Good afternoon. This is the Chorus Call Conference operator. Welcome. Thank you for joining the De Nora first quarter 2023 financial results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star zero on their telephone. At this time, I would like to turn the conference over to Miss Chiara Locati, investor relations and ESG manager. Please go ahead, madam.
Good afternoon, ladies and gentlemen, and welcome to our first quarter 2023 financial results conference call. I'm Chiara Locati, Head of Investor Relations at De Nora. With me on the call there are today Paolo Dellachà, CEO of the group, and Matteo Lodrini, CFO. They will drive you through the main achievements and financial results of the first quarter. We will open up a Q&A session. I would like to remember you that the slides of this presentation have been made available in the investor section of our website. With that, I would like to hand it over to Paolo. Paolo, the floor is yours.
Thank you, Chiara. Good afternoon, everyone. De Nora has seen a solid start in 2023, with the first quarter results in line with guidance, despite the headwinds of challenging macroeconomic environment. Once again, the strong positioning in all our target markets, our solid global footprint, the technological competitiveness of our products, the diversification of the products offered, and the geographies served, have enabled us to reach our targets safely while navigating difficult times. Good execution and sounding profitability are the highlights of this quarter, which featured positive performance in the electrode and energy transition businesses that more than compensated for the expected softer performance in the water technology business, driven by the pool division. Our business model confirmed its strong profitability with an EBITDA margin reported in Q1 north of 21%, supported by electrode technologies and energy transition businesses.
The backlog at the end of March mainly reflects the quarter's revenue trend and project execution, and covers about 70% of the 2023 expected production. In addition, we're waiting for the signature of important new contracts, both in the electrode and in hydrogen space, thanks to our rich and concrete pipeline. For this reason, we are progressively executing our manufacturing capacity expansion plan, which advanced during this quarter in Japan, China, U.S., Italy, and Germany. Finally, in April, we published our first corporate sustainability report, starting up formally our ESG journey. De Nora is well-positioned to become an ESG champion as our products can offer cutting-edge solutions for main sustainable trends such as green hydrogen, decarbonization, and clean water. This is why we intend to accelerate our journey, we are working at an ESG roadmap to be released in this year.
In this slide, you can appreciate some of the KPI of our Q1 2023 performance that Matteo Lodrini will comment later. As mentioned, in the first three months of the year, the growth of electrode and energy transition business more than offsets the softer performance of the water business. In the first quarter of 2023, the electrode technologies division reported 8.7% growth, driven by chlor-alkali projects mainly in Asia and in the U.S. This division provides stable and profitable business over time, leveraging our best-in-class technologies and unparalleled competitive positioning. The reliable share of aftermarket revenues, about 35%, sorry, in Q1, allows the division to smooth the effects on the economic cycle trend. We are confident about our short-term growth expectations in the electrode space.
Indeed, in our pipeline, we have some significant orders, which are expected to be signed in Q2 2023, and which would boost our revenue visibility for 2024 and 2025, largely supporting our electrode technologies division growth. In addition, last week, our Indian subsidiary was awarded a EUR 5 million contract by Reliance Industries Limited, long-standing partner of De Nora India and one of the main petrochemicals private company in India, for a maintenance project in chlor-alkali, proving once again the key role played by De Nora in providing sustainable solution around the world. Activities inherent in the contract will begin in May 2023, and the entire volume will be completed by March 2025. The water technology business showed two different dynamics.
With the growth of our water systems lines partially offsetting the softer pools performance, which was expected and mainly already accounted for in our 2023 guidance. Pools business, in the wake of the tenancy already undertaken in the last two quarters of 2022, was impacted by a normalization of the trend, mainly due to the channel inventory rationalization. While we expect 2023 to be a softer year for our pools division. With a slight recovery in the second half of the year, it remains a very attractive segment, led by electrochlorination, automation of existing pools, and energy efficient product offerings. Our strong positioning in the market and our cutting-edge technological offering make us confident about our mid and long-term strategy and industrial plan targets.
For what concerns water systems, lines, electrochlorination, filtration and disinfection, growing quarter, improving our confidence in our diversified, innovative and sustainable water business and our long-term strategy. In addition, the new orders of water systems increased by EUR 14 million year-on-year, leading the business unit backlog to overcome the record level of December 2022. In this space, among the new orders, let me mention the award of the second phase of the Al Jubail desalination plant upgrade in Saudi Arabia. The development will see the plant become the largest seawater reverse osmosis desalination plant in the world, producing up to 1 million cubic meters of seawater per day with the help of our key technologies, positioning De Nora as the partner of choice for sustainable clean water technological solutions.
