Hi, welcome to Hexagon Purus Q2 2022 presentation. My name is Mathias Meidell, and I am the Director of Investor Relations in Hexagon Purus. I will be moderating from the studio in Oslo. From the studio, I'm joined by company CEO, Morten Holum, and company CFO, Dilip Warrier. The agenda for today includes highlights from the quarter, a company update, the financials and the outlook. We will end the presentation with a Q&A session, so please feel free to enter your questions via the function on your screen, or alternatively, send your question to ir@hexagonpurus.com. With that, I will pass over the word to you, Morten, who will take us through the highlights of the quarter.
All right. Thank you, Mathias. Good morning, everyone, and thanks for dialing into our webcast this morning. We're happy to present our second quarter results, which has been another good quarter for Hexagon Purus. Three key highlights. Number one, we continue the strong revenue growth, more than double that of Q2 last year, taking our LTM revenue above NOK 700 million. Number two, the global energy crisis has brought on an even stronger wave of regulatory measures to drive both decarbonization and energy security. This is very supportive for us, particularly the infrastructure side of our business, which leads me to number three. We see continued strong commercial momentum and growth in order intake for our hydrogen distribution business. We posted another quarter with solid revenue growth.
Q2 revenue was NOK 210 million, up 123% from last year, and 35% higher than last year on a pro forma basis. As you can see in the middle chart, this takes the LTM curve further up towards our 2022 target of NOK 900 million. Now, I'd also like to highlight that Wystrach, which accounts for the majority of our hydrogen distribution business, they posted an EBITDA margin of 10% in the quarter. They operated with reasonably high capacity utilization in the quarter, so this is a good indication of what we can do once we get facilities to scale and achieve sufficient operating leverage in the business. With the strong growth signals we are experiencing in distribution, it's likely that we'll get to scale earlier than expected.
Overall, the second quarter was in line with our expectations, and we're satisfied with the performance during the first half year. We did see some business slipping into the second half, so we do expect a back half load of the year. Overall, we're tracking well towards our year-end target. Since we did not have the Wystrach business in our portfolio in Q2 last year, we choose to show the quarterly revenue comparison on a pro forma basis as if Wystrach was there also last year. As in previous quarters, the main revenue growth driver is the hydrogen distribution business. I'll come back to this later in the presentation, but it's really remarkable to see how this business is continuing to gain momentum. With the growing hydrogen demand for industrial use, the demand for our distribution modules is also rapidly increasing.
We also saw growth in the rail business with Alstom and in the heavy-duty truck business, the latter mainly consisting of development work at this stage. Deliveries of fuel system for transit buses were a bit lower in Q2, but we expect that to pick up in the second half of the year. I don't think you should read too much into the year-over-year changes for rail, heavy duty, and transit. The changes are relatively minor and driven by delivery schedules that typically vary from quarter to quarter. The distribution volume, though, is secular, consistently growing from quarter to quarter. Let's look into distribution a bit closer. The cumulative order value captured in the first six months is EUR 35 million, more than twice the volume captured in the same period last year.
Our production capacity for the second half of 2022 is already fully booked, so we're now only able to accept orders for the next year. Next year is starting to fill up, too. When we entered the second quarter, we had firm orders for 2 forty-foot equivalent modules for delivery in 2023. By the end of July, we had racked up firm orders for more than 40 of these forty-foot equivalent modules. This means that our 2023 capacity is already 60% covered by firm orders in the distribution business. Just to remind everyone, the distribution business is a sizable part of our addressable hydrogen market, particularly in the early years. We believe that mobility will be a large part of the market long term once fuel cell technology starts to gain traction in the heavy-duty truck applications. This is still a few years out, though.
The main focus for the OEMs right now is to get the battery electric trucks ready for the road in volumes in 2024. Distribution is here today. In fact, it's more than half the market today, and it's expected to remain in the 40% range all the way towards 2027. That's a sizable chunk of business. Note that these market forecasts were made before the Ukraine war and before . The energy crisis caused by Russia's invasion of Ukraine has really focused the attention of EU politicians and member states. It has forced them to reevaluate the European energy strategy and brought energy security to the very top of their agenda, together with climate change and energy transition. The energy transition, massive investments in renewable energy generation and hydrogen, that's part of the solution.
