thyssenkrupp nucera AG & Co KgaA

XETRA:NCH2

Earnings Call Analysis

thyssenkrupp nucera's Q3 results: Strong sales but cautious outlook

thyssenkrupp nucera reported its highest ever quarterly sales at EUR 236 million in Q3, driven by growth in Chlor-Alkali and AWE orders. A significant milestone was a 20% sales increase in the AWE sector, notably with their NEOM project. However, EBIT declined to EUR 1 million, impacted by lower margins and higher R&D and operational costs. The company maintains its sales guidance for FY '23-'24 at EUR 820-900 million but remains cautious regarding FY '24-'25 due to market uncertainties in green hydrogen. CEO Werner Ponikwar emphasized continued R&D and project execution to navigate short-term challenges and capitalize on long-term growth opportunities.

Strong Sales Momentum in Q3

thyssenkrupp nucera reported record-high sales of EUR 236 million in the third quarter, marking a significant 26% increase compared to the same quarter last year. This surge was primarily driven by robust demand in both the Chlor-Alkali and Alkali Water Electrolysis (AWE) sectors, with AWE sales alone growing by 20% to reach EUR 132 million. The ongoing execution of key projects, such as the NEOM initiative in Saudi Arabia, played a vital role in achieving these figures, alongside contributions from new build and service projects across various regions including South America, the U.S., and China.

Earnings Overview: Mixed EBIT Performance

Despite the impressive sales growth, the company's EBIT saw a modest decline of EUR 6 million, landing at EUR 1 million. This decrease was anticipated, primarily due to a shift in sales mix with increased costs associated with the NEOM project and higher research and development expenses aimed at progressing AWE technologies. The EBIT for the first nine months of fiscal year 2023/24 stands at a loss of EUR 11 million, which is lower than the prior year's performance, but the company remains optimistic about hitting its EBIT guidance for the full year.

Future Guidance and Market Conditions

For the remainder of the fiscal year 2023/24, thyssenkrupp nucera maintains its sales guidance, projecting total sales between EUR 820 million and EUR 900 million, driven largely by ongoing AWE projects. However, they expect to see mid-double-digit million euro range losses in EBIT by the year-end due to anticipated start-up costs and the scaling of operations. Notably, the company will focus on cost management initiatives to mitigate potential financial downturns from slower-than-expected project rollouts in the growing green hydrogen market. For Q4, sales are expected to normalize, particularly in the Chlor-Alkali division, following a record performance in Q3.

Project Developments and Strategic Partnerships

The company's robust order backlog currently stands at EUR 1.3 billion, benefiting from major projects like H2 Green Steel, where thyssenkrupp was able to recognize additional order intake valued at EUR 200 million. They have also signed critical agreements, including a capacity reservation with Cepsa for a 300-megawatt green hydrogen facility in Spain. These developments reinforce the company's strategic positioning in green hydrogen production and indicate a dynamic project pipeline despite market volatility. The leadership reaffirms their commitment to enhance R&D efforts across various technologies and maintain competitive advantages in the future.

Long-term Market Outlook

While short-term uncertainties linger, particularly in the regulatory landscape concerning green hydrogen in the U.S., the long-term prospects remain bright. The company anticipates a gradual recovery in market conditions, forecasting major project Final Investment Decisions (FIDs) to ramp up around spring 2025. The CEO emphasized that the current delays won't derail the company's strategic growth trajectory. With a focus on execution and cash management, thyssenkrupp nucera is positioning itself to leverage upcoming opportunities in the green hydrogen sector.

Earnings Call Transcript 2024-Q3

[Hendrik Finger, executive]

Thank you, and good morning, everyone. Welcome to our Q3 9M earnings call. Thanks for dialing in and for your interest in thyssenkrupp nucera. With me today are our CEO, Werner Ponikwar; and our CFO, Arno Pfannschmidt, they will guide you through today's presentation.

Now before we start, let me briefly address the usual formalities. Firstly, this call is being recorded. The replay will be made available on our website later today. Secondly, don't forget that today's presentation and potentially some answers to your questions may contain forward-looking statements. For additional information in this regard, please refer to the disclaimer.

