Let me now turn the floor over to your host, Dr. Hendrik Finger.
Thank you, and good morning, everyone. Welcome to our Q1 earnings call, and thanks for dialing in. We appreciate your interest in our company. Grüß Gott, Nucera. With me today, our CEO, Werner Ponikwar, and our CFO, Arno Pfannschmidt. They will guide you through today's presentation. Now, before we start, let me briefly address the usual formalities. Firstly, this call is being recorded. The replay will be made available on our website later today. Secondly, don't forget that 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, and with that, let me hand over to our CEO, Werner Ponikwar.
Thank you very much, Hendrik. Good morning, ladies and gentlemen, and a warm welcome from my side as well. I'm delighted that you have joined us today to discuss our first quarter results. Before diving into the quarterly report, let me briefly update you on some of our important changes within our management board and the highlights from our recent annual general meeting. Our CFO, Arno Pfannschmidt, and our CTO, Fulvio Federico, will not be extending their contracts, which end on February 28th, 2025. Arno is retiring, and Fulvio plans to spend more time with his family in Italy. This is a significant change for our three-person board, especially since we have worked so well together over the last years. However, I'm thrilled to announce that we have found excellent successors for both Arno and also Fulvio. Stefan Hahn will join us as CFO in March.
He has extensive experience in finance and controlling and was recently the interim CFO of thyssenkrupp Polysius. Stefan has already started the handover process with Arno to ensure a smooth transition. As our new CTO, we welcome Klaus Ohlig, who will start in July. Klaus joins us from Linde AG, where he held various senior leadership roles, most recently as executive director of research and development at Linde Engineering. Fulvio will stay as a consultant on board to ensure a successful handover. Finally, I'm pleased to share that I have also extended my contract as CEO by five years. I look forward to shaping the future of thyssenkrupp nucera and green hydrogen together with Stefan, Klaus, and, of course, our whole team. Last week, we held our second annual general meeting as a listed company.
We covered the highlights of the last fiscal year, provided an update on our current business, and addressed questions from our shareholders, of course. The setup looked really great, and everything went smoothly. All agenda items were adopted with high approval rates. We welcomed two new shareholder representatives to our supervisory board, Nadja Håkansson and Carolin Nadilo, and in addition, according to German law, we are now in a one-third co-determination where employees hold one-third of the seats on the supervisory board. For those interested, we have included a link to the recording of our speeches on this slide. Now, let's take a look at the highlights from the first quarter. We recorded our highest quarterly sales ever, positive EBIT and cash flow figures. In the chlor-alkali segment, the positive commercial development continued. We saw significant new orders in our service business and one new build project.
Our green hydrogen segment also showed impressive growth with a 30% year-on-year sales increase, driven by the accelerating execution of our project with Stegra. In general, we see our project pipeline maturing, with Europe remaining the most promising region for FIDs in 2025. Based on our strong performance in the first quarter, we confidently confirm our guidance for the current financial year. Ladies and gentlemen, let's continue with our green hydrogen project on page eight. The NEOM project, the world's largest gigawatt AWE plant under construction, is progressing well with production, deliveries, and also cell assembly, all on schedule. We have handed over more than 60 standardized 20 MW modules to the customer, representing a capacity of over 1.2 GW. Over 50 of our electrolyzers have been already erected on site.
For Stegra, the fabrication of electrolyzer equipment is ongoing, and the first test assembly has been completed in our module yard in Spain. Construction in northern Sweden is progressing quickly, including the cell houses for electrolyzer systems, which you can see here on this slide. Shell's large-scale project in the port of Rotterdam is also moving ahead fast, with parallel erection of our modules being underway. Overall, we are making significant progress in bringing our large order backlog to life. We will continue this momentum across all our projects, including the chlor-alkali business as well. But before we get to the chlor-alkali side, let's have a look at our hydrogen project pipeline. Our project pipeline continues to provide significant growth opportunities in Europe, North America, the Middle East, India, and Australia.
Europe remains the most promising region for FIDs in 2025, and we are confident in winning our fair share of orders for larger-scale green hydrogen projects here. In the U.S., we are waiting for the new administration-specific actions on the IRA and the 45V to assess the likelihood of green hydrogen projects moving ahead. We believe there are good reasons for not cutting back here, but things will become clearer once the dust has settled after the first 100 days of the new Trump administration. We will discuss the guidelines and regulations in these regions and their potential effects on our business in more detail on the next page. In 2025, we expect to see clarification of many policies and regulatory schemes, which is crucial for unlocking the potential of green hydrogen. Our sector needs investment security and a reasonable legal and regulatory framework. In Europe, several developments stand out.
