Good morning and welcome to HydrogenPro's first quarter presentation. Today I am accompanied by CFO Martin Holtet, who will present the financial result, and Odd-Arne Lorentsen, who will take you through our latest technology development and the way forward. HydrogenPro, for those who are watching us for the first time, is a focused company concentrating on high-pressure electrolyzer and gas separator skid, which is designed for renewable energy supply. We are addressing a selected large-scale industry segment, for instance, in balancing of grid and power to gas in our 240 MW ACES Project. Also, in the steel production in our 100 MW Salcos Project decarbonizing, as well as other related industry for refinery and ammonia as examples. We will give you more updates on our deliveries, but reminding that HydrogenPro is delivering to two of the largest projects in the world.
This puts us in the forefront position with operational projects, customers asking for references and installations when addressing a supplier. As our two projects are among the first ones to start operation, few will have the same reference and documented performance. Some of the highlights from the quarter. First, Andritz was placing an order for a 100 MW electrolyzer unit from HydrogenPro for a project in Germany. Here we are still awaiting the FID. There was awarded a $2.5 million purchase order, which now is in production. The new manufacturing line of advanced electrodes in Denmark started up. Investment is on time and below budget. We had a successful completion of our large-scale validation test, which confirmed the performance improvements. We are now in the installation and commissioning of ACES in 2025 this year and the Salcos project in 2026.
We had an equity injection by Andritz and Mitsubishi, which was completed in January this year, and Longi are being expected during the second quarter, pending the Chinese ODI approval process. Health and safety is being on top of our agenda, and it is satisfying to see the good trend continuing. The ACES project, as I mentioned, is now in commissioning, in cold commissioning, as we call it, and will successfully now start up during the next months and quarters, going into hot commissioning and full operation. On the Salcos delivery, we have delivered all components, and assembly has as well started. We will now start the production of Generation 3 electrodes and deliver it from Denmark. In Denmark, we have now produced the first electrodes at the new production line in Aarhus.
I'm glad we are on budget, and although we are still optimizing the production, we see that quality-wise we are having much more stable results and process control. Thereby, we'll achieve further improved performances on the electrodes. We are also studying the possibilities of increasing the capacity in the line based on improved efficiency without any major CapEx. Last quarter, we referred to, at that time, the upcoming full-scale validation test. Now, during March and April, we successfully completed the test. The purpose was a full-scale verification of the Generation 3 electrode, but also design improvements we have done to reduce, for instance, shunt currents. Half the stack was equipped with Generation 2 electrodes and half the stack with Generation 3. All results have been measured and verified with physical gas flow meters.
There were also other technical parameters important to the total performance, which has been tested and verified. The stack is manufactured on our European value chain setup. The next step is now to reduce the power consumption even further on Generation 3 electrodes. We are now starting the process to increase the pressure from 15 bar to 30 bar. Where other OEMs are making a point of going from atmospheric to pressurized, we are already delivering 50 bar and now targeting to be supplying 30 bar by next year. Why is this important? Many customers need high-pressure gases, and to pressurize later in the value chain adds cost, both on the investment side and in operating the compressors. Odd-Arne will come back to both the result of the test and the way forward on our technology roadmap. I will now give the word to Martin.
Thank you, Jarle. I will walk you through the Q1 2025 financials. During the first quarter, revenues came in at NOK 22 million. These are now mainly related to the ongoing deliveries on the Salcos project to Andritz. Gross margin in the quarter was 32%. This was negatively impacted by around NOK 8 million on the ACES project. When adjusting for this, the gross margin would be at 69% during the first quarter. Personnel expenses came in at NOK 39 million, a reduction of NOK 3 million versus the fourth quarter, while other OpEX was at NOK 18 million, which is a decrease of NOK 13 million versus the fourth quarter last year. The reduction is primarily driven by lower professional services costs, travel costs, and project-related costs. We end up with an EBITDA that came in at minus NOK 50 million. The EBIT was minus NOK 55 million.
As you can see, the net financials was minus NOK 10 million during the quarter. That is explained then by the appreciation of the Norwegian kroner versus some key currencies being dollars, euro, and Chinese yuan. That was an appreciation of the NOK during the first quarter. The net loss then came in at NOK 65 million. We are now ramping up manufacturing in Denmark, and the remaining share of the deliveries to Salcos will now be delivered from our factory in Aarhus, Denmark, mainly during the second half of this year. Let's look into the development in the liquidity position in the quarter. The cash balance at the start of the year was NOK 191 million, and it ended at NOK 165 million at the end of the first quarter. The changes in the cash position were as follows.
