Good morning everyone. Welcome to HydrogenPRO quarter number 3 presentation and this is the first presentation we do after we get listed on the main stock list in Oslo. My name is Rickard Espessette and I'm here together with my CFO, Martin, and we will run through the slides today. First, we do the highlights, what's new in the last quarter. Number 1, The most exciting is the DG fuel, where off taker agreements are now signed.
And for HydrogenPRO, it will be a totally change of the company. This project, it's about 10 times bigger for us compared to the other big project we have in the U. S. And That's mostly because our scope of supply will also be bigger. And We expect the final investment decision in 2023, so very exciting.
The second, I think we like to be clear on, we have been chosen to the GEG fuel and we have done the feasibility, we have done the pre feed, the total feed is not completed, so the final investment decision is not made and we will a decision is not made. And we will never take any job into our order backlog until we have the final investment decision, just so we are very clear on this. The DG fuel in itself, It's approximately USD 500,000,000 for hydrogen prone. The second highlight, it's the validation of the world's largest electrolyzer. The electrolyzer is produced, transport is completed, installation is completed And the commissioning now, it's at the very, very, very last day.
And we have been putting electricity, that means power on the electrolyzer, and we have been producing gas. So everything so far is as expected. The test will run until the year end, and then we will have the final results and review them. So, Then we jump over to the new electrolyzer technology. And we have also here completed our first one 1,000 hour run.
And the first results we see, it's a significant efficiency improvement and I will come back to the details further on in the presentation. And also, our belief in North America, in particularly in USA, is very strong since the biggest activities and the biggest leads we have, it's in the U. S. So we have now established a new office in Boston and we will quickly soon move in and start to employ people there. So that is the latest news.
I will hand everything over to Martin about the business update and some financials. Martin, please.
Thanks a lot, Richard. Thanks a lot. So now I will walk you through the business update for the Q3 this year. So as Richard presented, the DG FUELS Luciana project have now signed offtake agreements covering more than 90% of the total capacity with the Delta Airlines and with Air France KLM. We are currently now validating Our technology, the world's largest electrolyzer, expect them to be commissioned this week.
Our Q3 financials, we generated SEK14,600,000 of revenues, which is 87% hire compared to the 2nd quarter. We have a backlog at the end of Q3 of SEK849 1,000,000 and the active sales pipeline stood at 17 gigawatts, which constitutes of 115 projects. And it's my pleasure as the CFO that we are now on the main list on Oslo Stock Exchange. We had the first trading date on the 3rd October. Our manufacturing facility in Tianjin in China has been further upgraded.
And we will important to say in the last bullet here is that we will start to recognize revenues from the large order in the U. S. From the Q4. And that leads me into the financials. So in the Q3, we generated revenues of CHF 14,600,000.
The majority of those revenues are linked to the world's largest electrolyzer, which now is being commissioned at Heidegger, while the adjusted EBITDA ended at a minus 27,400,000 during the quarter. And it's important to say we are now scaling up the business to deliver on the awarded purchase orders in order to execute on those and we will then start to recognize revenues from the next quarter. We have now as of 1st November 100 employees in the company. In the Q3, we had investments of SEK20.2 million which is also mainly related to the facility in China. The cash balance at the end of the third quarter stood at 342,800,000 And if you look in the middle of the graph on the lower part, You can see the changes in the cash balance during the quarter.
So starting then from €435,300,000 at end of Q2, The adjusted EBITDA came in at minus $27,400,000 We invested $20,200,000 and the remaining part of $44,900,000 in cash reduction is mainly related to prepayment of steel to sub suppliers in China. And that also gives us a hedge in terms of prices for the large order. And of course, then more visibility on the margin. The backlog stood at DKK849,000,000 compared to DKK794,000,000 in Q2. The major change in the backlog is We have now upgraded it in order to meet Hydrogen Pro's standards and we are now producing the order to Japan which was awarded on the 19th April this year.
And now we are scaling up. We have increased activity level and we are now producing at full scale capacity in the Q4. So out of the DKK20.2 million investments in Q3, DKK17 million is related to the upgrade of the facility in Tianjin. Revenue recognition. So our orders are follows the percentage of completion principle in terms of revenue recognition and thereby also the costs related to the project.