This will result in higher demand for energy storage and distribution solutions, and I'm quite sure that the distribution forecast on this page underestimates the demand that will result from these recent developments. Let's look at what Hexagon Purus is today. We are a technology company supporting the energy transition. One part is infrastructure, that's storage and distribution solutions for hydrogen, which is really about making it possible to store and transport intermittent and remote renewable energy. The other part is mobility, providing zero emission solutions to enable the vehicles themselves to run on renewable energy. While we previously focused a lot on the zero emission mobility solutions, we're increasingly shifting our strategic focus more towards the infrastructure side of the business. Why? Because that's where you see hydrogen demand growing now.
It's industry, not mobility, that's leading segment for hydrogen adoption, which is contrary to what we thought 2 to 3 years ago. Industry is where you find large pockets of CO2 emissions with large abatement potential. This strategic shift is enabled by our diversified business model. We do not depend on any one customer segment but have technology that's relevant across many application areas that are quite similar in nature. I'll show that in a few minutes. It's the same core technology that's being used in both distribution and mobility. That also means that we're ready to capture the mobility upside when it scales. In fact, it makes us more competitive when it scales because we have reached scale in a related area in the meantime. Let's take a look then at what our infrastructure portfolio consists of.
The three main product areas are distribution modules, stationary storage, and mobile refueling solutions. Renewable energy is intermittent and is often generated far away from where it will be used, and often off the existing grid infrastructure. The way to make use of this energy is to convert it to hydrogen and transport it to where it will be used. For this, you need storage and distribution solutions. Wherever there's an electrolyzer or a fuel cell, there's likely to be a need for storage next to it. Before pipelines are widely available, which will take a long time, you need mobile distribution solutions. When the pipelines are there, they won't go everywhere, so mobile distribution will still be needed. In fact, in the natural gas space today, Hexagon Composites provide mobile pipeline solutions, which is the natural gas equivalent of our hydrogen distribution modules.
The main use of those is to cover remote areas that are not connected to pipelines. On the right, it's mobile refueling solutions. It will take time before the infrastructure is built out sufficiently to make widespread adoption in mobility. Mobile refueling solutions enable early adoption of hydrogen in the meantime. A mobile refueler is more or less a distribution module with filling technology attached, storage tanks and a dispenser. It's a great bridge that functions as an accelerator because these can be utilized in bus and truck depots so that fleets with return to base operations can adopt hydrogen before there is a large enough network of refueling stations established. You can also think of similar solutions with other potential use cases.
You can attach a fuel cell to a distribution module, and you suddenly have a mobile unit for emergency power or off-grid power availability. There's no new technology development needed for this. It's just a combination of technologies we already know to create a new product that the world needs. That's the beauty of Hexagon Purus, our technology, our competence, and our know-how. Diversification is enabled by a narrow technology core that has relevance across a large range of applications. It's the Type 4 carbon fiber pressure vessel on the bottom left, a specialty component that we have designed and manufactured for more than six decades and know better than anyone else. There is the cylinder system on the bottom right, a combination of cylinders piped together and integrated into an overall storage system. It sounds very simple, but it's far from trivial, particularly the cylinder part.
It's a highly engineered, high pressure component with very demanding performance requirements and razor-thin tolerances. It's quite difficult. There are only a handful of companies in the world that can do this well. With these two building blocks, we build solutions that are relevant in and can be tailored to a wide range of use cases. It's the same base technology applied in a different environment, but with similar operating characteristics and performance criteria. One of the main benefits of this is that we can get to scale quicker by combining many smaller segments that individually are too small to scale for several years, but that together enable us to achieve economies of scale earlier. Let's take the maritime example. Again, it's the same base technology. We're not dependent on any breakthrough technology developments.
We're simply taking proven technology that we know very well from other mobility applications and adapting it to the maritime environment. We do need to get regulatory approval and certifications, and of course, to convince the ship owners that it's safe and reliable. This is the part that takes time. It's not the technology itself. The nice additional aspect of maritime is that it plays hand in hand with our distribution business. As ships start to utilize hydrogen as a fuel, the hydrogen needs to be transported to the bunkering station at the quay, which is where our distribution modules come in. Some maritime vessels will actually use a distribution module as an onboard fuel storage system, either fixed mounted or as swappable containers to enable quick fueling.
