Good morning, ladies and gentlemen. We have put our purple ties on and are ready to present the Q2 2023 results. My name is Håkon Volldal, I am the CEO. With me today, I have our CFO, Kjell Christian Bjørnsen, and Head of Investor Relations, Wilhelm Flinder. As I know, many of you are on vacation or having a summer break, I will skip the Nel brief part this time, and jump directly to the Q2 highlights. In the quarter, we had NOK 475 million in revenues. That's more than double of what we generated in the same quarter last year. EBITDA improved to -NOK 138 million.
Still has the wrong sign in front of it, so we have a job to do, but it's an improvement year-on-year. Order intake, 428 million NOK, bringing the order backlog to close to three billion NOK at the end of June. Our cash balance was 4.1 billion NOK. In the Q2 , a couple of key developments. First of all, we concluded the site selection process, where we selected Michigan as the location for our next gigafactory. We also received a record-sized contract for 16 fueling stations in California, worth $24 million. We've had a couple of eventful weeks following the closing of the Q2 .
First of all, we were granted $5.6 million in funding from the US Department of Defense for accelerating our PEM stack development. Friday last week, we announced a EUR 9 million contract for alkaline stacks and balancer stacks with Hyd'Occ in France. Yesterday, we received an order for EUR 11 million for alkaline stacks to Bondalti in Portugal. If we look at the financial highlights, revenue and income up 160% versus last year. EBITDA improved from almost NOK 200 million negative to negative NOK 138 million. EBIT is also improved, the pre-tax loss increased due to a reduction in the value of some of the securities that we hold in other companies.
The fair value adjustment to those holdings brings the result down, and this will fluctuate from quarter to quarter. If you look at the operational performance, it's definitely a step in the right direction. If we look at the year-to-date results, we see the strong momentum, more than a doubling of the revenues, up 110%, versus the first six months of 2022. EBITDA improved by almost NOK 100 million, and EBIT also improved by NOK 60 million. To add some color to that, let's look at the segment financials. If we start with the electrolyzer division, we are up 200% on the revenue side in the quarter.
EBITDA is significantly improved, also the margin from -64 to -12, so we're getting closer to where we want to be. Order intake, despite having very few or actually no announced orders in the quarter, amounted to NOK 229. Bear in mind that we increased the threshold for announcing contracts, which means that some of the contracts we received for smaller electrolyzers and industrial products are not reported. Still, it's good to see that we're up 25%, despite receiving no large orders in the quarter. The order backlog in electrolyzer is strong at NOK 2.5 billion. Also, if you look at the year-to-date results, revenues are up 132%.
EBITDA, again, improvement of NOK 60 million and a good improvement in margin. The order intake is more than double compared to the first six months of 2022. Fueling up on the revenue side compared to a weak Q2 , 2022. EBITDA somewhat improved in the quarter, but still big losses. Order intake, driven by the contract in California, increased to NOK 200 million. The order backlog also then improved to close to NOK 500 million. Year to date, we're up 50% on the revenue side. EBITDA has improved as a consequence of cost reduction measures and other initiatives we are working on to improve the underlying performance.
Order intake strengthened on the basis of the California contract, but we continue to be negatively impacted by high warranty costs and increased utilization of stations on fixed-rate service contracts. Some of these contracts will be terminated and improved, but it will take time for the performance to further improve. What's good, though, is that this contract that we received proves that there is a market for fueling equipment. Despite some of the challenges Nel has and the industry has on the fueling side. There are customers out there that still want to do hydrogen fueling stations and are betting on the future of hydrogen as a fuel, not only for personal vehicles, but maybe more importantly, long term, for the heavy duty vehicles.
I forgot to mention one thing. If you look at the electrolyzer side, and given the high increase in revenues, one might have thought that the EBITDA actually would have been even better. The reason that we are at NOK -47 and not more of the top line, is flowing through to the bottom line, is that we do have still a lot of the contracts signed in 2021 that we are working on, and they impact the margin negatively. Some of these contracts did not have pass-through clauses on materials, which we now have. Some of the contracts were not currency hedged, which we now do.
As raw material prices have increased significantly compared to when these contracts were signed, also currency has fluctuated quite a bit, and we continue to see postponements and delays on the execution of the projects, we were not making a lot of money on those projects. On the contrary, we are losing money. The impact you see, the improvement versus last year is, of course, related to some of the newer contracts where we have solid margins, and also hedging mechanisms. That means the revenue on the larger, newer contracts flow through to the bottom line and impacts EBITDA positively. We expect that these, let's call them old legacy contracts, will be with us also in the H2 of 2023.
