments in our markets and are on track to implement our strategy. During the webcast, we will cover several topics in more detail, together with the team. On the 14th of July, we disclosed that we have altered our revenue guidance from EUR 18 million-EUR 22 million to a range of EUR 10 million-EUR 14 million.
We are experiencing together with our customers that we need longer time for piloting to test and configure large-scale applications. Also lead times after the pilot phase takes longer because it takes more time to for final decision-making, engineering, permitting, and building with clients and governments. We had to calibrate our top-line guidance, which was certainly a disappointment for our team. We based the new guidance on a careful analysis of our sales pipeline, and on the upside, we can share that we were able to sell the value of our technology by even stronger gross margins compared to last year, at a rate of 58.9%. We also see that all underlying business drivers continue to develop in a very favorable direction. The pipeline of opportunities is growing fast, with at least 50%, and the numbers of pilot is growing as well.
This will, through conversion, deliver our midterm growth. We made great steps forward with our key OEMs, who also continue to embrace our technology and start now offering NX Filtration products in full-scale projects. The global water challenge are, challenges are all around us. Droughts and pollutions are pushing regulations and stimulate investment schemes by governments and industry on central and, and mainly also on decentral levels. We are confident this will drive the volume of our membrane modules, with the breakthrough technology of hollow fiber nanofiltration and, a volume of which we need our mega factory that we are currently building in Hengelo. The progress of which that building is, is fully on track at the moment. As you know, we operate two business lines, Clean Municipal Water and Sustainable Industrial Water.
In Municipal Water, we are offering drinking water companies future-proof solutions `to remove micropollutants like PFAS and a wide variety of organic molecules of small sizes, while keeping minerals and creating healthy and drinkable water. We benefited from various projects in Asia. The adoption of our technology and the appetite to implement it is relatively high in Asia, mainly driven by higher levels of scarcity and of course, more severe pollution degrees. Also in Europe, we made big steps with large OEMs and water companies, and we'll tell more about it in the call. In Industrial, we provide customers with products to reduce their water footprint through effective and efficient use of the water needed for the process. Where a strong revenue is coming currently from our European market. Our global footprint expanded, and we grew the team across all major geographies.
We do have also feet on the ground in Vietnam now, and very, very recently, we expanded the team in the Middle East. With a strong local presence on commercial and application, we are able to more effectively support our customers and their pilot programs towards full scale. The interest in Asia for our technology is a great development opportunity, with more than half of the pilots taking place in APAC. I'm happy to say that eight full-scale projects have started in the first half of 2023, of which four come from customers we have already been working with. We see this as a great testimony for the success of our technology. For here, I will hand it over to Erik Roesink, who will elaborate on our ESG profile.
Thank you, Jeroen, and also on my behalf, welcome to this webcast.
... And yes, ESG is in our DNA, and in fact, ESG was driving the foundation of NX Filtration in 2016, with the aim to develop a sustainable solution for the production of safe drinking water all over the world. It's important to add that we can substantiate these burning ambitions. Our IPO in 2021 was the first dark green IPO worldwide. 95% of our business was labeled dark green, based on our innovative, sustainable hollow fiber nanofiltration membrane technology. And we continue to further professionalize our ESG profile and have reported intensively on the subject on this slide, which I want to highlight the fact that we recently have received a better ranking via Sustainalytics. The next slide is about making impact, and I'm very proud of the achievements of our team over the first half year, 2023.
This is exactly why I founded NX Filtration, and this was only seven years ago, and now already this very positive global impact and contributing so strongly to the global water transition. Already now, in more than 20 countries, we are producing high quality water from river water or from industrial or municipal wastewater. We still continuously see the dramatic effects of the global water crisis caused by climate change. Our rivers are drying up. Groundwater levels are lower as never before, and that means that we need to hurry up with the water transition. The water transition is dealing with water scarcity and water pollution, and forces us to fully focus on water reuse and the use of other water sources than groundwater, like wastewater and, if available, surface water.
But next to a water crisis, we do have an energy crisis, so to minimize the CO₂ footprint, we do need green, energy-friendly technology, and that is exactly what NX Filtration offers its customers. With the membrane modules, with the membrane module sales in the first half of 2023, we enabled our customers to produce almost 100 billion L of water, saving 53 GWh on energy and 2,300 tons of CO₂, compared to existing traditional technology. Michiel, please take over.
