Good morning, everybody, and welcome to HydrogenPro's Q1 2023 presentation and webcast. My name is Tarjei Johansen. I am the CEO here at HydrogenPro, and I'm here today with Martin Holtet, our CFO. We're very excited to be presenting the Q1 results for everybody today. HydrogenPro, we are a global provider of market-leading large-scale green hydrogen technology and systems. We have what is today the world's largest electrolyzer. We have this installed at our tech center in Herøya Industripark, down in Porsgrunn. We are also working on game-changing electrode technology that combined with the world's largest electrolyzer, we believe that we have the market-leading levelized cost of hydrogen for our clients. Achievements and major developments during the quarter, we reported revenues of NOK 83 million.
That is up 230% from the fourth quarter of last year. We are building our global manufacturing capacity across three continents. Our partner DG Fuels are getting ready to start the FEL3 study in June and expect an FID in early 2024. We are well underway with testing of our third generation electrode technology. We are expecting to have those testing finalized in July this year. We are very excited about our lab tests of our fourth generation electrolyzers that are showing a, an even higher efficiency than what we have today. Our global expansion is well underway. We announced a few weeks ago our plans to set up manufacturing in North America.
In the state of Texas, we are planning 500 MW worth of manufacturing capacity there with the option to grow that to several gigawatts. We have also announced our strategic partnership in Europe with ANDRITZ, a global EPC provider out of Austria for assembly and manufacturing to the European market. In Asia, in our factory in China, we are currently working on upgrading that from 300 MW worth of capacity to 500 MW. We are targeting 5 GW of global manufacturing capacity in the next five years. We have gone through a lean exercise in our factory in Tianjin in China, gone through some debottlenecking and lean optimization exercises.
Combine that with a minor investment of roughly NOK 5 million, we are going to be able to increase the capacity from that factory from 300 MW to 500 MW within the next several months. We're running close to 24/7 operations out of our Tianjin factory. Our partnership with ANDRITZ, we believe we will be able to take a leading position in Europe. We are providing best-in-class green hydrogen technology and systems. We have industry-leading research and development and extensive engineering and project expertise. We combine that with ANDRITZ's capabilities in unmatched global competence within manufacturing and assembly. This will enable us to speed up our offering to the European market.
There's very strong synergies between our two companies that will enable a successful partnership, and this will give us an asset-light setup with the ability to gain a very large market share. As we announced our plans to go into the U.S. to set up manufacturing in Texas, we chose Texas based on several strategic criteria. We ranked all the states in the U.S., decided that Texas is the place where we will set up our brownfield manufacturing site. What we mean by brownfield is that we will take over excuse me, an existing facility, and we will build that out by introducing excuse me. I'm losing my voice here. My apologies for this. I completely lost my voice there for a second.
I've been struggling with this for a few weeks, but we will, we will try to make it through this. I wanna talk about China for a second. We are fully operational with our manufacturing in China, and we are progressing with contract deliveries. We have delivered the first electrolyzer from the upgraded manufacturing site in Tianjin. Manufacturing is running at full capacity of 300 MW as of right now, and the capacity is to be upgraded, like I said, to 500 MW by the end of the second quarter of 2023. We are manufacturing currently ongoing for the ACES project, the world's largest green hydrogen energy hub, and we are delivering, as we have communicated before, 220 MW worth of electrolyzers to this project.
Our partner DG Fuels have announced that they plan to start the FEL3 study in June. We are the exclusive supplier of roughly 800 MW worth of electrolyzers for the sustainable aviation fuels plant in Louisiana. DG Fuels have already sold out 100% of the expected initial production at this site. They have secured offtake agreements with Air France, KLM, Delta, as well as GE. The contract value for HydrogenPro here is roughly 10 x the size of the contract that we have with Mitsubishi. We will be recognizing roughly $500 million worth of revenue here, excluding life cycle services. FID is expected in early 2024.
The FEL3 study is due to start, like I said, in June. We are very excited about what this contract has as a potential for us. I'll hand it over now to our CFO, Martin, to talk you through the financials and then I'll be back with a technology update and a wrap-up.
Thank you, Tarjei. Our strategic vision is to become Number 1 in this industry. That goes for technology, it goes for operations, global presence, but not the least, financials. I think now with the Q1 numbers that we show today, we are on the path to demonstrate that. Our revenues came in at NOK 83 million during the quarter, which is 230% higher compared to the fourth quarter last year. Our gross profit ended at NOK 13 million. That equates to a 15% gross margin. What we have made an adjustment in order to better reflect the gross margin on the ACES project . If we deduct the R&D expenses related to the validation of the electrolyzer at Herøya.
which was NOK 6 million during the quarter, the adjusted gross margin ended at 22.9%. This then is a better representative in terms of the actual margin and on the ACES project . Adjusted EBITDA came in at minus NOK 16 million compared to minus NOK 34 million in fourth quarter. The backlog ended at NOK 648 million as of end of this quarter. Looking at our cash position, the quarter ended with NOK 208 million of available cash, down from NOK 257 million at the end of the year, meaning end of 2022. We invested NOK 6 million during the quarter and that was mainly related then to some upgrades in our site in Tianjin in China.