So as mentioned, the a large order with a contract value above $50,000,000 We will start to recognize revenues on that project now in the Q4. And as we have full capacity in China, we will then further increase the revenue recognition in Q1 and Q2. And by end of Q3, The plan is that 90% of the total delivery will be recognized in our P and L. In the Q2 presentation, we guided that we plan to invest DKK45 1,000,000 in the facility in China. In this quarter, we spent DKK17 1,000,000 meaning that there is €20,000,000 to €30,000,000 left to spend to have that fully upgraded to meet the international standards.
We are also then of course now building up systems on organization for the delivery. We are validating the world's largest electrolyzer on our facility at Harjoja. And we In addition to that we're establishing an office in the US, we are also planning to establish an office in Germany. But that said, capital discipline is of vital importance for us and we have now made the major steps in terms of deliver for the large orders the next few quarters. This is an important slide.
This shows how we have grown this company, transformed this company during the last 2 years. We were listed on the Euronext Growth Market in October 2020 where we're kind of a distributor. But today we are a technology owner, we have owned IP rights and we are an original equipment manufacturer. We 2 years ago, we didn't have any manufacturing capacity. Today, we have 300 Megawatts of manufacturing capacity.
The backlog stood at €15,000,000 while it's at €849,000,000 as of end of Q3. The active sales pipeline has grown from 1.5 to 17 gigawatts, meaning more than 10 times growth. The number of employees has grown from 10 to now 100 people and we are now on the main list on the Stock Exchange. So along several dimensions here, we have grown more than 10 times. And if you recall the DG Fuels order that is also 10 times larger than our current large order with Mitsubishi Power.
So if there's one thing to recall from today's presentation, it's 10 times, 10 times growth. So with that, back to you Richard to do the technology update.
Thank you, Martin. Thank you. Yeah 10 times. That is a pretty good acceleration of the company. I also like to look back a little bit in the history.
Electrolyzers are not new. Michael Faraday published his law of electrolyzers in 1834 and the very, very first electrolyzers was what we call the monopoly system. But then later on in the 1920s to our know how it was the first them were built. And later, it was developed as 2nd generation high pressure because the first version was atmospheric units, the second generation is the high pressure alkaline systems. There was development in the 1960s, so pretty long time ago.
And now I like to be just clear on this. The 2nd generation, it's a good electrolyzer. And the 2nd generation electrolyzer, That is what we will deliver for the large project to Mitsubishi Power in USA. We are working now on the 3rd generation and the biggest step from the 2nd to the 3rd generation. It is the total need of power inside the electrolyzer to produce gas will be drastically reduced.
So just so we have the terms, 1st, 2nd, 3rd generation. And when we look at an electrolyzer plant, we need a lot of electricity. So On the left hand side now you can see there is a circuit breaker, there is a current transformer, there is a rectifier. This is what makes the DC power goes into the electrolyzer and the DC power is the one splitting the water into hydrogen and oxygen. And then in the electrolyzer, we have gases and liquids coming out Then they go into a gas separator unit.
And then we can put in a buffer tank if needed because some customers, they also need a gas purification unit. So all these things, which is inside the red dashed line. This is what we are supplying and that's what we are producing in our own factory. Everything on the left with power supply, this is something we buy from others. And now, since this chapter is about technology, what do we do inside HydrogenPRO to improve the technology, to improve the efficiency.
We are working on 3 things. We are working on the electrolyzer itself And what we are doing there, we are optimizing the anodes and the cathodes. So that's one job. The second thing we are working on is the gas separator unit. So the more streamlined and efficient we can have it, the better it is.
And one of the things we can do when we have the new electrodes, The losses will be less. So it means the heating will be less and it means also we will require less cooling water supply. And Then on the gas purification system, there are many producer of gas purification systems today And some of them have 100 units in and 97 or 8 units out. Some others, again, are able to put in 100 and get out 100. So that's what we are working on.
This is for us, it's important to improve the not only the efficiency of the electrolyzer itself, but to improve the efficiency of the whole plant because The final bill the owner of the plant will get, he need to also pay for all electricity we use for cooling water, for running pumps and for other also things, not only for the DC power that we got into the electrolyzer. So what we are doing now, we are making a standard train with 2 electrolyzers, 1 gas separator and 1 purifier and the purifier should be 2,200 units, but we like to design it for 30 bars because today's situation is we have 15 bars, but we are working on the next generation already now to increase the pressure. So that means we should have a complete train for 2,200 cubic meter and in the future be prepared for 30 bars. And then On the second line, we are working also on something else. There is a formula given there, which says V, that means how much gas you get out, it's equal to a constant, multiply by the number of cells and multiply by the number of kiloamps DC we run into the system.