When you get to the port, you simply lift the empty container off the vessel and put a new full container on. There are several inland river vessels that are preparing for this type of hydrogen storage in Europe. We got a cylinder order earlier in Q2 for use in swappable fuel storage containers on an inland river vessel in Europe. Maritime use of hydrogen also drives demand for distribution solutions to fill bunkering stations at the port. Last week, we got an order for distribution modules for the Hellesylt Hydrogen Hub in Norway. This is a project that's owned and operated by Norwegian Hydrogen, an associated company that we have a 21% ownership stake in.
It's using landlocked hydropower to produce green hydrogen that will be used by hydrogen-powered vessels on the Geiranger Fjord in Norway, which has a zero-emission requirement for ships starting in 2026. The distribution modules then will be used to transport the green hydrogen from the production site to the bunkering station at the port. It's not a huge order for us in itself, but it demonstrates the link between maritime applications and distribution applications. The project is important. It's one of the first of its kind, setting the examples for many more similar projects to come. When the world struggles to find enough sources of energy, it's important to enable the use of landlocked energy that otherwise would not be utilized.
There's been a lot of talk about where hydrogen could be relevant in the maritime space, which type of zero emission solution that will be optimal for the different vessel. To dig deeper and get more insight into this, we did a comprehensive market study earlier this year, where we looked at the different use cases and the operating requirements for various vessel categories. Some of the lighter vessels traveling short distances will be very relevant for battery. Things like tugs, pilot boats, and certain passenger vessels. Some of the larger vessels traveling long distances, like tankers and trawlers, deep sea transport vessels, they will need to use higher density fuels, like liquid hydrogen, ammonia, or other synthetic fuels. In between those two, there is a sweet spot for compressed hydrogen.
These are inland or coastal cargo vessels, supply and service vessels for offshore oil and gas, wind farms and fish farming, and some passenger ferries. There are thousands of these ships that need to be built in the coming years, and many are also relevant for retrofit. Compressed hydrogen is not an answer for everything, but it's very relevant as a zero emission fuel in certain maritime applications. The maritime sector is one of the most emission-intensive sectors in the world, and there is a strong drive from several national governments to drive adoption in hydrogen in the maritime sector as a means to cut their greenhouse gas emissions. The Netherlands and Norway are two examples.
The Netherlands is establishing several hydrogen-fueled inland shipping projects, and Norway is supporting several new green hydrogen projects, such as Hellesylt, that I showed earlier, to accelerate the use of hydrogen for maritime use. With REPowerEU, I expect that we will see many more of these projects surfacing in the coming years. Maritime will also be a large market for us. The addressable market for compressed hydrogen on board vessels is expected to approach NOK 5 billion by 2030, following the same growth path as in other hydrogen applications. The majority of the growth will occur in the second part of this decade. It does take time, and probably continuing then on a steep growth path after 2030.
We're very well positioned for this, having established a dedicated maritime business unit last year, located in the heart of the world-leading Norwegian maritime cluster. Having been part of a few smaller projects, we're now working on several new projects to showcase the technology and to bring more solutions to life. Again, the maritime segment continues to grow, so will the need for distribution solutions. I will hand the word over to Dilip, who will take you through the financials.
Thank you. Thank you, Morten, and good morning to everyone. Before we head into the financials, just a quick note. We're really pleased to be included in the Euronext Tech Leaders initiative. We're in some very good company with over 100 other growth and leading technology companies. It serves to raise our profile with international investors and improves liquidity for retail investors. All right, let's move on to the financials then. Q2 revenue came in at NOK 210 million. This represented year-over-year growth of 120% on an actual basis, and 34% on a pro forma basis as if Rystad were part of Hexagon Purus in 2021. Revenue growth both year-over-year and sequentially was driven primarily by hydrogen distribution and rail applications.
We expect revenue will increase sequentially in Q3 and more so in Q4, driven by distribution and bus applications. Q2 EBITDA loss of NOK 112 million was driven by the continued investments we're taking in the business ahead of the expected revenue growth, and this included NOK 14 million of positive contribution from Rystad. Here we see the breakdown of revenue by application in the current quarter and the year-to-date period. You know, distribution and bus have traditionally been the primary drivers of revenue over the past several quarters. We did see lower contribution from bus this year to date, particularly when comparing Q2 to the prior year. This was driven by order timing. We expect bus will pick up later in the year. With the acquisition of Rystad, revenue contribution from rail has increased as well.