Looking at the right-hand side, you will see then the breakdown of the changes in the cash position during the quarter. We started the quarter with NOK 257, so minus NOK 16 million of adjusted EBITDA, minus final half of investments, and then minus NOK 28 million is the residual which is then mainly consisting of changes in net working capital during the quarter. How will then the rest of 2023 look like? First of all, we do not provide specific financial guiding. We want to shed some light on the P&L impact on the ACES project in the rest of 2023. The rest of this year will be heavily influenced by that project.
The revenues on that project are recognized in line with the percentage of completion principle, IFRS 15. We will now see a step up in revenue recognition as the manufacturing activity in Tianjin continue to increase. We reiterate that we plan to recognize 90% of the contract revenues during 2023, now with a healthy project margin. We believe we have a very good strategic position in order to generate industry-leading returns. We have a focused capital deployment plan consisting of four key elements. Number 1 being global manufacturing and assembly capacity. What we will, what is on our main focus area is to expand in the U.S. and also then do the expansion in China. Number 2 on the capital deployment plan is technology and innovation frontrunner.
The main use now of funds is related then to the testing of the third generation technology. Number 3, scaling up the organization. We will now continue to build up the U.S. organization. That's the first and foremost most important now on the organizational side. The last one is that there is typically some working capital requirements on execution of the large scale orders. That's what we now typically see then on the ACES project delivery. With that, back to you, Tarjei.
Thank you, Martin. What we see in green hydrogen today is a trend that everything is really going all about large scale. This plays in perfectly with our strategy. We are a large scale provider of green hydrogen systems. If we look at the installed electrolyzer capacity in the world today, it's roughly at 1 GW. Now compare that with globally announced green hydrogen projects between now and 2030. There's roughly 345 GW that have been announced. Which is still only 10% of what we need to have installed by 2050 in order to reach the IEA's Net Zero scenario. What that means for us and why that has us so excited is because there will be a lot of need for our equipment going forward.
We also see that the size of the projects that are being announced are also getting larger and larger. All of this, like I said, plays in perfectly with our strategy. high pressure alkaline, which is what we specialize in, is the best-suited green hydrogen technology for large scale users. It is suitable for renewable energy input, which means it's not necessary to connect to the grid. It's easily scalable with no use of noble material, rare earth elements or PFAS. There's a medium cooling need. There's no need for a compressor. The hydrogen is delivered at a minimum of 15 bars, and it's a well-proven technology that has been around for decades. We believe we are taking the lead role in the hydrogen technology revolution, and we really believe there's big rooms for improvement.
This is a technology that has been around for almost 100 years with very little advancements in terms of efficiency. With our third-generation high-pressure alkaline system, which is based on the next generation of electrode technology, we're taking a huge leap forward in terms of electrolyzer efficiency and overall improvement in the balance of plant. These efficiency gains and balance of plant improvements will have a huge impact on the overall OpEx spend for running a green hydrogen plant. We've been developing our third-generation electrodes now for the past 10 years. We're very happy to say that we are getting close to final testing, and we expect to have these on the market by the end of this year. We currently have the world's largest electrolyzer. The core technology here is based on the second-generation technology, which is about 60 years old.
Our standard size electrolyzer system is a 5.5 MW single stack module. It is modular-based to very easily meet the requirements of the customers for megawatt up to gigawatt-size projects. Hydrogen and oxygen are delivered at 15 bars, and we have a market-leading efficiency of roughly 80%. We are delivering big stuff, creating big impact. With our next Generation 3 electrode technology, like I said, we've been working on this for about 10 years, we see significant efficiency improvements. We see the ability to produce the same amount of hydrogen with 14% less electricity. Also with a 75% reduction in water cooling needs. We did the first container test of these electrodes last fall, and we're expecting to finalize the testing in July this year.
We are ready to begin manufacturing. We have 100 MW worth of electrode manufacturing capacity in Denmark at our R&D facility there. That one can easily be scaled to 400 MW per year. It is plug and play, everything we do. These new-generation electrodes can be installed in our second-generation electrolyzers without any retrofitting. We are working on our fourth-generation electrolyzer. Now, this will be a complete redesign of the electrolyzer body. We're already a couple of years in on this research and we have a test electrolyzer that has been running in the lab with some very encouraging results. This, like I said, will be a complete redesign of the electrolyzer body, but also plug and play with using the third-generation electrodes.
We presented this one in some various forms and fashions before. This is just to illustrate our current offering, what we are about to bring to the market, then the fourth generation we estimate we should have that ready around 2026 or thereabout. They're all high pressure, so you get high pressure hydrogen and oxygen out of all three of these, second , third and fourth generation. The electrolyzer efficiency on our current second generation unit, we say is medium. With the third generation efficiency being high, then the fourth generation even higher than that. We're very excited about all the technology developments that we are doing. These are all suitable for renewable energy input and cooling water needs.