And at the very end it also multiplies a C. And the new electrolyzer body is working on eliminating this shunt current. And this shunt current, that is what gives this letter Z because when you put the DC into an electrolyzer, the DC power that goes to the cathode produce gas. But there is a small amount of electricity that sneaks around and don't produce gas. So this is what we are working on and the target is to have Z equals 1.
That means The Schunkhaueren will totally be gone. We have already built smaller units like this size in our lab and we have started testing. And after 3 different designs, we have achieved Z2 equals 1. It will still take 2 to 3 years before the product is on the market. We need to do a lot more testing, but we are on the right track.
And then the last little point, it's the cooling system. When you combine the higher efficiency with less losses. You need less cooling water, which again allows us to increase the temperature on the cooling water supply because most Producers today, they require a cooling water into the electrolysis system of 30 degrees Centigrade. And that means if you sell your system in a very warm area, you normally have maybe 40 degree outdoor. And how to cool the water down to 30 degree when it's in a 40 degree atmosphere, then you need some additional power.
You need a shield. And we can avoid that by redesigning the new cooling water system together with the 3rd generation of electrodes, we will be able to run up to 50 degrees on the incoming cooling water, which again can make us able to make a totally closed loop, just like a Radiator in the car. So you don't lose any water at all. And you use a lot less energy also to cool the water down. So This is another part not only physically on the electrolyzer body, but when we're looking at the whole system as 1.
Okay. Many people have been waiting for our new electrode test and before I start to give some numbers, I like just be clear. A small electrolyzer, a medium sized electrolyzer and a big electrolyzer, they have a little bit different efficiency. The most efficient unit is the big one. And then point number 2, I like to use the example driving car.
If you drive 100 kilometer on the motorway, you have a certain fuel consumption in your car. If you double the speed to 200 kilometer per hour, the fuel consumption goes up. And this is the same in the electrolyzer. If you double the current density, the efficiency is not so good. The results we have done and the test we have completed now with the 1st run, it's done at double current density.
And the very, very interesting and good thing is that In this test, we measured about 7.5 percentage less need for energy when we run at double current density compared to the old solution at normal or standard current density. So now we are ready to repeat the same procedure and then next this time now, we will also run at normal current density in the test electrolyzer, so it's easier for us to compare apples to apples. But the reason for us to run double current density is that in areas where the electricity cost is very low. It would be a good solution to have a double current density electrolyzer because it will save the end users on the installation. You basically just need to buy half the number of electrolyzers.
So we are very, very, very happy so far. We are continuing the testing and I hope in 1 or 2 more quarters we can give you some more numbers. Our strategy is to work on technology. We have the focus on the high pressure alkaline electrolyzer and we have the pressure on the next generation electrodes technology. And we have a focus on electrolyzers that do not require any noble metals.
We know the global footprint is important. And our target is to have more than 1 gigawatt production capacity within next year. Scalability for us is also important. Today, we have a train with the breaker, transformer, rectifier, 2 electrolyzers in parallel, 1 gas separator and so on. This is a train And this is an 11 megawatt train.
So if a customer need 100 megawatt or 200 megawatt or 500 megawatt, we just copy and paste, copy and paste, then copy and paste. And each train. It's living their own life. It doesn't matter what the neighbor are doing. You can still stop 1 unit, take it out for service and the remaining units are instilled in full operation.
And then we also are focusing on in the long term, the lifecycle partnership, because when you have delivered 1 or 2 or 100 or 500 electrolyzers, sooner or later they need some service. They need to be refurbished, they need to be opened, we need to put new things in. And when we do that, we make Sure, all the new technology, all the new electrodes, etcetera, have the same dimensions. So you can upgrade your electrolyzer to be an even better unit when you do the big overhaul in the future. Again, this is just a comparison.
It's what I have learned during my career in electrolyzer business. We have been working with PEM, a good unit. We have been working with alkaline atmospheric pressure. We have been working with alkaline high pressure the last 10 years. And As you can see, the one we have today is in the column number 3.