We were hoping that we could finalize most of them in the H1 , but we do see that it will take more time to complete them, and we will have them in also the H2 of 2023. Important though, they will become less important over time as more of the, let's call them newer, profitable contracts, start to hit both the top line and the bottom line. The order intake and backlog, I think we've commented on that, but it's important to note that order intake will fluctuate from quarter to quarter. Q2 was, besides the contract with the U.S. energy company for 16 fueling stations in California, uneventful. We had few contracts.
If you look at the Q3 , we've already started with two nice contract wins in the first couple of weeks. Order intake will fluctuate from quarter to quarter. It's not gonna be a steady linear trend. That, of course, also means that the order backlog, which we do think will continue to grow quite consistently, but the magnitude of the growth will vary from quarter to quarter. Let's talk about the commercial developments in the Q2 . First of all, we are on track with our capacity expansion plans. The second line at Herøya is on track to be completed in April 2024, meaning we will start to produce commercial volumes in April 2024.
We will then have roughly one gigawatts of capacity available, and we can double that again to two gigawatts if we get additional large-scale orders that require more production capacity. We are also on track with the expansion and automation in Wallingford. It's not only about increasing the size of the plant, but it's also about improving the manufacturing process for production of PEM stacks. We are on track to increase that to 500 megawatts by 2025. The process to select a site for a new gigafactory has been concluded. We chose Michigan. That's attracted a lot of interest in the U.S. and also in Europe. Why Nel decided to build that factory in the U.S.?
As we've said, it's not only because of IRA and support mechanisms, but we go where we see demand. We expect a lot of demand from the U.S. We want to be close to GM as an important production and development partner for Nel. We also received quite, let's call them, nice subsidies from the State of Michigan to help us build this factory at a cost competitive price. We will also continuously evaluate the need for additional gigafactories, be it in Europe, be it in Asia, be it in North America. As we have our production concepts ready, you know, bear in mind that we have now run our production line at Herøya for more than one year. Almost two years, we've tested this technology and the production setup.
We've worked out, you know, the teething issues. This runs nicely. We can copy-paste that production concept. It's the same thing we're doing, you know, regardless of where we build the next gigafactory. We have the production concept, the package, and the know-how to construct it. I would think that Nel is among the companies in the world that can build new capacity with the shortest timeline. On the PEM side, we're doing the same thing. We're installing a new or building a new production line in Wallingford, Connecticut, close to our R&D environment. We have a production concept that we can bring to the new gigafactory or anywhere else in the world, which de-risks the expansion plans and also, of course, gets the costs down on further expansions.
When it comes to the fueling contract, we disclosed, I think some months ago that an undisclosed U.S. energy company, it's a bit unfortunate that we cannot name the company, but I guess we can disclose it a bit later. It's a sizable U.S. energy company that has placed an order for 16 station modules with a value of close to $24 million. We announced that a few months ago when this client placed a capacity reservation contract. What you can see as addition to our backlog then is the difference between the 24 and the previously announced $7 million. The order intake then booked in this quarter is $17 million.
These fueling stations will be deployed in California, which has the highest density of hydrogen fueling stations in the U.S. It's expected to have a positive financial impact for fueling. The contract itself is solid. The performance metrics and the service and maintenance aspects around the contracts are significantly improved for Nel compared to what we signed earlier. We've learned from some of the mistakes we did in the past. It's also aligned with our new strategy to focus on large committed clients in specific regions. We're not gonna be all over the world. We're not gonna sell single stations here and there. We will focus on larger batches and orders with clients that can grow and expand with Nel.
We estimate to start deliveries in the Q4 this year, and then it will continue into 2024, and potentially, the final installations will be done in 2025. We have not disclosed this during the quarter. Again, as we increased the threshold for announcing contracts, they didn't pass the bar. If you add them up, we had the total order intake in the Q2 for containerized PEM products of $7 million. Two contracts, we see that we have now a lot of these contracts and requests coming in for smaller units, the containerized PEM solutions. It's a full scope setup, where it's a modular setup, quick to market, easy installation.