Thanks. Thank you, Erik. As Erik explained, the challenges around water are a global issue, and the next slide will show that the drivers to implement real solutions are getting stronger, and that we are successful in demonstrating the power of our technology through our pilot strategy across markets and geographies. Here we see some concrete examples of measures being taken by policymakers around the globe to address these challenges around scarcity and quality. In France, President Macron himself is driving the water transition with concrete targets and funding. One of the objectives is to achieve 10% water reuse by 2030, coming from 1% today. This represents nearly 1,000 projects to be developed and implemented over the next few years. Also in Spain, we see concrete actions to alleviate the impact of droughts through water reuse.
In the USA, the Biden-Harris administration has proposed stricter drinking water standards for PFAS, and also in Germany, we see stricter limits for PFAS coming into effect in 2026 and 2028. This is enhancing momentum for our breakthrough technology that we're rolling out through our pilot strategy. To take our customers through the technology adoption phase, we are demonstrating the power of our technology through these pilot projects. On the left, we see the fast increasing number of pilot projects initiated around the globe in 2023, successfully treating high quality water from various polluted sources at lower energy and chemical consumption compared to traditional membrane technologies.
We have started 104 new pilot trajectories with our customers and partners in the first half of this year, a 20% step up compared to last year, and therewith planting the seeds for future growth, both in the industrial and municipal markets. To support the traction with our pilot program, we have invested in further building out our fleet of pilot systems. On the chart on the right, we see the numbers of pilot systems with our containerized full-scale Mexpert pilots and lab-scale Mexplorer pilots. The full-scale Mexpert pilots are mainly meant to prove. Well, not only the water quality, but also the operational factors in the field. These pilots are being deployed all over the world, and we will keep focused on effective deployment of this pilot fleet.
You'll also see that we already had a fleet of 186 pilot systems in total at the end of H1 2023. So we are very much on track towards our medium-term objective of 200 pilot systems. Also, we're taking major steps forward with our key OEMs, such as Veolia, Aqualia, Suez, Greent ech, and Nijhuis Saur. These leading players have further intensified or expanded their pilot programs, aiming to develop efficient and sustainable full-scale water treatment solutions. In China and Australia, we're intensifying cooperation with our partners. We're scaling up with full-scale projects. In the Americas, various small, smaller full-scale projects have been implemented, and we are working towards larger scale projects with our partners in both Central and South America.
... Erik?
Yes, I already mentioned the importance of our innovative hollow fiber nanofiltration technology to produce clean water from relatively polluted streams as service water or river water, and in the most energy-friendly way. In the former slide, Michiel clearly demonstrated that our technology is meanwhile applied by leading system integrators and equipment manufacturers. This slide proves that our technology now is broadly adopted and also strongly recognized by leading industry expert organizations. Last May, we received, via Global Water Intelligence, distinction awards for Water Technology Company of the Year and for Water Project of the Year, where our technology is applied in a large-scale wastewater plant in Dumai, Indonesia. And in China, Green Tech is introducing our nanofiltration technology in large full-scale water recovery projects, while China Water Enterprise is recognizing the innovative and sustainable aspects of our hollow fiber nanofiltration technologies. Marc, will you take over?
Yes, of course, Erik. On this slide, you see the strong progress we are making in the construction of our new mega factory in Hengelo, adding an initial 50,000 module capacity per annum in 2024, and creating the building and infrastructure to expand to over 120,000 module capacity per annum. We are fully on track with the construction of our mega factory and are pleased to reconfirm that we expect to complete the construction in the first quarter of 2024, and start up the factory in the first half of 2024, within the anticipated CapEx budget. Also, practice what you preach. The production and reuse of process water is being done by our own in-house water treatment system, and extensive reuse of energy where possible, with heat recovery systems and solar panels on the roof.
Now I will lead you through the financials, where the final part of this presentation will be presented by Jeroen. I will start with the financials, with the profit and loss. The total revenue for the first half of 2023 was EUR 3.7 million, similar to the revenue booked in the first half year of 2022. This delay in revenue growth is caused by longer pilot trajectories and longer lead times to convert pilot projects into large-scale projects. We are pleased to see that our gross margin has increased from 55.3% in the first half of 2022 to 58.9% in the first half of 2023, reflecting the strong technology position of our dNF products in the market.