The EBITDA was at minus NOK 50 million, changes in networking capital of minus NOK 23 million. We invested NOK 22 million in the quarter. That was mainly then related to the production line in Denmark. The investment in Denmark is now completed on time and below budget. The remaining part of then the investments in Denmark will then be reflected now in the second quarter financials. The backlog increased from NOK 305 million to NOK 318 million, which now then includes then a purchase order which we were awarded during the first quarter of $2.5 million. This is a slide I have presented in connection with the fourth quarter numbers. The market is more challenging right now, and it's important to be conscious on spending. It has always been key for us to have a strict capital discipline and spend our funds wisely.
Given the slow market we are facing, we're now taking some measures to meet the situation. The cost savings program consists of four main elements: downsizing in Europe, reduced use of professional services and external consultants, reduced cost in Tianjin, and also in Shanghai. In total, we plan then to take out more than NOK 40 million of costs annually. The program has been initiated, and you already saw in the fourth quarter that the costs are coming down, and the impact will continue now to increase during this year. I will now give the word back to Jarle to give an update on the market.
Thank you. First of all, as I already mentioned, we're a focused company, and we are focusing on the partnership model. In addition to the capital side of investment that the partners are bringing, having large strategic partners, we are together offering a full delivery scope. Customers are normally asking for larger scale than just the electrolyzer equipment of the plant. A total EPC and often complete solutions, all the way from power in one end of the plant to dried and compressed gases in the other end, is requested. HydrogenPro is then focusing on our core delivery parts marked with the number one. With partners, it puts us then in a stronger position in addressing the market, but also together developing the technology. Here I refer to the full-scale test, as I mentioned earlier in my presentation.
HydrogenPro is focusing then developing and offering the best core technology and equipment. The partners provide then the full scope and also sharing the risk at levels HydrogenPro would not be able to do alone. Such partners are thereby giving us better bankability. Going up the value chain, we see that synergies can also be realized on the supply and manufacturing side together with the partners. We are now exploring these together with our new partner, Longi. Partners like Andritz and Mitsubishi are already preferred suppliers to customers. Other verticals looking into decarbonization and/or entering the hydrogen space. Although we are focusing on the large-scale market, we do see that several projects are beginning at a smaller scale. Do not forget our partner, JHK. Maybe not as large as the three other partners, but important in addressing the small application market.
PEM is often addressing smaller-scale projects based on solar and wind energy with load variations. Pressurized alkaline is equally responsive to load variation and fitted to a special containerized solution. JHK is now developing projects in Germany and Benelux. The standardization with prefabricated container solutions brings all the same benefits as PEM in small projects, but it is more cost-effective and eliminating all use of rare metals. Looking at the world map for IEA, we can see based on renewable energy prices where it's important, where it's most advantageous, excuse me, to produce hydrogen. This without taking any government incentive schemes into account. Beside China, parts of the U.S.A. and South America, Iberia, U.K., Scandinavia, Middle East, and India, as well as Australia, are recognized as attractive areas.
Some of the same regions have also developed clear political and governmental policies to excel the green hydrogen economy, with set ambitions of around a compounded annual growth of up to 50%. Yes, we do realize and see several what I would call negative articles regarding cancellations and postponements of hydrogen projects. Not all being negative. The hydrogen development train is rolling, although we would like to see it rolling faster. Looking at the map I showed based on attractiveness and where we have identified active project development, for HydrogenPro, our main focus in then Europe and USA is currently less transparent right now, although some of the projects, particularly in the Gulf area, are still progressing towards FID as they are communicating to us. We maintain our foothold. Furthermore, we are looking into India and watching the Middle East.
Based on end-user sectors, we have detected eight to nine large-scale target areas. Remember my first slide with the hard-to-abate sectors. You will recognize these in this slide as well. Also remember my slide on partnership for large-scale projects. Our three partners have already foothold with several companies within these sectors based on established business from other business areas like power and energy, decarbonization, steel, pulp and paper, and so on. Our pipeline remains stable. Yes, we see some projects falling out or delayed with longer horizon, but also new coming in, replacing those being pushed out in time. We are focusing on bringing forward the prioritized projects, thus increasing this pool. In total, we are therefore remaining at 12-13 megawatt of prioritized projects. To summarize, we are basing our market strategy on solid partnerships, enabling delivery power on large-scale projects globally.
HydrogenPro with partner developing standard small-scale container solution to address this part of the market. HydrogenPro is focusing on three, four large market regions. Our offering is suited for the most attractive segments that are hard to abate and increase the number of prioritized projects getting closer to FID. I am happy to hand over to Arne, who will take you through the technology development.