We see that the demand is increasing, and that the time from the first discussion until we sign the contract is significantly shorter than it used to be. This is a product that sits well with the market. It comes in two sizes, a 1.25 MW solution and a 2.5 MW solution. This is a nice package for smaller applications, for example, generating hydrogen for mobility applications. We expect this product to grow in importance going forward. Subsequent to this Q2 , we got some nice contract wins. Friday last week, we signed a contract with Hyd'Occ for a 20-MW project in France, worth EUR 9 million. Scope on this contract includes stacks and balance of stack, the gas separation system.
Hyd'Occ is a French renewable energy producer. Or actually, the French renewable energy producer, Qair, is the main shareholder in Hyd'Occ, and the local government is also an owner in the project. The project will supply hydrogen to local industry and also mobility applications in the South of France. It's a firm purchase order, as I said, for stacks and balance of stack. We plan to deliver these stacks to the client around the end of 2023. Yesterday, we received a 40-megawatt contract from Bondalti, a large chemical, or actually the largest chemical company in Portugal. Order value is EUR 11 million. If you compare this to the previous one, this is for stacks only.
The electrolyzers will be used to increase Bondalti's hydrogen or green hydrogen production to further decarbonize their operations, as well as, you know, cater to other applications, such as long-haul transportation and injection into the gas grid. The facility is expected to commence production in the beginning of 2026. The client has also contracted Wood as the provider of the FEED study, which we have worked closely with in the past, is one of our EPC partners. We expect this to then impact our 2024 results, meaning we will do the production of the needed equipment in 2024.
We also got a nice funding from US Department of Defense, close to $6 million for further developing the PEM stack, reducing operating and capital cost of PEM electrolysis. It's an option linked to a previous contract we received, meaning in total, we have received $11 million from the DoD to develop our PEM stacks. On the public affairs side, we have been elected into the board of a Renewable Hydrogen Coalition. Olivia Breese from Ørsted, she's the CEO of Power2X at Ørsted. She will take the position as chair, and then I will represent Nel and be the vice chair of the Renewable Hydrogen Coalition. The Renewable Hydrogen Coalition tries to promote green hydrogen, or is working to promote green hydrogen in Europe.
While the EU has made significant progress in establishing a legislative framework, we still have a way to go until we have a level playing field with, for instance, China and North America. The Renewable Hydrogen Coalition will work to effectively nurture European interests, secure funding for pioneering projects, secure stable working conditions for European companies, a fair value chain setup, and mitigate early-stage risks for project developers. Going towards the conclusion, or a summary, I would like to say that we commented on the fact that smaller products are becoming more standardized, and we can go faster to market with some of these projects. On the other hand, the bulk of what we are working on are now large-scale projects. They're not 20, 40 megawatts, megawatt complex.
They're in the hundreds of megawatts, even gigawatts, that we are looking into. These large-scale projects obviously have higher complexity than small-scale projects. It has to do with the infrastructure around it. It's not just the hydrogen plant, it's also the end-use application, be it for green steel, be it for ammonia, for methanol, for refinery. Interestingly enough, some of the customers we are working with are also exploring a mix of different technologies. They wanna use the alkaline technology for the base load, where they can really piggyback on the low CapEx and OpEx of the alkaline technology in combination with PEM for, you know, the peak periods where you have excess solar and wind capacity, and you can easily ramp up and down hydrogen production capacity.
Nel is in the fortunate position that we can offer both technologies. We have the opportunity to offer a hybrid solution. To work out, you know, exactly the split between the different technologies and how these technologies should be combined in the optimal way, and also, for the customers to secure offtake agreements on, you know, not small quantities of hydrogen, but really high quantities of hydrogen, game-changing quantities of hydrogen, takes time. Add to that, the need for financing billions and billions of euros, for the total project, and also the uncertainty around funding, at least in Europe. How much of the investment will you be able to get funded? It means that it takes time from you start the initial discussion until you have a contract signed.
It increases the overall risk for the project developers as well as the technology provider. We need to know that we're, you know, committing to a project that has legs that will actually happen. The customer places a large order with one company and needs to know that that company can deliver. Timelines are effective as project developers are working to increase project quality and de-risk the projects, and also on our side, to plan the delivery schedules and make sure we can ramp up fast enough. All in all, this is good news. I mean, this is what we're after. We're not after the small projects, we're after the really big ones. We can see that our pipeline is now being filled with large-scale projects.
We expect these projects to come Nel's way because we are positioned for large-scale market leadership. With the increased size, complexity, and risk, there is a need for competence and experience, because it increases exponentially with the size of the project. What makes Nel unique, is that we have an unrivaled track record. We have decades of experience providing hydrogen equipment. We have a large installed base of 3,500 electrolyzers. We have been around, we have products out in the field. They work. They do produce hydrogen. We're not selling paper electrolyzers, we're selling real electrolyzers. We have technology leadership. We are in multiple technology platforms. We can combine alkaline with PEM. We have proven solutions.