And with that, let me hand over to our CEO, Werner Ponikwar.

[Werner Ponikwar, executive]

Thanks, Hendrik, and good morning, everyone. Thank you all for joining us. Today, we will update you on our latest developments and guide you through the highlights of the third quarter of our financial year '23, '24.

thyssenkrupp nucera has continued its strong business momentum in the third quarter which is well underlined by the figures that you see here on the right-hand side. Group sales reached a new record high at EUR 236 million, driven by the ongoing execution of our Chlor-Alkali and AWE order backlog. AWE sales increased by 20% year-on-year and also reached the highest ever quarterly sales figure at EUR 132 million. At the same time, our EBIT performance was resilient.

Our order backlog stood at EUR 1.3 billion at the end of the quarter for Chlor-Alkali and Alkali water electrolysis combined. Also, the H2 Green Steel project is now fully included in that number. The remaining order volume of around EUR 200 million was booked with the receivable of the full notice to proceed in May.

The interest in our technology remains high. I would like to emphasize two developments here and also go into them in more details later on. Firstly, we have signed a capacity reservation agreement with the Spanish company, Cepsa for a 300-megawatt plant for Green Hydrogen production in Southern Spain, only shortly after Cepsa asked us to provide a basic engineering and design package in May. Secondly, in the United Arab Emirates, we have been selected as preferred technology provider and recently signed a basic engineering and design package for one of the largest Chlor-Alkali plants in the world.

With respect to our ongoing projects, I'm excited to share some major project milestones with you today. Our 20-megawatt electrolyzer at CF Industries in Louisiana produced green hydrogen for the first time. Also, project execution in NEOM continues to be fully on plan. The delivery and the erection of modules is ongoing and the cell assembly workshop has started. I will give you more insights into these projects in a moment.

Finally, some points on our guidance. Based on our performance in the first 9 months, we confirm our group guidance for sales and EBIT for the current fiscal year '23, '24. The sales outlook of EUR 500 million to EUR 550 million also still applies to the alkaline water electrolysis business. Looking at the next fiscal year, we have to account for the ongoing uncertainties in the green hydrogen market. That's why we have released in a [ top ] statement around three weeks ago. The market uncertainties in the area of green hydrogen which were already noticeable in the second quarter persisted in the following months. Progress on the regulatory side is recognizable, but at the same time, not yet sufficient to accelerate investment momentum again. This results in further delays in new projects on our customer sites. As a consequence, and as the short-term market development remains difficult to predict, we are not maintaining our outlook for the Alkaline water electrolysis business for the next fiscal year '24, '25. We will elaborate on our view on the market and our short-term priorities in more detail later. One thing I would like to point out here very clearly the delays observed on the customer side will not affect the long-term development prospects of our company, thyssenkrupp nucera.

Let me now walk you through a few more details on our project pipeline and our operations. As already mentioned, we continue to see high interest in our systems and technologies. Most recently, we have signed a reservation agreement for an alkaline water electrolyte with a capacity of 300 megawatts with Cepsa. This happened only shortly after the Cepsa asked us to provide a basic engineering and design package. And this is a strong signal that entered additional commitment to build really with us. In Cepsa's Energy Park in [ Rapida ] in [ Palos Delacrontera ], the water electrolysis plant will produce 47,000 tons of green hydrogen per year in the first phase. Cepsa plans to build a total installed capacities of 2 gigawatts in Southern Spain by 2030. We are very glad to become part of such a lighthouse project. And the 300-megawatt plant, we will be providing in the first phase, of course, doesn't have to be the only contribution from our side to those plans.

Other very promising projects I would like to mention here is in the Chlor-Alkali [ field ]. TA'ZIZ has selected us as a preferred technology provider and awarded us a technology license and the basic engineering contract for a major Chlor-Alkali plant. Subject to the final investment decision, which is expected for '25, we will supply our proprietary equipment for indeed, one of the largest Chlor-Alkali plants globally. We are very pleased that another company is relying on our decades of experience in the implementation of large-scale industrial projects and our powerful Chlor-Alkali technology.