This is what we call the 2nd generation. And the advantage for the 2nd generation, it's basically in my eyes personally, it is You do not need any noble metals. That's number 1. And It is suitable for the renewable energy input exactly the same way as the perm electrolyzer. Some people still have the thinking that you need to have a PEM electrolyzer to be able to connect to renewable energy sources where wind, solar, etcetera, vary the input.
That is not true. The PEM and alkaline high pressure units have the same dynamics. So this is what we have been doing today and we have been winning the big project in America by our 2nd generation alkaline high pressure electrolyzer. On the very, very right hand side, you are looking at what we call the 3rd generation, which is even more efficient then the 2nd generation. We know People are wondering, what's the competition from China?
Some people say we should maybe block Europe from getting products from China because they are so cheap. Maybe they are right. But what we can do by building up now in Europe and building up in the North American market with factories, with the supply chain, we can pick the best from all continents and put them together. That will give us a superior technology. It will give us a local present to end users and it will optimize our cost.
This is about the lifecycle model. 10 years and we recommend to open your electrolyzer. After 10 more years, we recommend to open the electrolyzer for the 2nd time. And then the electrolyzer have been in use for 30 years, which we have as a design life. But it means after 10 years, after 20 years, suddenly the turnover starts to double because all the old customers come back again and ask for the upgrade.
So what I will say here is that we are a manufacturer. We are producing the equipment, we are selling the equipment. We are not owning the equipment, we are not operating the equipment, we are not selling gas. Our customers are typically aviation fuel, refineries, power, etcetera, etcetera. Everyone can use hydrogen in one or another way.
And then the most exciting that happened in the Q3 was that our partner DG Fuel signed the off takers agreement. So now It's opening a new door to a new world. For the first, this contract will be for us in Hydrogen Pro 10 times bigger than the big contract we already signed and are producing on for the Mitsubishi be ship over system in North America. And it's obvious, when Delta Airlines Air France, they start to run on sustainable aviation fuel. What will all the others do?
They need to follow. And we see this as a fantastic opening and we see this fuel which can be put directly into the fuel tanks in the aircraft today as a very, very, very, very short term trigger to increase business. We know that the big airplane manufacturer. They are also thinking about in the future to run on hydrogen alone, but that will take some more decades. So this is a very good solution and we are excited about how this will develop.
A summary, if I should just use one word for the whole summary, I will say we are very, very, very happy these days. Things are going our way on offtaker agreements, on the backlog and on the technology, and we are working on the global expansion. And this is for us. It's a fantastic world. We are gearing up with new people all the time and we are really investing the money we have got from the investor very, very carefully, but we think strategic and global.
That's my little summary. Martin, do you come back again if there is some questions now from the audience?
Sure.
Yes. Yes, we have a few questions here. Could you please provide a comparison related to Base electrolyzer technology, deliveries and experience with your competitors such as Nell, McPhy and others.
Well, there is a lot of different solutions out there. Basically, you have the 2 blocks, either is PEN or is alkaline. And alkaline again is divided into 2 parts. And all of them have been on the market for a long time. So I will say that we just like to talk about our product and what we like to say very clearly, the technology we have either if it's produced by a competitor, which is Exactly the same base technology have been delivered, I think, more than 2,000 plants worldwide so far.
So we feel very confident it was working. And we are just waiting now to kick off the 3rd generation. That will be us alone, who have the 3rd generation. It will all be produced in Denmark in our new electrode factory there.
Very well. What can you say regarding DG Fuels funding? What is the process and time line on that?
One of the key stones here, it's the Department of Energy in the U. S, where DG Fuel is working directly with them. And we in Heide Den Pro, we are not involved in that process. We are just a partner with DG Fuel and we are a chosen supplier for the project. We are not the one responsible for the financing.
Because the Department of Energy will then provide a guarantee on debt and it will then the plant will then be approximately 60% debt funded under the remaining equity and vendor supply funding.
Okay. You're opening offices in the U. S. And possibly in Germany, scaling up And begin building working capital to deliver on orders. How well are you funded to execute on this?
Do you need to raise equity?
Yes. So even though we are a growth company, we have an order book. And we, As explained in the financial section, we will start to recognize revenues now in the Q4 on the large contract. So you will see a significant step up now going forward. But on the cash situation, we will also then have payment milestones, which are connected to the manufacturing process.