The implementation of RED III industry quotas at the national level should drive demand for green hydrogen. In addition, the results of the second EU Hydrogen Bank auction are expected soon and should help kickstart several projects. The resilience criteria applied in the second EU Hydrogen Bank auction include the limitation of the sourcing of electrolyzer stacks from China to a maximum of 25% of a project's capacity. In addition, compliance with European and international safety and cybersecurity standards is also mandated. These rules will clearly support European manufacturing and supply of electrolyzer equipment to the awarded projects. The Innovation Fund results and various infrastructure initiatives are further potential catalysts for the green hydrogen sector. In the U.S., although the final 45V rules were well received, uncertainty remains.
Feedback from potential customers indicates that higher flexibility for green hydrogen products helps to develop viable business cases, but FIDs and also firm offtake agreements depend on the new administration's next steps, as already mentioned. Spain has also sent very positive signals with plans to advance in the green hydrogen space. Prime Minister Pedro Sánchez's green baby green slogan and a significant funding scheme aim to position Spain as a major global player in renewable hydrogen. And this is providing a lot more certainty around the development of green hydrogen projects in Spain, where we are well positioned in several projects with delivered basic engineering work and also with a reservation agreement. Now let's move to our chlor-alkali segment. I'm pleased to report continued growth in order intake and sales. We have signed new build projects with CDC in Saudi Arabia and Chlorum Solutions in the U.S..
Corresponding order intake is expected to be recorded in our second quarter. As a long-standing customer of thyssenkrupp nucera, Chlorum Solutions has selected our technology for their first U.S. chlor-alkali plant in Casa Grande in Arizona. Our service business also maintains strong momentum with high customer demand for modernization of existing electrolyzers. The biggest service markets were Central Europe, the U.S., China, and also the Middle East. We are well on track with executing our order backlog for both new build and also service projects. Engineering work, deliveries of equipment, work on electrolyzer cells, just to name a few steps in our value chains, are all well progressing and on schedule. In summary, our chlor-alkali business continues to create significant value and sets thyssenkrupp nucera apart from green hydrogen peers. We are proud of our colleagues who consistently deliver on their promises.
With that, I hand over to our CFO, Arno Pfannschmidt, who will walk you through the Q1 financials in more detail.
Thank you very much, Werner. A warm welcome also from my side. I'm pleased to present you the financial performance of thyssenkrupp nucera for the first quarter of the fiscal year and share some key highlights with you. Before we start, please be aware that the quarterly figures for 2023-24 have been adjusted retrospectively in accordance with IAS 8.41. That is why you might see minor deviations for the comparative prior year figures of quarter one, 2023-2024. Ladies and gentlemen, in a nutshell, thyssenkrupp nucera posted a strong performance in the first quarter of the financial year 2024-2025. Order intake reached EUR 95 million. It was impacted by the green hydrogen business, which had benefited from a large Stegra tranche in the previous year. In general, you can see on that chart that order intake is rather volatile in the quarterly comparison due to the nature of our project business.
Group sales grew dynamically and peaked at EUR 262 million , an increase of 27% compared to the previous year. It was driven by further progress in the execution of our existing backlog, both in the field of chlor-alkali and green hydrogen. Our EBIT performance was solid and in line with our full-year guidance. EBIT increased by EUR 9 million year-on-year to EUR 8 million , largely driven by an improvement in the green hydrogen gross margin. The EBIT performance also had a positive impact on our operating cash flow, which reached EUR 35 million in the first quarter. However, cash flow is expected to decrease in the remaining period of the fiscal year 2024-2025. This is mainly because of higher investments and the consumption of advance payments received during the order execution. Nevertheless, let me also reiterate once more our strong cash position.
At the end of the first quarter, net financial assets stood at EUR 687 million. On page 14, we have a more detailed look on order intake. In the first quarter, order intake declined by 46% year-on-year to EUR 95 million. Of this, EUR 5 million were attributable to the green hydrogen segment and EUR 89 million to the chlor-alkali segment. The decline in the green hydrogen segment is due to the usual volatility in the project business and to projects being postponed. Moreover, as already mentioned, keep in mind the previous year figures included around EUR 100 million in connection with the Stegra project. The CA business posted a 35% increase in the first quarter, resulting from the service business. It is also noteworthy that we have agreed upon a new project with Chlorum Solutions in December 2024.