Thank you, Jarle. As we all know, the main purpose of green hydrogen is to feed into the green revolution that is taking place. It is inevitable that in order to succeed, we need to reduce cost. All the work we are doing on technology development is linked to how to reduce the cost. On one side, we want to reduce the cost of production of our products to make sure that it is an attractive product and, of course, reducing the cost of operating our equipment. On the other side, we see that there is a potential to reduce weight by utilizing novel design and new materials. Of course, production of our electrodes also has a significant cost, as everyone else that we are working on, especially with our catalyst coating. With better electrodes, we can produce hydrogen from electrolyzer with a lower total energy consumption.
On the opposite side, energy consumption is the highest cost the customers are seeing. That is why this is so important and will be an endless endeavor for everyone who's in this business. Last but not least, as Jarle said, higher pressure will make it possible for the customer to obtain a product with high pressure with a minimum cost. Basically, you can reduce this pressure for free in the electrolyzer. The electrolyzer contains a stack of more than 400 cells, and the main performance criteria is to obtain good electrodes. Again, that is our main target to improve further. What is making a new good electrode? It is two things. First and for all, you need to lower the voltage so that you can reduce the power consumption.
You have to make it stable and robust over time because degradation is inevitable for every electrode supplier. In this example, we have shown two graphs where the blue one is indicating the former electrode performances and the other one, the green one, is indicating the new one. In this example, we show that by lowering the overall voltage, we can produce more hydrogen for the same specific production as before. In this case, doubling the production, which is very novel and very attractive, of course, for the customer. As Jarle mentioned, we have done testing of full-scale electrolyzers with our newest technology in Porsgrunn, Norway. We ran the test for 500 hours. It was a full stack with both the former electrodes we had, so-called Gen 2, and a prototype of the new one, Gen 3.
This test was successfully run with good performances, and we could demonstrate also the new interior design changes we have made very effectively. The improvement we obtained was in the order of 12-14% compared to previous tests. To dig a little bit deeper into what I just told you, please have attention to the slide on the left. These blue lines, bars called Gen 2, are indicating the cell voltage on each individual cell in the stack. You can clearly see that the Gen 3 in the center has a much lower voltage, which again is directly linked to power consumption. However, you may see that there is some deviation between the different electrodes. That is linked to the fact that this is a prototype and it was not consistently made.
If you look at the picture to the right, it's a magnification of the electrodes as it looks like in the microscope. If you look carefully, you can see that on the left side picture, the coating that we have is not as good as the one to the right. The fact that we actually used the one to the left in this test, we clearly can state, and I will show you later on, that the results we think we will obtain in new deliveries will be based on these better electrodes and therefore with better performance. Going to what we will now do in the coming years, just to summarize, we will continue to develop and produce these full-sized net-shaped electrodes in Denmark. We will continue to focus on how to reduce the cost further.
By having ACES up and running later this year, we will gain very interesting and valuable results so we can obtain even better understanding of how to optimize the performance under different and varying operating conditions. Going further, we will develop this 30-bar solution to be offered to the customers. We will then also get Salcos up and running together with Andritz, giving another set of performance data under quite different conditions than in the ACES project. That will put us in a very novel position as a supplier, not only of good technology, but also with experience from production that not that many can actually live to or compare to. The last step is, of course, to launch a new set of electrodes and therefore a new product in the end with even better performances.
What we did now recently, we collected all the data from the lab in Aarhus, Denmark, and we said, okay, what is potentially the best performance we can obtain today? This graph illustrates the high one, Gen 2. Gen 2 is actually the former electrode performances. The lowest one is what we predict from our results, what could be the best performance. As it shows, it is a clear improvement obtained with several hundred millivolts on the cell voltage. Also, importantly to note, the stability of the electrodes is excellent. My last slide is just trying to summarize. Even though we are very cost-conscious, we realize that we need to invest a little bit more to do more efficient and at the end of the day, in total, spending less money for testing. In Denmark, we have increased the capacity on lab-scale testing.
It has so far been only atmospheric testing. Now we will also have testing at higher pressure. We will mimic the size of one of the cells we have in Porsgrunn so we can do more iteration in Denmark, speeding up the development for a lower cost. We will also take what we have in Porsgrunn and refurbish it, try to use as much as we have from before, but also expand the capacity of testing. We will also build a small-scale full-sized electrode. It will be much cheaper, much faster to build, and we'll mimic most of the industrial condition we can foresee before we go to the final stage, which is very expensive and quite risky if you haven't tested it properly in a smaller scale. That we will do together with our partners and customers. That concludes the presentation from HydrogenPro.
Now it's time for Q&A, so please join me on the stage, Jarle and Martin.
Yes, and welcome to the Q&A session. It seems like the presentation you just made must have been very informative and good related to the market and the company because there are just a few questions this time. I would like to start with the first one, and that is related to LONGi. What is the status on the equity investment of approximately NOK 70 million?