Again, not paper electrolyzers, real electrolyzers that have been out in the field for many, many years, where you can actually trust that the warranties and the performance guarantees that you offer are real. Then, of course, it comes down to cost of ownership. I think it's fair to say that Nel also has cost and scale leadership. We are a front runner in cost reductions. The alkaline electrolyzers coming out of our Herøya facility are second to none when it comes to cost. Also we have market-leading production capabilities. We have produced high quantities. We have an existing line. We're building the second one. The risk of placing a high order with or a large order with Nel is limited compared to many others, because we know how to make high quantities of electrolyzers, and we're able to expand fast.
We are quite comfortable with the, with our industrial position at the moment. We're also confident that some of these large-scale projects will come our way. If we then summarize the Q2 , maybe a bit uneventful in terms of on new contracts. We're off to a good start now in the Q3 , but please notice that we have made significant improvements in terms of revenue growth and positive margin development. We did sign a fueling contract, which is the largest contract we've ever signed for fueling, and it's a testament to the fact that people believe in Nel, also on the fueling side. They have the trust to place an order, a significant order for hydrogen fueling equipment with Nel.
We are on track with our expansion efforts, at Herøya in Wallingford, and also for the new giga factory in the US. I think I will stop there, Wilhelm, and, ask Christian to join me so we can, answer questions from the audience.
Thank you. I have some questions coming in already. As a reminder, for the ones that want to ask questions, please use the raise hand function, and we will call up the name and activate the microphone to the one next in line. Please also make sure to activate the microphone on your end as well. Note that we will keep the camera on, camera for the ones dialing in disabled. Please keep a maximum of one question per person due to time constraint, and if more time, you can always go back in the line afterwards. If we have time, we will also take written questions submitted through the Q&A function. If there are questions we don't have time to answer, please reach out to us on ir@nelhydrogen.com.
As a reminder from previous quarterly presentations, we will not comment on outlook-specific targets, detailed terms and conditions on contracts, as well as questions on specific markets. Modeling questions, we would also appreciate, is taken offline directly with me. The first question coming in here is from Arthur Sitbon. I now activated your microphone. Please go ahead.
Yeah, hello. Can you hear me?
Yes.
Yeah. Thank you. Thank you very much for taking my question. Actually, I was wondering if, at this stage, you consider you still have the capability, In the short term, to receive new large orders in the 100-200 megawatt range, like you did last summer. Do you need to wait for new manufacturing lines to come online to get such orders? I would suspect, at this stage, your current manufacturing capacity is quite well booked for the months to come. Any thought on that would be quite helpful. Thank you.
You are right that, the 2023 capacity is being, fully, utilized. If you start a big project now for several hundred megawatts, you're not gonna go operational in 2024 anyway. You will be into 2025, 2026, which means we can then produce it in 2024, 2025. As we now double our capacity from April 2024, we will have ample room to take larger contracts. I'm not worried about production constraints from Nel's perspective.
Thank you very much.
Thank you. Next question comes from, Erwan Kerouredan. Please, go ahead. Erwan, please, activate your microphone and go ahead. All right, we will try the next one. Johan Sheridan, you're next in line. Please go ahead.
Good morning, gentlemen. Quick question, thinking about the broader market environment. We have seen a marked deterioration in the order momentum in the Q2 . Can you please provide a bit more color on the factors behind this deceleration? When would you expect to see a rebound in activity around the multi 100 mega scale orders? Of course, my question is all about electrolysis.
I think we, in terms of the order intake, it's a matter of a couple of weeks. If we had the French and the Portuguese contracts into the Q2 , it would be on par with the previous quarters, so even on the electrolyzers. That aside, we have high hopes that we can sign the multi-hundred megawatt contracts in the H2 of 2023. Again, the visibility on exactly when we can sign the contracts is a bit limited. It's not due to a lack of large-scale projects. You know, we are working on plenty of opportunities that are really large.
That, as I said, also means that the timeline for when you actually when the customer decides to jump in and place a purchase order on the equipment is a bit more challenging to know than when you're placing an order for EUR 10 million. Now we're talking, you know, potentially hundreds of millions of EUR. I would say we are comfortable with what we see in the market. The market is there, the orders are getting or the projects are getting bigger. We are in a good position and then already in discussions, advanced discussions with many of these large-scale customers. Exactly when, if it will happen in the Q3 or the Q4 , is very hard to say.