This is not yet included here and will be reflected in the order intake in the second quarter. Looking at the order backlog, it amounted to around EUR 1 billion at the end of December 2024, compared to around EUR 1.1 billion at the end of September 2024. Of this, the green hydrogen segment accounted for around EUR 0.6 billion. The decline in order backlog is obviously due to the further progress made in project execution, which is reflected in the dynamic sales development. Now, diving into our sales development on page 15. In the first quarter, sales rose by 27% to EUR 262 million, the highest ever quarterly sales figure for thyssenkrupp nucera. The year-on-year increase is attributable to both technologies. Green hydrogen sales increased by 30% and reached EUR 154 million.
The main driver here was the ongoing execution of the H2 Green Steel project in Sweden, while sales from our first AWE reference project, NEOM, declined year-on-year, but also sequentially due to the high degree of completion already achieved. The H2 Green Steel project will continue to drive sales in the upcoming quarters of this fiscal year, while the revenue contribution from the NEOM project will further decline. So, on the basis of our existing backlog, we expect a deceleration in sales, especially in the second half of this fiscal year. Sales in the CA segment amounted to 108 million EUR, 20% above the prior year figure and at the highest level ever achieved. Sales improved both in the new build business, driven by the ongoing implementation of projects in Brazil and the U.S., as well as in the service business due to projects in Germany and the Middle East.
Moving on to the EBIT development on page 16. I'm very pleased with our EBIT performance. In the first quarter, group EBIT increased by EUR 9 million- EUR 8 million. We were able to significantly reduce the operating loss in the green hydrogen segment to EUR -8 million. This increase was driven by an improved gross margin in the AWE business as a result of a more profitable project mix. Moreover, it was supported by positive currency effects. At EUR 16 million, EBIT in the CA segment was slightly above the corresponding prior year figure due to the positive sales development, which was partially offset by a lower gross margin in the execution of existing projects. On page 17, let's take a look at our cost development. Cost of goods sold increased in absolute terms in line with higher sales, but were stable in percent of sales.
The decreasing revenue share from the NEOM project, considering the already high percentage of completion, had a positive impact here. This was partially compensated by lower gross margins in the execution of existing chlor-alkali projects. SG&A increased slightly year-on-year, driven by the planned ramp-up of the organization. In this quarter, the cost increase turned out to be lower than the increase in sales. Yet, in the remainder of this fiscal year, considering the deceleration in sales from existing projects, the cost increase in percent of sales will be more pronounced. We will continue to work on cost containment to mitigate the knock-on effect of a slowdown in sales growth on cost absorption. Furthermore, R&D expenses increased as planned by 22%, driven by costs for our AWE stack, AWE module development, and our test centers, but also R&D activities related to the SOEC technology.
In the coming quarters, we will continue to increase our R&D efforts. We will also manage our organizational and operational expansion synchronized with the market developments. Moving on from EBIT to earnings per share on page 18. Ladies and gentlemen, in the first quarter, net income came in at EUR 9 million , EUR 7 million higher than in the previous year. Accordingly, earnings per share increased to EUR 0.07 compared to EUR 0.02 in the previous year. Next is the outlook for this financial year on page 19. Based on our sales and EBIT performance in the first three months, we confirm the outlook. We continue to anticipate group sales between EUR 850 million and EUR 950 million , whereby already contractually agreed projects are expected to largely contribute to this development.
On segment level, we continue to expect green hydrogen sales to come in between EUR 450 and EUR 550 million and chlor-alkali sales to increase to between EUR 380 million and EUR 420 million . Moreover, we continue to expect group EBIT to be between EUR - 30 million and EUR + 5 million . As for the green hydrogen segment, we expect EBIT to improve to a negative mid-double-digit million euro amount. In the chlor-alkali segment, we expect a positive EBIT figure in the mid-double-digit million euro range, yet most likely below the figure of the past financial year. Let me emphasize two aspects to conclude the financial section in a balanced way. First, as I outlined before, you cannot simply multiply the Q1 figures by four to arrive at the full-year estimates.