The energy transition division continues its strong development, with a production volume broadly in line with the last quarter of 2022, supported by our stable and robust backlog. The revenue in Q1 2023 grew by almost 6 x compared to the first quarter of 2022, mainly driven by strong execution with a profitability of about 20%. Our leading positioning in the sector is confirmed. Considering operational and under construction project worldwide and including all the electrolysis technologies, our market share is currently over 40%. The cumulative volume of production executed since 2022 reached about 500 MW, and in 2022, our market share in terms of volumes delivered was about 50% based on our estimation, considering both alkaline water electrolysis and PEM segment.
As stated during our last conference call, the volume of production expected for this year is already covered by the backlog, which stands at the end of March at about 2 GW. During the quarter, our partner announced the signature of a memorandum understanding for 180 MW extension of the Unigel project in Brazil, aimed at producing low carbon fertilizers via green hydrogen. It announced a reservation agreement signed with a European customer in a carbon-intense industry for a production capacity of green hydrogen. These contracts still need to be accounted for in our backlog.
They are included in the hot deals of the energy transition division pipeline, shown in the next slide, along with other contracts with different customers, and make us confident about our top position in the green hydrogen space, thanks to our unique technological solutions in alkaline water electrolysis and fuel cell components. Our energy transition division is well-positioned at the core of the green hydrogen supply chain. We are facing an unprecedented market opportunity in this high-growth space, as alkaline water electrolysis is expected to be the electrolysis technology of choice for 2030 and beyond. There is a strong need for exponential growth in electrolyzer capacity. Third-party estimates 500 GW of credible announced projects by 2030.
While our estimates vary on how much of this 500 GW will go ahead, third party estimates around 100 GW-200 GW realistic install capacity by 2030, we are confident that alkaline captures more than 50% of this market share in any scenario. Our industry-leading energy transition pipeline is very robust and more than wide enough to support our green hydrogen business development as provided in the industrial business plan. It stands at a total of 42 GW and is built as follows: 3 GW, which majority is made of large-scale projects with a high probability of award in short term, meaning from two to 10 months, considering the time required for final investment decision in the green hydrogen market, which for off-takers remains a new and innovative space.
7 GW is built on pursuing projects where our partners and customers, especially those with whom we are close operating, have interaction and positive feedback from the off-takers. 32 GW made of project identified by our partners after their first interactions. The strength and solidity of our substantial backlog and premium pipeline, certainly unique in the industry today, make us quite optimistic about what tomorrow and beyond has in store for our energy transition division. Let's look at our capacity in place and evolution to serve this promising pipeline. During the last conference call, we presented our plan to enhance our production global footprint. We pursue expansion investments worldwide in brown and green fields to improve our capacity in place from 2 GW- 6 GW by 2025.
We are executing our strategy, scaling up our manufacturing capacity per our identified roadmap and market enlargement. Our multi-year scalable project in Asia, launched in 2022, is progressing. Its first quarter of 2023, we started working on expanding the manufacturing plant in Okayama, Japan, and continue our expansion in Suzhou, China. These projects will take place within the existing Japanese and Chinese plants, will be entirely dedicated to producing our chlor-alkali cells and electrodes. Regarding our gigafactory project in Italy, which will be supported by the IPCEI grant for about EUR 60 million, we have obtained preliminary approval for the project. We are applying for relevant authorizations for the demolition work and the following construction phase. We align with the project schedule and expect to start the demolition activities in Q2 2023.
We are also working on the expansion of the existing manufacturing plant in the U.S. and in Germany to enhance energy transition production capacity. In particular, in U.S., we are going to start the expansion of the plant in Ohio, which aims at fuel cell components production as a first step. Finally, considering the evolution of the business units, the backlog development in electrode and water businesses, and the energy transition market opportunities, we are really satisfied with the start of this year and confident in the strength of our business model, which relies on a unique global competitive positioning in all business and a cutting-edge set of winning and sustainable technologies. With that, I leave the floor to Matteo, who will provide a review of the first quarter financial results.
Thank you, Paolo. In quarter one, 2023, the consolidated revenue increased by 8.4%, growth in line with 2023 full year guidance, led by the growth in the electro technology and in the energy transition businesses, which more than compensated the lower performance of the water division. In terms of revenue type, the aftermarket services accounted for 31%, stable compared to the average level of 2022. In terms of geographical breakdown, we highlight an increase in the incidence of EMEA area, which accounted for almost 40% in the first quarter 2023 versus 32% in the same period of 2022, mainly driven by energy transition business. Going to the single businesses. Concerning electrode businesses, the growth was driven by chlor-alkali membrane project in Asia and in the U.S.