Okay, thank you. Have a pleasant summer.
Thank you. Next question comes from Sean. I'm guessing Sean McLoughlin. Please go ahead.
Good morning. Can you hear me?
Yes.
Super. Thank you. Just a question around profitability. It looks like the journey to positive EBITDA took a bit of a breather in Q2. You talk about a mix of scale, more efficient execution, and better price contracts, you know, being the drivers to get to profitability. I mean, as you look through your backlog now, I mean, how do you expect, you know, that EBITDA to be shaping up, particularly because of the increased costs that are coming into your business as you scale capacity? Just any commentary around that would be helpful. Thank you.
I think we are quite happy with the contracts that we have signed since summer of 2022. All the contracts we have announced during the past 12 months have an intrinsic margin structure that should allow Nel to have a decent EBITDA. We do carry some fixed costs that we need to spread over a bigger volume. We were 540 employees, I think, 12 months ago. Today, we're 622. We've added 80 employees. We have increased our cost base, you know, we need higher volumes for that cost absorption.
I think once we're done with the legacy projects, and we start to add some of the contracts we have already announced, to the revenue mix on top of the, you know, one or two projects we're already taking to P&L, you will see a different margin structure in Nel. I think the road towards profitability is not that on the electrolyzer side is not that long and windy. It's winding. It's possible to achieve it, we do need to get rid of the legacy projects, we do need to monetize the large orders we have announced.
Thank you. If I could just, quick follow-up, just to understand a little bit better. The legacy contracts, we should take as the contracts have signed up until kind of Q1, Q2 last year?
Yeah. That would be all the small, two, five, four, 10, 20 megawatt projects, that we have announced. I think that we did announce in 2020 and 2021, and the first part of 2022, that we're now executing on. To be fair, as a portfolio, these contracts have a negative gross contribution and of course, then a negative EBITDA contribution.
It's also contracts with a wider scope.
Yeah.
you know, so let's keep that in mind. It's less of what we produce in-house. It requires more source material, so it's lots of revenue with limited margin, and also puts, since it's a wider scope, we use too much of our best engineers on these projects rather than on driving cost reduction on larger projects.
Thank you.
Okay, next question. We're gonna try Irvin from RBC again. Please activate the microphone on your end as well, Irvin, if you're with us.
Apparently not. Apparently not.
Okay, then we're gonna jump to the next question from Alex, Alexander Jones. Please, please go ahead.
Great, thank you. More of a follow-up, I guess, on the last question on margins. When I look at the sequential development, revenue was up, I think, 40% in the electrolyzer division, but profits were down, you know, slightly, I guess from -19% to -47%. Can you talk about what drove that? Was it a mix within contracts to more of the older ones? Was it bigger losses on those 'cause of FX? Was it costs, or how should we think about that sequential move? Thank you.
Yeah, it's a, it is a mix of, of the individual projects that were recognized in the quarter. We currently have, and this is one of the things we come back to, we currently don't give guidance because we have too few large projects to talk about portfolio effects. Both on these small to mid-sized ones and also on large ones, we're very dependent on the milestones we achieve in a given quarter and the progress we have in a given quarter.
Also, as Håkon was saying, when we have some of these being loss-making, if we then make, you know, updated estimates on the time it takes us to complete, and we see that we will have additional costs, we do need to book that negative margin immediately, recognizing that it's a loss-making contract. It's down to the individual contracts that we delivered on partly in this quarter.
Thank you.
All right, next question comes from Deepa Venkateswaran. I will now activate your microphone. Please go ahead. Please go ahead, Deepa.
Hi, can you hear me now?
Yes.
Sorry. I think I will come back to the question on order intake. Obviously, that's the most keenly awaited metric that everyone tracks for you. I was just wondering whether you're able to give us any visibility on these, you know, the pipeline that you were talking about, which presumably is your advanced negotiation. Are you still competing with other technology providers, or it's more about your end client needing to take FID? I mean, at what stage, how advanced are these? You know, should we be hoping for some conversion in the H2 , or, you know, could this... Just to get some view on how likely these are to convert into an order intake this year.
Let's take a top-down perspective on this and say that if you look at the value of all the projects in our CRM system, you get to these ridiculous numbers like $30 billion, right? They are in different stages of the development cycle, and they have different maturities. What we do is that we have a top 10 or top 20 list of hot projects or leads that we are working on. These opportunities, we might have tracked for up to two years. They might all of a sudden appear and require a significant effort.