The increase in personnel costs from EUR 3.8 million in the first half of 2022 to EUR 6.3 million in the first half of 2023 is the result of our ahead of the curve expansion of our organization. We've attracted 55 FTE in the last 12 months. In this 12 months, the key additions mainly relate to the additions in the application team and the additions in production. They are key to further shape our organization and position as well for the growth ahead of us. The capital expenditure in the first half of 2023 amounted to EUR 12.9 million, compared to the EUR 8.1 million in the first half of 2022.
The CapEx mostly relates to the ongoing construction of our mega factory in Hengelo, but we also made further additions to a pilot fleet with a total of 186 systems at the end of the first half of 2023. The working capital increased to EUR 13.5 million, compared to the EUR 8.5 million at the end of 2022. This increase mainly is the result of increased inventories of finished goods and raw materials to facilitate the further growth of our business. I would like. I would now like to hand over to Jeroen, who will lead you through the final part of this presentation.
Thanks, Marc, and we hope we have been able to give you a good view on how we are developing. Water is hot, and we have strong building blocks in place for further growth. Our commercial rollout strategy, though, remains our top priority, and with confidence, we expect to recover from a setback on revenue growth in the first half of 2023. The team is working really hard to demonstrate the value of our technology for the water challenges of the future. We have invested in a solid team in headquarters with strong R&D and production capabilities, and a new factory on the horizon, and global presence in sales.
In sales, we grew from 18 to 42 FTEs, compared to half year 2022, and I can say with confidence that the major part of our global sales investment has been done for the moment. We will benefit from these investments for sure in the second half of 2023 and beyond. The construction of our mega factory is fully on track, within budget. Startup is anticipated in the first half of 2024, to repeat that one more time, and we confirm our July outlook of EUR 10 million- EUR 14 million, which is a substantial increase from full year 2022, and we can sustain with this confidence, supported by stronger than ever market conditions, major steps with key OEMs, and a growing pipeline of opportunities. And with this, we come to the end and a summary of the webcast presentation.
We're happy, of course, to answer your questions, and for that, I would like to give the hand and floor back to Priscilla, our moderator.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. We'll pause just for a moment to allow everyone an opportunity to signal for questions.
... We'll take our first question from Wim Gille from ABN AMRO ODDO . Please go ahead. Your line is open.
Yes. A very good morning, all. I got a few questions. First of all, obviously, you gave an outlook for 2023. Can you give us a bit more feeling on how you are looking towards growth in 2024? If you have any visibility at this stage. The second question is that you added about, if I heard you correctly, 55 FTEs in the first half. How many do you expect to add in the second half of this year and in 2024, to basically be able to execute the plans and the pipeline that you have in place? Thank you.
I will, Wim, thank you for your question. I will answer, let's say, the second question on the FTEs. That's correct. Let's say the 55 FTEs are added in the last 12 months, and not only in the first half of 2023. That's just for the record, Wim. I think what you see is that we are really have geared up, you know, ahead of the curve, to build up our sales organization, our applications teams worldwide, and also have made a strong progress, I say, to really mature and our R&D organization here in Enschede.
I think what we now see is a consolidation of these numbers, so we don't expect to have a linear growth of these, let's say, on sales application and R&D. There, where we see possibilities to grow and have opportunities to grow in certain regions, we will do so. But the steep growth part of those, or let's say, part of the organizations are, let's say, behind us. What you do see, of course, when we are ramping up the factory, let's say, the new mega factory in Hengelo, we will see growth in more or less in the operations side.
So the operators, the blue collars, how you call it, that's, let's say, where we see the growth, and, and the growth in the other departments of our company are more or less consolidated.
Yeah. Thank you, Marc, and I will take the question on the outlook beyond 2023. It's, of course, a bit too early to put a number on it, but I can give you some really concrete color on it. Because part of your question was also the pilots for the second half of this year. And all the pilots we're working on, 104, started in the first half of this year. We expect this growth trend, it was 28%+ compared to last year, to also continue in the second half of this year. And these pilots are all aiming to convert to full-scale projects. And we're working with them with these big OEMs, with the Veolias, Suezs, Nijhuis of this world, as mentioned in the presentation.