At the same time, in the electronics and electrowinning division, the performance normalize, respectively, in Asia and Europe, due to project time effect. After market revenues in the business unit accounted for 35%. With regard to the water technology business, revenues was down year-on-year, mainly driven by the expected softer performance of the pool division, partially offset by an increase in the water system product line. Looking at pools quarter-by-quarter trend, the quarter one 2023 revenues were EUR 2 million up compared to the quarter four 2022, driven by volume increase despite the slowdown in prices. Indeed, the normalization trend of pool business, which started in quarter three 2022, is expected to persist also in quarter two 2023, suffering from higher channel inventories with recovery expected only in the second half of the year.
The water system revenue grew by 27% year-on-year, supported by the strong backlog achieved at the end of 2022, it is expected to continue growing in the following quarters, especially in the second half of the year. Our energy transition business continue its impressive growth, in line with the performance already achieved in Q4 2022, reporting a 6 x folder increase in revenues year-on-year, thanks to the strongest execution of the backlog. Our backlog on March 31, 2023, was about EUR 740 million, mainly reflecting the execution of the project during the first three months of the year. The current backlog also considering the first quarter revenue, guarantee about 70% coverage of the 2023 production volumes expected.
For what concern the electro technology business, as already stated by Paolo, in quarter two, we signed a new contract in India, and we have a pipeline of project that we are confident is going to support our short and medium term growth in the electrode space. Water technology backlog improved by about EUR 4 million compared with December 2022. The increase is attributable to the water system division, which awarded important project, mainly in the EMEA hub, based on CECHLO technology, such as the second phase of the project Al Jubail, as already described by Paolo, and a contract in Abu Dhabi within the petrochemical Borouge project. Finally, the energy transition backlog stands at EUR 181 million, reflecting on time execution of the backlog and the accounting of the first phase of the Unigel project in Brazil.
Let's now have a look at our operating cost. COGS reported in quarter one 2023 an increase both in absolute value and in terms of incidence on revenues, mainly as a consequence of a different product mix in the electrode and in the water technology businesses. The water business in particular suffer the lower incidence of the pool division, which in turn was impact by the destocking phenomena accompanied by the stabilization in the noble metal price. G&A and corporate cost report an increase mainly due to corporate structure enhancement to support the business development. Finally, R&D costs were about EUR 3.5 million, with an incidence of revenue in line with the average of the last two year, and were mainly related to our energy transition division.
In Q1 2023, the EBITDA adjusted was equal to EUR 46 million, with a robust margin of revenue of 21.5%, which more than confirms our guidance for 2023. Going through the single businesses, electrode technology division showed a solid 26% EBITDA margin, aligned with historical trend and higher than the last quarter of 2022. The year-on-year change mainly reflect the extraordinary performance of Q1 2022 and a different product mix with a lower incidence of electronics and electrowinning division. Concerning the water technology business, the EBITDA is broadly in line with the last quarter of 2022. The year-on-year performance is mainly attributable to a different incidence of the pool division, which has higher profitability than the water system product lines.
It is worth underlining that the water system reported an increase in EBITDA due to volume enhancement and a robust operating cost control. Our energy transition division reported a sounding 20% EBITDA margin, demonstrating the strength of our business model in the green hydrogen space and reflecting a favorable product mix. We are satisfied with the profitability report in this quarter of the year, which largely confirm our 2023 guidance and make us confident about the strong execution of our industrial plan. In this slide, you can find a bridge between the first quarter reported EBITDA and the net income. Amortization and depreciation were almost in line with quarter one 2022. The change in net financial cost in the first three months of 2023 compared with the quarter one 2022 reflect the growth in European and U.S. interest rates, which occur in the last 12 months.
In addition, we have to consider that the first quarter of 2022 benefit from a EUR 2.4 million net positive impact due to exchange rate versus a negative impact of EUR 1.4 million in Q1 2023. As you may remember, in March, we decide to voluntarily early repay about 56% of our single facility, including EUR 100 million and $50 million, to streamline the group of financial structure by reducing the average annual cost of a medium to long term debt. We expect this will have a positive impact on economic cost in the next quarter. Net result was EUR 25 million compared to EUR 26.5 million at the end of Q1 2022, when the net income was negatively impacted by some accounting adjustment related to thyssenkrupp nucera fiscal year 2021 next, net profit.