Notably, the other category, which is a catch-all, has now become more significant because of the baseline industrial gas bundle business of Rystad. On to our balance sheet. We ended the quarter with just over NOK 700 million of cash, up from NOK 450 million at the end of last year, and down from NOK 900 million at the end of Q1. Overall, net working capital levels have been flattish. That said, inventory levels have increased, and we expect this trend to continue as activity picks up over the course of the year. Finally, on to cash flow. Cash outflows from operations were NOK 208 million, which included a working capital increase of NOK 13 million year to date. Financing cash flow reflects the NOK 600 million capital raise we did earlier in February.
With that, I will hand the word back to Morten, who will take you through the outlook.
Thanks, Dilip. Back in March, the European Commission launched REPowerEU as a response to the shock of the Ukraine war. REPowerEU is a plan to deal with Europe's dependency on fossil fuels and on Russian gas supply to make the EU energy independent. Hydrogen made from renewable energy is one of the key cornerstones of this plan, significantly increasing the already ambitious 2030 green hydrogen production targets. This is about to release an amount of EUR 27 billion for investment in hydrogen infrastructure across Europe and EUR 86 billion for renewable energy. This illustrates very well how energy independence and national security go hand-in-hand with the energy transition and how this now acts as an accelerator to the green shift. Now we're finally about to see stronger action taken on the other side of the Atlantic as well.
Two days ago, the U.S. Senate passed a bill that will earmark $370 billion to support clean energy, emission reduction, and energy security. The Inflation Reduction Act, as it is oddly called, puts the U.S. on a path to 40% emission reduction by 2030. It's less ambitious than the original Build Back Better plan that President Biden originally proposed. Even with the compromises put through to get Senator Manchin on board, it's still the largest package of climate spending in U.S. history. There's now strong support for clean energy measures on both sides of the Atlantic, which of course will be supportive for our business. To the outlook for 2022, it remains unchanged.
It's the same revenue and EBITDA guidance that we gave in Q4 and in Q1, and we're tracking well towards the 900 million NOK revenue target, with LTM revenue in Q2 standing at 731 million NOK. I don't really see a demand risk for the 900 million NOK target as the vast majority of that is already in the order book. So, the risk is more on the supply chain and execution side. But with a back half-loaded year and strong commercial momentum, we're confident about our ability to deliver on that target. In terms of the long-term target with a good 2022, we're also tracking well towards our 2025 revenue target of 45 billion NOK. We continue to de-risk this target by gaining better visibility on the business that will take us there.
We have line of sight to around 50% of the targeted 2025 volume, which we consider pretty good more than 3 years now ahead of time. That concludes then our presentation for today, and we will open it up for Q&A.
Thank you, Morten. Thank you, Dilip. I guess we can jump straight into the questions that we received. The first one we've gotten is from Michael Leary, and that is, "What are the steps that needs to happen to reach positive operating profit, and when is that likely to be achieved?" I guess that's one for you, Dilip.
Yeah, let me take that. I wish there was a magic button to just turn profit on, but we're gonna have to go through steps, as the question rightly asks. We're gonna have to increase volume. Today we are at positive contribution margin. We are taking investments ahead of the revenue growth. The path to profitability is increasing volume, which in turn requires CapEx investments to drive the revenue growth. We fully expect that we turn EBITDA positive in the 2025 timeframe at revenue levels of NOK 4 to 5 billion, which is in line with our target and which we continue to de-risk.
Yeah. Thanks, Dilip. Then there's a long question from Bernhard Rotter here, but I'll try to summarize it that we have to comment on the withdrawal nomination early in Q2. The question is, in connection with the Q1 presentation, one could get the impression that it was more or less firm. Maybe you're as surprised as everyone else when the customer walked away. One, what happened? Two, why did you lose the contract? Three, what will you do to avoid situations like this in the future? And four, will the experience change your communication addressing non-firm contract leads? Morten.
Yeah. A lot of questions there, and I think we actually addressed this thoroughly in the last quarter as well. Let's try to address it. Number one, I think that, you know, these types of contracts that you do with OEM, the OEMs, they go through stages. You typically go through a lot of testing and a lot of work together with the OEM, sometimes for 12 to 18 months before you get to the nomination stage. After that, it's pretty clear, you know, that you have been chosen as a supplier.
There's a process where you go through to firm up a lot of things around it, like supply chain and other types of issues, you know, going through, agreeing on all the final terms and conditions, before you then are to the supply contract stage where you actually go and start delivering. It is a long process. Most of the time when you get to the, as I mentioned, when you get to the nomination stage, it's pretty firm, but sometimes things happen.