And we see the traction there increasing the number of pilots on the number of applications we're doing with these parties, but also, the fact that we're working towards these full-scale solutions with them. So our pipeline is growing. Our visibility for 2024 is, of course, also growing with that. And that gives us a big drive to continue working to get the factory up and running in time, in the first half of 2024, because we believe we need the capacity of that factory. And looking even beyond that, as explained, these bigger municipalities, the pilot trajectory for those take a bit of time as well. So we're also filling already our pipeline for 2025, 2026, and even beyond that, around the globe. Hopefully, that answers your question.
Thank you very much.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one. We'll move on with our next participant, Kristof Samoy from KBC Securities. Please go ahead. Your line is open.
Okay. Good morning, everybody. Three questions, if I may. When you purchased the land in Hengelo for the mega factory, the press release indicated that you would need at full capacity within lines 275 blue collar people. Can you give some color when you would be starting to hire these people? And can you give an indication of the average cost to the company for a blue collar? And then secondly, in terms of medium-term targets, could you shed some light regarding medium-term profitability targets in terms of timing and what implied module sales that would implicate? And finally, can you somehow quantify your opportunity pipeline? You stated 50% higher. I was wondering if you were willing to quantify this. Thank you.
Thank you, Kris, Kristof. I think, yes, if you look at, let's say, during the announcement of the purchase of the land, and I think it's also was more stipulated in the IPO. In the end, when you have a full operating, let's say, at full operating, so at 120,000 capacity, then you will need around 250 blue collars. We will first start, let's say, the factory, with an initial capacity of 50,000, and we can gradually ramp up the factory. Please bear in mind, we have built, let's say, we are building the mega factory to the full extent, infrastructure and buildings, but we are able to scale up our factory, let's say, during...
Let's say, if you look at the development of the sales funnel. We are already anticipating, we have a clear ramp-up program, let's say, defined, and we are already start now, let's say, after the recruitment, the whole, let's say, recruitment of those operators. If you talk about, let's say, the full cost of employment of a blue collar, we are not any different than any other, let's say, factory in the eastern part of the Netherlands. So we're similar to that, and if you want to quote a number on that, it's between 50,000 and 60,000 for a full-time employee in a blue collar.
Okay, thank you.
If you talk about, let's say-
Thank you.
I'm sorry. There's two more questions.
Yes, go ahead, please.
The second question was about the timing?
Midterm.
On the midterm, and I think what you would say, and all what we said, if the factory... And that's the reason why the new factory in Hengelo is so important for us. We start with an initial capacity of 50,000, and when we gradually ramp up and the capacity has a reasonable occupation of that factory, we will come breakeven on the EBITDA. And I think that's the guidance we can give you on that, on that number.
Yes, and then, Kristof, compared to your last question, which is about the opportunity pipeline and how it growth, we indeed said it's a 50% growth. We see that happening in the last six-seven months during this year. That all came from the intensive discussions we are having with our customers on these pilots that Michiel elaborated on already before, and these discussions are really ongoing. So the trends that we see in our pipeline, and without being extremely explicit in numbers, because there we have... But we see there a length growth in the pipeline, so we have visibility on projects in the longer run. And why are these projects in the longer run visible right now?
Because the company we work with, they are disclosing their, their expenditures, their CapEx, and they need time to you know decide on these CapEx and to also design the new factory with our technology. Our technology requires a slightly different setup in their hardware than the traditional technologies, also in order to benefit from the benefits of the product itself. And so the timelines for these projects are a little longer. So our pipeline is really, really getting longer. At the same time, it's also getting wider, and this mainly comes from the intensive team that we have, the application teams in all countries where we're currently present, as well as the sales team, that is covering the market to a larger extent in the last year since we invested in that.
I believe, you know, that's the qualitative explanation that we can currently talk to you about, that will, in the end, you know, capitalize on the market conditions that we see happening, and it will bring the growth on the midterm, which we would comfort and sustain.
Okay. Thank you.
Thank you. Once again, ladies and gentlemen, if you have any question, please press star one. All right. It appears there is no further questions at this time. I'd like to turn the conference back to the host for any additional or closing remarks. Thank you.
Yeah, then, that's up to me again. Thank you, very much, for attending, of course, for your presence and attention, and we will stay close to you. We look forward to brief you again on progress and results, and have a great day.
Thank you, everyone, for joining today's call. You may now disconnect. Have a nice day.