We expect lower sales in the second half compared to the first half of the year, and we expect that to have an impact on profitability. Secondly, our performance in the first quarter was without doubt strong, and it indeed puts us in a very good position to achieve our targets for the year as a whole. And now back to Werner for his closing remarks.
Thank you, Arno. Just wrapping up this earnings call, I would like to reiterate some of our key messages. We have recorded a strong financial performance driven by consistent project execution in both segments. We see a continuous positive commercial momentum in chlor-alkali translating into sales and earnings growth at a level that is unmatched in our industry. We are well positioned when the market for green hydrogen picks up again and consider Europe to be the most promising region in the short term. FIDs of major European hydrogen projects should be no further away than summer 2025, and last but not least, we confirm our financial targets for the group and for our segments for the fiscal year 2024-2025. Ladies and gentlemen, thank you very much for your attention. We now look forward to your questions.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press nine and star on your phone to register it. If this question has already been answered in the meantime, you can withdraw your question by pressing nine and star again. We look forward to your question, and the first question comes from Erwan Kerouredan of RBC. The floor is open.
Hi, thanks for taking my question. So I've got two, please. First, on the Middle East and on Air Products, so the focus of Air Products is often the U.S. and the capacity reservation you have in place. But I have a question regarding NEOM. I know that you are negotiating a multi-decade service contract in the region. Is there any potential impact from the change in strategy and management of Air Products? This is my first question. And then the second question is on U.S. regulation. And on chlor-alkali, a lot of the focus when it comes to regulatory risk is on green hydrogen and clean tech. But you mentioned in the last update that the outlook for chlor-alkali is supported by regulation, including those driving plant conversion. Is there any regulation risk in the U.S. for chlor-alkali? These are my two questions. Thank you.
Hi, everyone. This is Werner. Thank you for your questions. To the first one, Middle East and in particular NEOM and the service contract that is currently under negotiation. First of all, as mentioned, it's under negotiation. It's not finalized right now, but we are making very good progress here. We don't see any impact, actually, from the changes on the management board of Air Products when it comes to the NEOM project. Simply also because they are just one of three shareholders of this project, as you certainly know. And as such, I think the commitments that they made here are pretty firm and would be very difficult to change in the first place. To the second question around chlor-alkali and potential risks in the U.S..
We mentioned the U.S. as being one of the, I would say, more attractive regions for growth in new builds in chlor-alkali based on a lot of conversion projects. These conversion projects are actually required because of U.S. regulation. U.S. regulation is basically banning asbestos in plants, and there are a number of old systems still in the U.S., chlor-alkali electrolyzers running, which have asbestos separators. These need to be replaced, and typically when you start to replace, then you also modernize to improve your efficiency, your performance, and so on and so forth. And this is what is currently happening and what we are actually seeing here in terms of conversion projects, where we are currently also benefiting from, as for example, with the OxyChem project that we are currently delivering in the U.S., which is also well on track.
On top of that, we don't see any regulatory risks that would be specific to the U.S. There is, of course, a discussion ongoing in Europe and the U.S. still around PFAS, but I think that these discussions have come to, I would say, more reasonable level in the meantime, and we don't see currently that there would be a major impact on our electrolyzer systems, as that would be anyway an impact that would, if you want, hurt not only electrolyzer technologies globally, but also fuel cells and many other applications where potentially PFAS are playing a role in an industrial environment. I hope this is answering your questions, Erwan.
Yeah, thank you so much. Thanks, Werner. It's very clear.
And the next question is from Kevin Roger. Sorry, Alexander Jones, Bank of America.
Good morning. Thanks so much for taking my questions too, if I can as well. The first one you highlighted in the presentation, the RED III being finalized, could be a positive catalyst. Can you help us understand what you want to see from those final regulations for projects to be able to go ahead? And on the other hand, what the potential downsides are, I think in Finland last year, you saw that regulation work against you. And then the second question, just to clarify on profit for the quarter, was there any benefit at all from compensation payments for canceled projects in hydrogen? Thank you.
Hi, Alex. This is Werner. Thank you for your questions. First, on the developments in Europe and RED III, as you certainly know, the regulations on a European level are already firm and approved, if you want, and they are now basically translated into national law. Part of these regulations are also mandatory quotas, actually, to use green hydrogen in particular industrial segments. And we see now that these quotas are becoming also part of, in some of the countries at least, we see that part of the national law, and that certainly is a key driver and can become a key driver also for green hydrogen developments. That is what we were referring to in our presentation. Yeah, the second question, I would hand over to Arno.