The application from Longi to the government to get all the approvals was submitted some months ago. It's difficult to control the process of the Chinese government as it's in most countries when it comes to governmental approvals. We do get very positive signals. The process is well underway, positive feedback, and we do expect it within the near future to be approved. We do not have an exact date, but I'm optimistic that it will be in the near future.
You touched upon the order of million US dollars, $2.5. Could you highlight a little bit related to which customer are we talking about, what kind of project, and what kind of location, please?
We'd have loved to do that, but based on a customer request, they have asked that for the special purpose, not to go into such details. We have to respect the customer.
You mentioned the H2Giga project in Denmark. When do you expect the European grant of EUR 16.5 million to materialize in your cash balance?
Yeah. Sure. I think with regards to the status of that project, we're now currently doing some preparations. Under the existing timeline, we are now looking into taking a potential investment decision in the first quarter next year. If we carry on with that, the plant will be up and running, say, a year or so after. The funds will, I call it, arrive in our bank account in the second half of 2027. It will be funded. These funds will then be made available to us after the plant is up and running.
Another question related to the finances. What is the reason for the negative financial results?
I think we have tried to explain that, I call it, during today's presentation. From a CFO perspective, one thing I would like to stress, and in which is sort of, I call it, a red line with regards to how we spend our funds, we take a very different approach to many of the other players in the Western Hemisphere. We have one core technology, we have a very lean setup, and we have also then a manufacturing hub in China. Our cash burn is significantly, significantly lower compared to our, I call it, other players in the electrolyzer industry in Europe and North America. While at the same time, we have the ability to deliver on large-scale projects, both with our manufacturing capacity and with the strong relations we have with our key partners.
Thank you for that. To the market, and you talked about the Middle East, India. Who is your partner for the increased focus in this area?
Yeah, these are markets we are now developing. We will, of course, announce that in due course. Until everything is under the roof, we remain, we do not announce that. We need to have all details in place. Yeah, we'll also here come back to that in due course.
To the last question of this Q&A. You talked about the project pipeline. Can you elaborate on what projects prioritized, as you mentioned in your presentation, means concerning probability for FID and on what timescale?
As we have mentioned before, we do not give guidance on the forecasted revenues. We see positive development. Some projects are announced by partners in FID, in detail engineering. They are working on several projects also not announced. I have to leave it with that and will not speculate or give any forecast on the exact timing other than we remain positive and see that these projects are moving steadily ahead. Yes, we want them to be much faster. With uncertainties around us in the world, we have seen in the last couple of months, whether it's trade tariffs or other political activities impacting the situation, we remain cautious about giving any indications on time and size.
Okay. It was during your answer, it popped up two more questions. I think we will take those and then we will put a line. I guess this is somewhat related to finances. What will be the expected investment levels going forward related to technology developments and new test center?
Will you elaborate on that? Yeah, sure. I think Odd-Arne went through sort of some key steps that we need. It is clear we need to invest in a test center to, I call it, decrease the frequency, etc. We have not provided specific guidance with regards to the investment level of that. I think it is fair to say it is not a considerable amount. Again, we are spending our funds wisely. It is key for us to keep the R&D activity at a high level to be, I call it, a front runner in this industry. That being said, we are also then looking into applying for R&D grants, which of course is a very, I call it, cost-competitive setup for us if we are able to get grants on our R&D activity. Historically, we have been and we will continue to do so as well going forward.
Maybe I could add, not to the cost side, but the importance of doing this development and testing. It is only with documented and tested results we are able to give necessary guarantees to the customer, giving them comfort to invest. The wisest way we can spend the money is to develop our technology to be in the forefront of competitiveness. We are on a good way on that. We see that on many fronts. We cannot stop. We cannot lean back. We have to make these investments in order to, among other, accelerate the pipeline that there were questions about.
The main ambition was actually to invest a bit, but overall do more for less. In total, over years, we will spend less on costly experiments, but obtain more results.
The last question, it's related to funding of the company. Would you say it's likely for another capital injection within the next year or two for HydrogenPro, given the market status?
First of all, of course, we are now in a situation where the market is relatively poor, as you can see. We will always be in a position where we want to develop the company, increase our R&D activity to make sure that we have the capabilities and the technology needed to then deliver on large-scale contracts. That requires some funding, yes. Of course, as we announced on 23rd of December last year, we raised NOK 140 million, whereof NOK 70 million has already arrived, and the remaining NOK 70 million from LONGi is expected now to also arrive to us very soon. With that, at least, I think we have solved a short-term cash need in a good manner. I want to remind you as well that we did that equity raise with a 22% premium of the share price.
I think we are now backed by, hopefully then soon, three large industrial owners, which see then a more long-term, have a more long-term horizon with regards to investments than we typically see with some of the more, I call it, more short-sighted financial investors on the stock market.
Thank you. This concludes the Q&A session for this time. Thank you again.
Thank you.