Let's now have a look at our net working capital evolution. The net working capital at the end of March was EUR 330 million, with a 30% incidence of revenue slightly increasing compared to December 2022, but well below the level of the last first quarter. The main dynamics underlying the net working capital evolution were a decrease in the advanced payment due to project execution of about EUR 20 million cash at the end of December, and an increase in trade receivables driven by a concentration of revenues built at the end of the quarter. Finally, a reduction in the inventory ratio to 33.8, which is expected to continue during the industrial prime period towards 30%. That is our target. The net cash position at the end of the quarter was EUR 10 million.
The change compared to December 2022 reflect the net working capital evolution and about EUR 20 million investment, of which about EUR 11 million in the energy transition. The CapEx plan for the year provide a higher level of investment in the next quarter. In any case, we expect that the cash generation from operating activities will be able to drive an increase in net cash position at the end of the year. Finally, considering our solid quarter one 2023 result, the backlog reached in all the business unit and expected market demand, we confirm the guidance for 2023 already provided in March, which includes revenue consolidated between EUR 900 million and EUR 150 million. EBITDA consolidated between EUR 175 million and EUR 185 million. For energy transition, revenues between EUR 130 million and EUR 150 million.
EBITDA margin, low double digit. Volume, 1.3 GW. With that, I leave the microphone to Paolo for the final remarks.
Finally, to wrap up, our final remarks are solid set of results in line with the 2023 guidance, driven by backlog execution and solid profitability. Growth in the energy transition division continues 5.9x revenues versus Q1 2022 with a sounding profitability, EBITDA margin 20%. Electrode technology business grows at a stable pace with a robust EBITDA margin, 25.9%. Water business unit performances were supported by water system product line. Solid backlog and promising pipeline of energy transition division support revenues growth visibility. Last but not least, 2023 guidance confirmed. Before entering into the Q&A session, I'd like to touch the point of Matteo Lodrini, our Group CFO, resignation.
I think that probably the best way is to leave Matteo the possibility to speak for himself, and then I'll close this session, and we move to Q&A.
Well, thank you, Paolo. For me, it's a very emotional moment. I have to say that after 20 years of dedicated work to this company and an IPO in 2022, after one year since then, I really decided to do something differently. I will leave the company. I made that my decision. I want to do something more entrepreneurial, so I'm not going to work for anyone else. I have to say that I really enjoy, and I have a full trust in you and the company and the team that in the future, we will continue to perform well and achieve our target. Thank you again for your support, collaboration and friendship.
Thank you, Matteo. Comment from my side, of course, we have to thank Matteo for all the things we have been doing together in these years. At the same time, there is a succession planning going on, very structured and very well managed. We are gonna inform you accordingly soon. Now we can open up with the Q&A session.
Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch tone telephone. To remove yourself from the question queue, please press star and two. We kindly ask to use handsets when asking questions. Anyone who has a question may press star and one at this time. That's star and one. The first question is from Michele Della Vigna with Goldman Sachs. Please go ahead.
Thank you very much. Congratulations on another strong quarter of delivery. Matteo, thank you so much for all of your help, best of luck for your next adventures and endeavors. I wanted to ask two questions. The first one, when we look at the large contracts potentially coming up in the green hydrogen area, I was wondering if you could, without mentioning single contracts, if you could give us an idea of which geographical areas you are seeing the biggest operational momentum and increase in activity.
Then the second question I wanted to ask you is, on these big contracts you are looking at, again in the green hydrogen space, should we assume that pretty much all of the large contracts would come through Nucera, or are you starting to see some of your other electrode clients also potentially winning large contracts and effectively diversifying some of your revenue exposure there from Nucera? Thank you.
Thank you, Michele. I'll answer. The current hot deals projects that are under discussion and negotiation are mainly in North and South America and Europe. Of course, as we said already, we are talking about quite substantial size kind of projects. There are two that have been already somehow announced. The extension of the Unigel project that we already awarded for 60 MW, that will be moved to 240 MW, and that our JV, thyssenkrupp nucera, will finalize. It's been already announced this enlargement. We consider it still a no deal because as long as we don't get the order, of course, for us, very diligently, it's considered a no deal.
They already also announced another project in Europe. We cannot disclose so much, but again, that's very serious and approaching. We are talking about average large size projects. Because of that, to answer the second question, I have to say that these projects are coming from our JV, thyssenkrupp nucera, mainly. The great majority of what we're talking about is coming from them.
Thank you.
The next question is from Matteo Bonizzoni with Kepler Cheuvreux. Please go ahead.