So probably you relate here to the project in Finland, which you mentioned also. So it was not yet in our backlog, so we had not started that project yet, except for an engineering portion, which was fully executed and paid by the customer. So there was no compensation required in that sense. If a project is terminated, we usually have also the clause that we are getting paid for what we have incurred as costs so far, but that was not the case here.
Maybe, Alex, to add on the first question, because you were also asking of potential downsides of the existing regulations. I think we are, and this is in the meantime, I would say, rather industry consensus, of course, with the RED III regulations in place, in particular when it comes to rules around additionality and temporal correlation. These certainly impose, I would say, a rather high complexity and with that cost on projects in the field of green hydrogen. As you can imagine, first of all, with additionality, you would be having a direct link to a newly built, for example, a wind farm.
With that, certainly basically also the respective cost of a newly built wind farm, rather than a blend of old and new assets, actually, which you would typically see for grid prices, if you want. Secondly, actually, in terms of temporal correlation, that certainly leads to the fact that electrolyzers will not be running 24/7, although they are designed for running 24/7. That certainly, as you can imagine, is increasing simply the production cost for green hydrogen, which is, in my view, inappropriate and unnecessary, in particular in a phase where you want to build up such an industry and where everyone is saying the cost of green hydrogen needs to come down, actually. Imposing these kinds of rules are, I would say, not very helpful.
Currently, there's a lot of discussions ongoing if and how these rules can be potentially postponed or further relaxed in the European Union. That is, for me, I would say, a very relevant and important discussion because I would believe that if these would be relaxed, things would move faster, definitely.
Thank you.
And the next question is from Kevin Roger, Kepler Cheuvreux. Please go ahead.
Yeah, good morning. Thanks for taking the question. I have two, if I may, the first one. I may be mistaken, but I have the feeling that you turn a bit more optimistic on the commercial dynamic expected on the hydrogen side, saying that a number of projects could be sanctioned this summer 2025.
Just as a magnitude or rough number, is it possible for you to quantify potentially the level of opportunities that are in Europe in your commercial pipeline that could be sanctioned, I would say, by the end of the year? If you can, you may give any rough number or something like that, please. And the second one is maybe trying to understand a bit more the dynamic that you mentioned on the EBIT margin for the coming quarters. I well understand the fact that you expect a decline in revenue in the hydrogen business, for example, but thinking of the mix, is it not true to say that, first of all, on the chlor-alkali business, you mentioned the high level of services, order intake, etc.? So that should be with a relatively higher margin, I guess, than on the typical construction work. So that should be a plus.
And also thinking about the hydrogen, the mix would also be maybe a bit more positive with projects like H2 Green Steel that have a better margin than NEOM embarked on the project. So just trying to understand the dynamic quarter after quarter because inside the top line, the mix would probably be a bit more positive than what we have right now for margin contribution. Thanks a lot.
Yeah, thanks, Kevin. This is Werner. The second one was a longer question, and I'm gladly handing that over to Arno then, but let me start with the first one. Yes, indeed, we are a bit more optimistic, actually, when it comes to the commercial dynamic on the green hydrogen field, in particular in Europe, I would say. Why particular in Europe?
I think certainly, actually, one aspect is what we see in terms of your support in Europe, be it the auction of the European Hydrogen Bank, etc., so the things that I've already mentioned. But in particular, actually, in the southern part of Europe, we see quite significant and very concrete movements right now. After the windfall taxes in Spain have now been rejected by the Parliament. We see these projects moving ahead quite significantly. With, obviously, the government also demonstrating a lot of willingness, actually, to establish Spain as a significant hydrogen hub, we certainly see here a lot of very concrete movements.
And as mentioned, I think to quantify that a little bit. I cannot go into much detail, as you certainly and hopefully understand, but you certainly know that we have and we have announced that we have worked on a basic engineering already for a 500 MW project in Spain. We have a reservation agreement in place for a 300 MW project in Spain. And there are a couple of other projects in the pipeline in that particular country as well. And we would believe that, of course, a reservation agreement is already quite, I would say, concrete step in the development of a project. And as such, we would assume that this is potentially one of the first ones that will move ahead, maybe even before summer this year.