I would say some of them are competitive situations, where the customer is, you know, looking into different technologies, different suppliers, different OEMs, and then they want to make a selection. Other situations are actually situations where Nel is the sole OEM, and it's all about getting project financing and offtake agreements in place for the customer. Remember that we do ask for a lot. We ask them to place a firm order for equipment worth a lot of money, and for the customer, they don't have full visibility on the project. They might not have all the offtake agreements in place. They might not have, you know, financing. They might not have received the grants that they have applied for.
Still, we ask them to commit because the lead time on the electrolyzers is quite long. They know it's on a critical path or critical line in terms of the startup of the project, so they can't wait forever before they commit to Nel or somebody else. To get to that point, especially for the larger projects, it takes more time than for 20, 40, 60 megawatt projects. I would say, yes, we have multiple large opportunities we're working on. They fall into two categories: Nel as the sole OEM, and competitive bids or situations with other OEMs. I have to say, speak on my behalf, I do hope that we can convert some of these opportunities in the H2 of 2023. You know, I would be disappointed if we did not.
Thank you.
Very good. Next question comes from, Christopher Leonard. Please, go ahead.
Hi, guys. Can you hear me?
Yes.
Brilliant. Thanks for taking the question. Sorry to bang on again about order intake, but just looking at the backlog and maybe comparing average project sizes to what we've seen with Thyssenkrupp Nucera, they're looking to hit around 300 megawatts on average project size. You guys, where you currently sit, do you think maybe there's an expansion that needs to happen on the stack size for you to be increasingly relevant in the larger 100 megawatt ranges? Maybe is there something perhaps on warranties? Just trying to look for anything in your perspective that, you know, might explain why you're not yet booking the same quantities as you did last year on the very large scale side. Thanks.
Yeah, for a deal to happen, you have to be wanted, and you also need to want the project. There are some of the larger opportunities out there that I believe we could have won, but not at conditions that would be good for Nel. What's important to us is not necessarily to book, you know, the largest contracts out there. We also need to, you know, match the contracts with our ability to execute and, you know, make these contracts profitable. The last thing we wanna do now is to commit to, let's say, a 500, 600 megawatt project, and then that contract is not a good one. Because the alternative cost is very high. If you commit to that project, you have limited capacity, organizational capacity and production capacity to take other projects.
We try to balance, you know, the need for showing momentum on the order intake side, with the need to improve financial performance. Honestly, you know, a year ago, maybe we were not mature enough to take, you know, a 5, 6, 700 or even a gigawatt project. I think we have matured a lot over the past 12 months. We feel definitely, you know, qualified and also sought after for these larger projects. I'm not worried about sort of the ups and downs in the order intake and exactly when it materializes.
As I said, we have a short list, a hot list of very large, interesting project opportunities that we are working on, with, I would say, very reputable companies and clients. There's nothing wrong with Nel's attractiveness in the market, but it has to be right for the customer, and it has to be right for Nel. As I said, I'm confident it will happen in 2023, that we will book a contract. Maybe that contract will dwarf, you know, the contract signed in 2022. Maybe it will take a bit more time before the gigawatt contracts materialize, but they will come.
Sure. just to clarify, from your perspective, it was competition on price and maybe not actually quality of production or quality of the products from your side? It was the fact you didn't want to compete at those levels.
I would say, we have the most advanced manufacturing setup in the world, across platforms, with the most proven technology. I think we're second to none on the quality of the equipment. It's about pricing. What kind of margins are you willing to live with? We're not interested in buying market share. We just don't want to take a contract and say, "Hey, we got, you know, 600 megawatt contract here," and then not make money on it. We have to be responsible and set a price that is fair for the customer and also for the OEM. It's about performance guarantees. You know, what are you willing to accept?
Again, it's not fair to ask the customer to bear all the risk, because these are pioneering projects, but it's not fair to ask the OEM to take all the risk either. There has to be a balance, and we try to work with customers that see that, where there's a win-win and where we, you know, have a good dialogue and I can see the risk and the upside of doing business together. I, you know, I'm not sitting in my office fuming when I see large contracts being awarded to competition. I think that's all good. It's not about, you know, market share at the moment. The cake is gonna be extremely big, and we need this market to grow and develop.