We see also as we, as we do these modifications, as we do these technology updates. We're showing a less and less need for cooling water, obviously a great benefit in areas where water resources are scarce. We are on track to deliver on our 2023 key priorities. Complete product delivery for the ACES project, that is progressing as per plan. We are expanding our footprint, setting up manufacturing in Texas, our partnership with ANDRITZ in Europe. Order backlog is increasing. We have several projects that are getting closer to final investment decisions, and we are engaged in multiple FEED studies. One thing to keep in mind, we have a strategy of going large scale, so you will not see us in the competition for smaller scale projects, which is important to keep in mind. The large scale contracts are coming.
We are definitely confident about that. It's just that they take some time. We are well on our way to securing a gigawatt worth of manufacturing capacity with the upgrade of the China factory now to 500 MW, as well as our 500 MW facility in Texas. And then final verification of the third generation electrode. We're starting the final 1,000-hour test this month, and it'll be concluded, like I said, in July. That will conclude our presentation. I'm sorry about the technical glitch we had halfway through. The voice is back. Martin Holtet and I will now take your questions.
Thank you. To you that's watching, remember that you can post your questions below the webcast box. First question, what can you say about other FEED projects you are working on and order probability from players other than Mitsubishi and DG Fuels?
Yeah. There are several, like I said, that we can't disclose the name of any of them. There are several promising studies that we are doing right now. Like I said, we're very excited about our backlog. We're very confident that the orders will come.
Can you tell us more about the types of grants you can apply for and receive for the Texas factory?
Interesting about Texas is not only on the federal level are there grants and incentives that we can apply for. We have an application in with what is called the Bipartisan Infrastructure Law from the federal level. There are several incentive opportunities in the state of Texas itself as well as down to the county and local levels in different Texas counties. We are working through all of this right now, and we are compiling a list of initiatives that we are eligible for and that we can make applications for.
Thank you. For you, Martin, can you provide more information on the financing of the Texas facility?
Yeah. What we have stated is that, we're looking then to invest $30 million-$50 million in the Texas facility, depending on the scope. Of course, our most, I would say, most important goal financially as well is to grow this company, and we're now looking into various funding alternatives in order to achieve that. That goes with equity, potentially with debt. What I can tell you is that sort of given where we are in sort of the life cycle, of sort of our story, we will not burden the balance sheet with too much debt, at the moment.
Thanks. Is it correct that the timeline for the DG Fuels project is delayed another time? Last time you said in 2023. Do you have any insights to why they are delaying?
That's correct. I mean, we have been communicated that we expected the FEL3 to be completed by the end of this year with a final investment decision shortly thereafter. There are some delays now from that DG Fuels have seen. They've worked through those delays, those issues, and like I said, the FEL3 is now going to start in June.
What level of revenue will you need before being EBITDA positive on a group level with expansions included?
We do not provide specific guidance. We have research analysts covering us. That's their job to provide those type of estimates. I advise you to enter into discussions with the research analysts. I think that said, we are, I would say, in a very, very favorable position. We have a very lean and cost competitive setup. I think we will be among the first players in this industry to reach profitable levels.
What is the rationale in looking at the fourth generation electrolyzers before you have completed tests on the third generation and before you have delivered the second generation electrolyzers to ACES?
That's a great question, but it's always you have to have several things running in parallel. Like I said, the second generation is a well-proven technology. It's been around for 60 years. Third generation is basically an upgrade of the inside of the electrolyzer, not of the electrolyzer design itself. Then the fourth generation, like I said, is a complete redesign of the body of the electrolyzer, but then with the plug-and-play to use the third generation electrode technology. This is a continuous loop for us. We'll never stop focusing on R&D. We'll never stop putting money into research and development. We believe that that is really how we will maintain our Number 1 position in this industry.
Thank you. When will your U.S. plant be up and running, and will you begin construction of the factory in Texas before the final investment decision is taken by DG Fuels?
The decision to set up manufacturing in Texas is not based on the contract with DG Fuels. That is based on the enormous market that we see in that country. We are currently going through a short list of facilities, of sites. We mentioned that this is a brownfield development, which means we will not build something from the ground up. We will acquire or lease a existing site with existing buildings and infrastructure already there. We will then retrofit that building for our specific manufacturing needs. We're gonna take some time to go through that shortlist, pick the best site for us. Once we have that, we already have the blueprint for how to do the retrofit based on our factory in China.
We expect to be installed and have a facility up and running by the end of next year.
That's the final question coming here. Does HydrogenPro still plan to build a production line in Europe as in the States? If so, alone or together with ANDRITZ?
Yeah. The partnership that we have entered into with ANDRITZ is in its initial stage. It's a partnership for assembly and working together in Europe. As that relationship evolves, we may or may not look at setting up manufacturing together with them. That's an option that, you know, we will continue. We'll have the dialogue with them. If at some point that we decide it's something that we want to do, regardless if we have a partner or not, then we will go ahead and do it at that time.
Perfect. Thank you. To you who listens, you're welcome to contact the investor relations team if you have further questions.
Thank you very much again.