We will see more to come also across Europe, actually, I would say, in the remainder of the overall year, so the calendar year. Again, in particular, I would believe in Europe based on the results of the Hydrogen Bank auction and so on and so forth. But it's a bit too early, actually, to quantify that. But I can reassure you, actually, that we certainly are in a position to win a fair share of the projects, actually, that will be taking FID within this year.
Yeah, coming to your second question on the dynamics of the EBIT margin, we have here two major effects. The first one is the top line, so the sales development. And here we said that the second half year will show lower sales than the first half year and also in the first quarter.
That you can see already from the forecast year of EUR 850 million-EUR 950 million sales expected compared to the EUR 262 million in the first quarter, and that, of course, means that we have less gross margin, less contribution margin from those orders, and that will definitely have an impact. At the same time, we expect that the research and development expenses will increase. We are having the plans to intensify the activities in the SOEC product, which was rather slow in the first quarter. We have here traditionally a kind of a hockey stick during the year for the research and development expenses, so that's a definite effect that we expect quarter by quarter now that research and development will increase.
So looking at the products for chlor-alkali, we also had a peak sales amount in quarter one, which will not be sustained at that level, also in line with the guidance that we have given. EBIT margin is stable at a low double-digit percentage here. So there is, of course, always a shift also between the quarters we had in the first quarter of this fiscal year within the service business, a high amount of these rather small parts business, which has traditionally a higher gross margin than refurbishment, for example. So that's maybe also a remark I want to make here. And green hydrogen, the mix, yeah, that's right. With a lower share of the NEOM project, of course, the gross margin as a percentage will slightly increase. However, we have that volume effect that I mentioned before. So overall, we are absolutely here in line with the guidance.
Okay, understood. Thanks a lot for that. Thanks.
And the next question is from Yoann Charenton of Bernstein. Please go ahead.
Good morning, everyone, and best wishes to Arno for wedding next. I would like to ask a question about Spain, given you referred to a positive momentum there. What is the timeline you have in mind for recognizing the two Spanish contracts you have already signed as firm orders? You talk about summer for upcoming developments, but what about, let's say, recognition as orders? There is another part of the world as well that I would like to hear about, if you don't mind. That would be India. Have you touched on India since the start of the year? I realize you have a leading position in the chlor-alkali field. As such, any comment you could make on the potential for orders in the green hydrogen space?
Hi, Yoann. This is Werner. Thank you for your question. Starting with Spain, I have to admit, and I hope for your understanding, I cannot be very concrete here because also things are still in flux. So it's very difficult to now give a firm timeline on any orders. Again, I think that the 300 MW reservation agreement might be a very obvious candidate, actually, to be converted into a contract now pretty soon, most probably and hopefully before summer this year. How this will then be turning over into order intake and order recognition, this is very much depending, actually, on the customer's timeline, of course, as you can imagine, because we typically start these projects after contract signature based on a limited notice to proceed.
I would say for obvious reasons, actually, to not be overstating here also our order intake, we typically then would only put the value of this limited notice to proceed into our order intake. As we have done with Stegra and with other projects as well. This will then progressing also in terms of order intake along the customer schedules and also the notice to proceed that we will receive. This is currently not 100% clear how this will turn out for the Spanish projects, but this is actually the way how this is going to be recognized as order intake. You were mentioning also the basic engineering for a 500 MW project, indeed. That is currently well underway. Of course, this would be another candidate for this calendar year. Will this be in summer or will this be later this year?
It's again very much depending on the schedule of our potential customers here and not really within our hands, so difficult for us to estimate. India, as you were saying, we have quite a significant team in India, and we are very well positioned in the chlor-alkali industry in India, so you can imagine as well that we are very closely monitoring now what's going on in terms of green hydrogen. Currently, we see a lot of discussions and a lot of noise, basically. But when you actually look behind the curtains, if you want, then still most of the projects are in a very early stage, and also, I think that the industry and the project developers, they still need to learn and to understand the peculiarities and what is constituting a viable project, so we believe this will still take a while.
However, we are, of course, involving now in business development activities a lot already, being on conferences, being at discussions with customers, also providing first indicative documents to potential project developers. So we are moving along, actually, the progress that is made in India there, and certainly want to understand which projects are the ones that will move ahead now very concretely. And along these lines, we will certainly also try again to win here our fair share.
Thank you very much. Have a nice day.