Thank you. Good afternoon. The first question relates exceptional strong margin which you posted in the energy transition business in the first quarter, which is also significantly above the guidance for the full year. You posted already, I would say, a 30% margin, which compares to the guidance for the year in the low double digit area, so 10%-12% around about. I just want to know if there is some specific reason for this kind of high margin in energy transition and why the next three quarters should go down compared to what we have seen so far. The second question relates the water technology segment, in particular pools.
You have said that you expect Q2 to be still pretty weak for pools, but you also expect some stabilization or initial recovery starting really from the second half of the year. My question is, what is the basis for your expectation for the second half relating to issues like the stocking in the chain, relating to issues like final demand? I just wanted to know what are the grounds for your expectation for recovery in pools already in the second half of this year, rather than, for example, starting from 2024. Thanks.
Ciao, Matteo. Hi, Matteo. Well, for the energy transition, I think that we clearly underline very consistently our expectation for an improved profitability. Not only we started to give evidence during the quarter four, but we clearly also give guidance for 23, and I think that quarter one is well underline the consistency of our expectation. Of course, we have to say that growing in volume, gain efficiency and good project in itself has resulted in a very solid quarter one. I will reiterate our confidence for the full year guidance that we gave for energy transition. For your second question, which I thank you, again, about the evolution of the water business and in particularly the pools in the second part of the year, starting for quarter two.
As we said, we have been noticing a persistence of a, I would say, stabilization in the market. Despite the fact that the quarter one 2023, in terms of revenue and in terms of square meters, resulted higher than quarter four 2022. Having said so, my visibility on this week and in the coming months is for a persistence of a market that is quite stable and I would say a little bit weak. We are still seeing, not in our stock, but in the customer stock, the end of the cycle of the destocking phase. I expect the recovery to be start to be visible in the second part of the year.
Do not forget that the WT division is also including WTS, which oppositely has proven to have a very solid growth in term of volume in quarter one, and improved profitability, and is well on track to achieve its target by the end of the year. Of course, the profitability in the pool business is incomparably higher than what is we have in the water system project unit. Of course, the water division in itself will be much impact by the pools, either in term of volume or in term of profitability than in the WTS. The good story is that the WTS that was showing a very strong backlog is now on the execution phase. I'm expecting to see continue to grow in term of volume in the course of the year, in the course of each quarter.
Each quarter continue to deliver its expected growth profitability that we declare in our guidance at the beginning of the year.
Also order income has increased.
As a matter of fact. Thank you, Paolo.
Thanks.
Next question is from Isacco Brambilla with Mediobanca, please go ahead.
Hi, good afternoon, everybody. Thanks for taking my question. I have a couple. The first one is on the outlook for electrode technologies. You mentioned the rich pipelines, which is translating into orders already from the second quarter. Is it fair to assume that the quarterly pace of revenues of the first quarter will be a sort of basis, even for the next ones this year? second question is a follow-up on expectations on net cash position. You mentioned during your presentation that you expect increase in net cash position by the end of the year. Could you just clarify if this is compared to the figures of the end of March or compared to 2022? Thanks.
Thank you, Isacco. In the electro business, to be honest, it's a matter of formalities because we have executed orders in our hands. I think that, if I look on the managerial side, I don't see really any problem in the backlog. I think, quarter two will prove this evidence. I see the business to remain solid, I true believe that we are confirming our guidance for the full year. In respect to the cash position, we mentioned that last year the 22 December cash position was benefited from early payment that were supposed to come in January in our planning. Was a little bit higher because of that.
In fact, in the quarter two, there is the roll-over effect of this advanced payment. Looking forward in terms of cash flow generation, all our indicators are targeting exactly in line with our guidance. Quarter two, don't forget that we are going to pay dividends. Out of the ordinary course of the business, in quarter two, you will see a big cash out because of the dividend. Except for that, the cash generation is on track. I can tell you that also DPO, DSO are moving very well as planned. If I may underline also the inventory. Inventory was a big item in 2022. You remember that we were at 38% in terms of inventory ratio versus sales at the beginning.
We trending down toward 35%. We are slightly lower than that. I think the target that we want to achieve, which is around 30%, is what we are achieving. Even in quarter one, you can see that the direction is there. I'm confident that this will also improve not only the net-net working capital evolution, but also the net cash position by the end of the year.
Thanks, Matteo, and I join Michele in wishing you the best for the next steps in your career.
Thank you, Isacco. Thank you, Isacco.
Gentlemen, there are no more questions registered at this time. Mr. Locati, I turn the conference back to you for the closing remarks.
Thank you very much, and stay tuned. Talk to you soon. Thank you for listening.
Thank you.
Thank you.
All the best. Bye-bye.