In this particular case, we had an issue with battery supply, given the state of the global supply chains, where the OEM required a firm solution for battery supply, unchanged all the way through the vehicle life and all of that secured now. We were not able to do that at the time, so the OEM chose to go with a different solution, which is technically inferior to the solution that we provided, but where they could supply or actually give a firm clarity on the supply all the way through the vehicle program. That is what happens. Now, is there a risk that you know this could happen to other contracts?
I would say that you can never take away the risk. Most of the time, once you get to the nomination stage, and once you get to LOI stages, you've come pretty far into the development and the cost also for the OEM to change to something else can typically be also significant. Once you're there, it's pretty firm, but you know, there are no guarantees.
Thank you, Morten Holum. Next question from Bernhard Rotter . I guess this is one for you as well, Morten Holum. How is the market developing in Asia and China, and the cooperation with CIMC Enric?
Yeah. The cooperation with CIMC Enric is going well. It has, compared to our original plans, I think a few years back, this has taken a bit more time, and it's been a bit slower than what we expected. Actually, if you look at the market in China, that's also, in terms of hydrogen adoption, developing a lot slower than what we had thought. We thought that China clearly would be the biggest market, and it would be the fastest market to adopt hydrogen. Actually, if you see what's happening now, it's slowing down a bit in China, and at the same time, you see a very strong acceleration in Europe and now, also in North America, which probably shifts the balance a bit.
Right now we are going full steam here in Europe on the distribution side, and then we continue to work also on preparing the facility in China and to take volume there when it eventually comes.
Thank you, Morten. There's a question for you, Dilip, from Thomas Dowling Næss. Have you kept gross margins above 30% despite the continued price increase in input costs?
Yeah. Good question. Just keep in mind that gross margin is a function of mix, and it can change quite a bit from quarter to quarter. We have the ability to pass on cost increases that we see to our customer. It is a little bit of a mix. You know, in certain cases, you can have certain customers that you pass on cost increases pretty quickly through, and it's very efficient. In some cases, you have to work through a process with the customer cooperatively and arrive at a price increase that works for both parties. At the same time, it's incumbent on us to also strive for further cost reduction so that we can still stay whole. It's a little balancing act, but you know, it's a little bit, right?
It's, there's a mix effect going on over here as well.
Thank you, Dilip. I guess this is potentially for you, Morten, from Elliott Jones . Can you provide an update on your process of uplisting to the main markets?
Yeah. It is still our clear target and ambition to uplist. We actually had also plans to do that in Q2, but met a not very friendly, I think, capital market in Q2. We took some extra time. We pushed it over the summer. We used the time well to sharpen the preparations and to assess all the different options. We will be targeting now to do that in the second half of the year.
Thank you, Morten. A follow-up question or an additional question from Elliot here. Could you please provide an update on your facility expansion and as well as your CapEx targets in the near term? Maybe Dilip, you wanna take that?
Sure. I think at the Capital Markets Day, we talked about a program of roughly NOK 750 million-NOK 800 million of net CapEx over the next two to three years. That gives us the capacity to achieve our revenue target of NOK 4 billion-NOK 5 billion in 2025. We also said that in terms of timing, CapEx in 2022 was likely to be maybe 30% to 40% of that target. We've done about NOK 100 million of CapEx year to date. I think we're pretty much on track to meet our overall target for 2022 CapEx here in the second half.
Yeah. Thank you. One more question here from Felix Varrock. Can you name some of the key risks on the supply side? Are there any areas where there is currently sourcing and procurement difficulties? I guess you can take that, Dilip.
It's a little bit all across the board. I don't think there's any one particular item that stands out as a key risk. It's sometimes the smallest little component, valve, et cetera, that can actually hold up final assembly. Yes, there is a supply shortage in certain cases, and we work proactively with our supply base. We have more frequent touch points with our suppliers, and in cases where we can, we're purchasing earlier in the cycle.
Mm.
Sort of pre-purchasing, you know, maybe sometimes 6 to 9 months in advance, much earlier than we would normally do.
Yeah. Thank you. I do think that was the last question for today. Thank you both, Morten and Dilip. That wraps up our session here today, and I would like to thank you all for listening to what we had to say today, and I wish you all a good day, and thank you from Oslo.