Thank you, Yoann.
Thank you very much. Before we come to the next question, just a reminder, if you have further or additional questions, please press minus star on your telephone. So the next question comes from Michael Kuhn of Deutsche Bank. Your line is open.
Good morning. Thanks for taking the questions. First one would be on costs. You already mentioned R&D costs expected to move up over the course of the year. Looking at selling and SG&A, you were very disciplined in Q1. That cost plug was almost flat over year over year. Is that a cost run rate that you can keep over the course of the year, or should we expect some increases here as well? And second question on production logic. You mentioned that you did, I think, your first assembly in the Spanish module yard. Do you plan to serve, let's say, the European projects out of that yard going forward? And will that make any major difference regarding cost or logistics complexity? Thank you.
Maybe I start with the first question. Selling and engineering expenses, right? We were very disciplined in quarter one. We expect a slight increase over the year. We are doing cost containment, but we will have here a slight ramp up. For example, also for the selling expenses, that usually includes also a proposal cost. And we are intensifying currently here our efforts to do more, to be much more proactive and also invest in projects in order to get the top line increased.
All right. Second question. Hi, Michael, Werner here. Our production logic and how we are basically intending to supply. So as mentioned, Spain, of course, is a good hub, actually, to supply the European projects, although we are currently typically supplied from both our module yards, Spain and Vietnam.
Of course, now moving forward, and if criteria actually for projects are going more into the direction of European content, if you want, then we are able with our Spanish module yard to respond to that and offer to our clients, of course, also an almost purely European-based supply chain. Our Vietnam module yard is very much relying on an Asian supply chain as well, which definitely actually makes this module yard, I would say, a more cost-advantaged option. However, then, of course, you need to add also logistics costs if you would bring over modules then to Europe, which will certainly add, again, costs. It's doable. I mean, as I said, we are currently running this in a mixture also to balance actually the work in our two module yards.
But we are very flexible in this respect and basically can very quickly also respond to the requirements of our customers, be it in Europe or anywhere else in the world.
Excellent. Thank you.
Sure, Michael. Thank you for your questions.
So as there are no further questions, I give the floor back to Dr. Werner Ponikwar.
Sorry, there seems to be a question. We see Marco.
Okay, if Marco wants to ask a question, just a moment. He is not now in my queue.
I have him in my list, but.
Yeah, yeah, just a moment.
Okay, thanks.
So Marco, if you want to ask a question, please go ahead.
Yes. Hi. Marco? Okay, we can't hear anything. Okay, is there any way how that works? Is the issue clear, or do we need to take that offline? Operator?
Hello, yes.
We can't hear anything, so Marco was not. He wasn't audible for us, but it would be good to get some guidance on how to proceed now. We could close the call, or if there's a way to make him audible, then we would be happy to take his questions, but.
Yes. He is not more in my queue.
Okay. Okay. I'll call him afterwards and hand over to Werner.
All right. Ladies and gentlemen, thank you for your time and also your questions, but before we close, there's one more thing I'd like to say. Something that is very close to my heart. Today marks a special moment, as this was Arno's last analyst and investor call for thyssenkrupp nucera. Dear Arno, from the bottom of my heart, I want to thank you for your outstanding leadership, your unwavering commitment, and also your invaluable support. Your contributions have truly shaped the success of this company.
Navigating a spinoff and an IPO is no small feat, and your steady hand, expertise, and vision were instrumental in making it happen. Throughout your time as CFO, we have achieved so many milestones together, milestones that will leave a lasting mark on thyssenkrupp nucera. Your dedication, your strategic foresight, and your passion for this company have not only driven us forward, but also inspired all of us who had the privilege working alongside you. While we are delighted to have found an excellent successor, it certainly goes without saying that we will deeply miss you. The legacy you leave behind is significant, and your impact will be felt long after your departure. I have no doubt that you will give your very best in these last final two weeks because that's simply who you are.
So while this might feel a little bit early now, I still wanted to say thank you once again for everything. I wish you a well-deserved fulfilling retirement and all the best for this next chapter of your life. And with that, let me conclude today's earnings call. Perhaps we will meet again on the road in the next weeks. And if you have any further questions, please reach out to investor relations. Thank you. Goodbye and all the best.
Thank you so much, Werner. Thank you to all of you. Thanks for the opportunity.
The conference is no longer being recorded.