Every big project that happens, at the moment is good for the overall industry development. If we win a large-scale, contract, you know, competition should be happy. If they win it, you know, we should be happy. It's not about, you know, the infighting between the OEMs, it's about creating this industry. For that, we need the large-scale projects to happen.
Thank you. Appreciate the answer.
Thank you. Next question comes from Kulwinder Rajpal. Please go ahead.
Everyone, can you hear me?
Yes.
Yeah. I would just like to peer a little bit into the orders for fueling. Obviously, it's nice to see that the capacity reserve agreement turned into a purchase order in the U.S. I just wanted to get a sense of what you are seeing in your negotiations with customers on the fueling side. For Nel, does U.S. continue to be the main geography driving the fueling division, or are you also seeing some increased traction in Europe?
On the fueling order intake, what we've said for some time now is that that market is maturing. We've moved from-.
Yeah
... you know, small, you know, pilots here and there, where maybe the municipality wanted a gas station, to increasingly network operators looking at it. Currently, the most mature market, where there's most need for hydrogen refueling, because there are vehicles on the road, is in Korea and in California, in the U.S. We do note that there is European legislation coming through that will give good support mechanisms also for Europe, so we are hopeful that there will be, you know, similar development in the European market, also for passenger vehicles. Really, the longer term perspective, the thing that really undermines the business case, is the heavy-duty applications. Things with a high load that needs to drive for a large part of the 24-hour cycle. That market is still some way away from maturing.
It's not the distant future, but it needs a step up in the capacity on each station, and also the performance on each station on an ongoing basis to make that business case fly. We're working diligently in that direction as well.
Thank you so much. Have a nice day.
Thank you.
We've gotten a written question from Irvin, that had some technical issues. Policy, European Hydrogen Bank auction. We hear that it may now take place towards the end of the year versus the autumn initially anticipated. Can you confirm this is what you expect to? I guess the question is when is the next real policy catalyst for Nel in Europe?
I think the, you know, really, the EU has pieced together a legislative framework that is quite solid. They have set demand, site targets. They have, you know, worked on the definitions of the different carbon intensities, or the carbon intensity or the different forms of hydrogen. They have looked at, you know, all these loopholes, like the additionality principle and, you know, all the technicalities around that. In some, you know, they have a pretty robust legislative framework. What is lacking, in my opinion, in the EU is the money, the carrot. The Hydrogen Bank, first auction round, EUR 800 million. EUR 0.8 billion. You compare that to what is happening in the U.S.
You have the IRA, with tens of billions, if not hundreds of billions of EUR, earmarked for hydrogen. You have the hydrogen hub initiatives, where they will hand out $8 billion-$10 billion for project-specific initiatives. You can go on and on. If you compare the U.S., if you compare the spending in China with the spending in Europe is dwarfed by these numbers. There's nothing wrong with the setup, it's just the magnitude of what they hand out. It doesn't make a difference. The Hydrogen Bank, again, EUR 800 million. Yes, nice, one large project is EUR 800 million. It doesn't really help.
What I expect is that the hydrogen auction will be a test bed for how well this auction system will work. They can use that as a platform, also in the different member states, to subsidize hydrogen, green hydrogen initiatives. The Hydrogen Bank could be a good instrument, but it needs to be beefed up. With EUR 10 billion-EUR 15 billion, you will be able to fund a lot of the projects that are waiting to happen. If we could get these projects approved, you know, you get over that initial speed bump, you get the learning effects, you get the scale impact. We get the cost down, we can move faster. We don't rely on subsidies anymore.
That's what I've been telling the European Commission for quite some time now, that don't spread these subsidies over many years. There's no need to subsidize this industry for decades. Make it big, but do it fast. You know, it's over the next two, three years where we need it. To me, the next key policy thing in the EU, Hydrogen Bank, beef it up. If that would happen, that would be fantastic for demand in Europe.
It seems like we have a follow-up question from Christopher Leonard. Please go ahead.
Sorry, I meant to put my hand down. Apologies.
Okay. Yep.
Thanks.
Sean had a follow-up question. Please go ahead.
Thank you. I just wanted to ask about the just a little bit more about the competitive environment on the larger orders. You talk about alkaline and PEM, let's say, as being a competitive advantage against peers. I mean, it would strike me simplistically that this sounds like, you know, you're just adding greater complexity to projects that are already complex. I mean, how much of your pipeline is looking at both alkaline and PEM, and what kind of advantages would that actually bring in terms of monetization?