So when we deliver, we will also receive tons. And I can also add that if you look into then our Q3 financials and for previous quarter as well, we have not generated profits because this is all have all been about taking up to the next level in order on the large purchase orders. But from now on, we will, of course, have we have a margin on the large order, and we are in a much, much better state, so to say, to be able to generate margins on the group level as well. But we're not providing any specific guidance beyond that.
Okay. Do you have any updates to give on the
what we are doing. We are planning now 500 Megawatt in the U. S. And 500 Megawatt in Europe. And we are in discussions with very positive partners.
And we will do this as one team together with the partners.
Yes. Do FEED study have cost of goods sold or our cost of goods sold only applicable to electrolyzer sales?
Yes, by cost of goods sold, I expect you're going to refer to raw materials and consumables used and now for feed. So this that is mainly our Braille Power that's used. So that is then the mainly payroll expenses, which are expensed for the FEED studies. And as I mentioned, We were awarded now a FEED study this quarter, which now our Clever engineers are working on at our office in Postkoy.
Very well. You reported revenues of NOK 14,500,000 and cost of goods sold of NOK 11,500,000. Is that a range of gross margin we can expect in the future?
No. Because we have now Again, we have validated our technology and getting sort of we have got paid actually with Mitsubishi running a joint validation program with Mitsubishi. But now going forward, which is likely to be even higher margins on your projects. But again, this, of course, boils down to how competitive is this market. But if I might add on that as well, what we start to see now from the clients is that they are more aware of the demand that we actually are able to have the capacity available to meet the clients' demands.
So that's a new trend. It's more focused on the ability to actually deliver on the large
Yes. And to you Richard, will you Richard continue as CEO for the next years or are you searching for a new CEO? And if yes, When do you expect the new CEO to start?
Okay. Yeah, I was the CEO the 1st 7 years. And when we entered the stock market, I felt other people were better than me to do it because I'm a technical guy and I think I can contribute best inside the HydrogenPRO to work on innovation, R and D and so on. And yes, we are looking for a new CEO. We are talking to people and I don't like to say exactly when people will accept and when they will start, but this process is ongoing.
Okay. What has to happen that you get the $500,000,000 project from DG Fuels? How big has the project to become.
Well, if we get the SEK 500,000,000 project next year, We are now preparing for the project. That's why we have established America office and that's why we are talking to good partners to build up production capacity and so on. And the first project in Louisiana will for HydrogenPRO be in the range of $500,000,000 plus And if you do that smoothly together with DG fuel, similar projects will also pop up. So it will be a huge future turnover for our company and we need to have a strong backbone to be able to not only do the engineering and the fabrication and the commissioning, but we also need to be a little bit strong on the financial side.
And again, that equates then to the $500,000,000 that equates to electrolyzer capacity of at least 8 40 megawatts.
Will you announce your U. S. Plant in 2022 or would it rather be in 2023?
I think realistically we will do in 2023.
Okay. You now say that you will have more than 1 gigabyte capacity next year. Is that a reduction from the 1.3 gigabyte total capacity you have targeted previously?
Well, we are targeting the 0.5 gigawatt in America, 0.5 gigawatt in Europe, but we will still have the 300 megawatt in China. And what we think in the beginning, it will be a supply chain cooperation to get the best solutions from Europe, America and China with regards to cost, quality, etcetera. But in the longer end, we see the China factory might also be increased to serve the internal market in China.
So the short answer is no, no reduction in the target.
Okay. What percentage The $500,000,000 will be added for life cycle services?
Nothing. The 500,000,000 dollars is for the project itself. The life cycle agreement, it's not negotiated yet.
Very well. Is it likely or possible that additional not yet published or awarded
Yes. So we have we will have then manufacturing capacity at our site now in Tianjin when we have completed the fabrication to for the large U. S. Order. And of course, If the size is not too large, we will be able then to fabricate that by in the last part of next year.
And of course, then recognize that fully if you are able to deliver it with our capacity and production capacity in China.
Will you raise further money for your next factories or will you build them with the money from partners?
Well, it might be a combination. We will see what is the final agreements we end out with.
Okay. Last question here. Are you producing electrodes in Europe or are you producing them in China and bringing them to an assembly line in Norway? What is your European footprint? Thanks.
The new 3rd generation electrodes, they are produced in Denmark.
That was the last question. Thank you.
Okay. Thank you all. Wish you a nice day.