Okay, let's start with PEM. PEM has not been proven at scale. Nobody has built a large PEM facility at the moment. The largest PEM facility in operation is Nel's 20 megawatt. PEM is expensive, both in terms of CapEx and in terms of OpEx, the efficiency at the moment. It requires less footprint and is responsive. It means you can run production up and down really fast, it fits well with renewable energy generation coming from wind and solar, where you have, you know, big shifts, sudden shifts in the production loads and curves. Well, what about the alkaline? Alkaline is cheaper on the CapEx side.
It's cheaper on the OpEx side, but it requires space, and it's not so easy to ramp it up and down, you know, by the second or by the minute. You need some time to bring the load down. When you look at these large-scale facilities, you know, with hundreds and hundreds of megawatts or even gigawatts, then if you say that we're gonna use alkaline because that's cheaper for the base load. We're going to use PEM to, you know, take the peak production periods when you have strong winds or, you know, lots of sun coming in. That definitely helps your business case. You know, you're looking at a few percentage points improvements here and there that could turn into hundreds of millions of dollars or euros over the lifetime of the equipment. Of course, they're looking into it.
Could you achieve that by sourcing equipment from one alkaline provider and one PEM provider? Sure. To, you know, have that one-stop-shop opportunity to get it from one supplier, to get the production and delivery schedules matched, to know that the integration could work, that you can sit there and simulate, you know, the exact split and how the technologies will work together, the control logic, the control systems, that is a competitive advantage.
Thank you.
Very good. It seems like I have one more question, here from Damian Szparaga. Please, please go ahead. Remember to activate the microphone on your end as well.
Sorry, I hope you can hear me now.
Yes.
Thanks for taking my question. I have a question regarding profitability. When I look at your numbers, gross profit margin in 2022 was 36%. In the H1 , it is 49%. Do you think there is still a room to improve it, and to what extent, and what would be your desired, desirable profitability level in terms of gross profit margin? Thank you.
That measure is, to a large extent, driven by mix. If we have the legacy project with a wide scope, where we have lots of other components where we don't really make any money, we have a lower measure there. I would say that we are moving in the right direction. What will drag it down a bit again is that for these large numbers, we first sign on the stack contract, and then we get the balance of stack later, where there's a smaller markup. Yes, there's room to continue to look at how we can improve that one. I think margins, you know, gross margins and EBITDA will go up. We're quite confident saying that. Why? Because the new contracts have a higher intrinsic margin structure.
We don't take projects, as I said, just to win market share. We take projects because we have a healthy margin. The gross margin on new contracts is much higher than on pre, you know, past contracts, the legacy contracts, because of new market dynamics. We now have an order backlog. We have, you know, a top line that, you know, allows us to be more selective. We don't need to take any project just to, you know, have something to do. We have to carefully select which projects we go after, and then, you know, we can be tougher on the margin requirements for Nel. We have higher margins when we start the contract.
We have commodity pass-through clauses, so we're not being hit by certain price increases in steel and nickel like we have been on the legacy contracts. We do hedge, so when the currencies change quite dramatically, as they've done in parts of 2023 and 2022, then, you know, it doesn't hit our margin. Scope, we don't do all the third-party sourcing with, you know, 3%, 4%, 5% markup. We focus on what we make, and that will drive margin up. We become better at execution, so we have to spend less hours implementing the solutions. We don't have the same cost overruns as we had in the first days when everything was new and, you know, we made mistakes, and we had to go back and redo things.
We're getting better. We're getting better processes, better procedures, better documentation, better quality. All of this will drive margin in a positive direction.
Thank you.
Great. We are now closing in on the top of the hour. No further questions. I think that concludes this presentation. I'll give the word back to the management for any final remarks.
No, I think we've said it, in terms of, you know, the commercial developments, maybe a little bit of an eventful quarter. You know, look behind that. If we go one year back, this would have been a very eventful quarter. We have a higher order intake. We have 160% higher revenues. We have a improved EBITDA margin compared to one year ago. We are on the right track. Our ambition is, of course, much higher than what we show in the Q2 , and we have reasons to believe that we will also be able to deliver on those ambitions. We will continue to see revenue increases year-over-year. We will continue to see margin improvements.
We will continue to see large order intake. It will variate or fluctuate from quarter to quarter. You cannot, in this industry, just put your ruler on top of the last quarter and have this sequential approach where everything is linear. It will go up and down like a rollercoaster ride, but the trend curve is definitely positive.
We conclude the presentation. Thank you very much for attending.
Thank you!