On Page 7, I will give you some more examples to underline this good commercial momentum in our Chlor-Alkali business. Starting off with the new build business where our attractive pipeline is fueling order intake in the short and midterm. Globally, projects with the chlorine production capacity of around 5 million tonnes per year could reach FID by the end of '25, and we expect to win a significant share of those projects. One of those pipeline projects I have mentioned before. We have signed a basic engineering and design package for a major Chlor-Alkali plant in the United Arab Emirates. This plan demonstrates the value-adding potential of our Chlor-Alkali electrolysis technology and plays a critical role for many downstream applications and supply chains in the chemical industries. Other feasibility studies are currently being carried out in Spain, South America and also the U.S.

Now moving on to the service business in Chlor-Alkaline. We continue to see good global demand for our service offerings across the entire value chain. In Eastern Europe and South America, we are executing so called [ VM ] single element revamps, so bipolar membranes, [ single ] elements in different stages. And also our sulfide removal technology is in demand on our customer side. In the Middle East and China, we have further [ HCL ODC ] projects in our pipeline. And last but not least, I want to talk about project execution. Generally, I am pleased to see that our projects are on plan after order intake reached a record high in the previous year. Major new build projects in the U.S., in South America in China to name the most relevant are running according to plan and contribute to growing revenues in the Chlor-Alkali [ new build ] business.

Green hydrogen projects are also progressing well, as you can see on Page 8. Let's start with NEOM project in Saudi Arabia. The delivery and direction of modules is ongoing. In fact, modules representing a capacity of more than 800 megawatts have been delivered, of which more than 400 megawatts have already been erected in NEOM. Also, the cell assembly workshop has recently started operations on site. Overall, I'm very pleased with the good progress in NEOM.

As far as our electrolyzer for CF industry in Louisiana is concerned, I shared earlier that we have reached a very relevant milestone here. It is the first AWE 20-megawatt single module of thyssenkrupp nucera being deployed at a customer site. And hydrogen has already been produced on-site and 100% load of system was reached as part of the commissioning process. So the full scale launch of hydrogen production in [ Donallsville ] is imminent.

Regarding H2 Green Steel, we have reached a full notice to proceed in May, which enabled us to book the remaining order intake of a bit more than EUR 200 million, which is visible in our Q3 figures. We are also pleased to see execution on site being in [ full swing ]. To summarize project execution is well underway. And we cannot wait to put the next project into operation.

Next is our project pipeline on Page 9. The figures that you can see here clearly demonstrate the substantial market opportunity that is out there, fueling our project pipeline. As of August '24, the number of projects in our substantial pipeline has grown from 132 to 144. The additional projects in the pipeline are predominantly in early stages. Also, the number of projects that we are actively pursuing has increased to 37. However, FIDs of several of these projects are taking longer than initially expected. So we will see a shift for many of these projects towards the later years beyond '24, '25. Despite the short-term uncertainties and delays, we continue to improve our organization, and to accelerate our R&D efforts to be ready for our customers and for investment momentum picking up again.

Ladies and gentlemen, before we move on to the financial section, let me briefly reflect on our 1-year anniversary on the stock exchange. It was a very eventful and exciting year for us that opened up new opportunities and lay the foundation to drive forward our growth strategy. Looking back, it was a year of many first timers. Our first annual report, our first public general meeting. We attended several investor conferences for the first time and met you on road shows to talk about the business model and our prospects of our company, thyssenkrupp nucera. We had also some exciting news to share with you in the past year, like the strategic partnership with Fraunhofer IKTS on the SOEC technology. Looking at the stock market performance, we had a very good start in a challenging market environment which has shown us that we have an attractive business model and that our growth strategy is convincing not only for us but also for investors. Of course, we are not happy with the development in the last months. But in our view, that is more a reflection of ongoing regulatory uncertainties and delays in the market that continue to put pressure on the green hydrogen stocks across the globe. We are focused on executing our extensive backlog in driving our growth in the long term for the benefit of the company, our employees, customers and, of course, also shareholders. This is crucial and will eventually be reflected again in the share price as well.

To wrap up this slide, I would like to thank you, our investors and partners for the trust that you have placed in us. We hope to continue our journey on the stock exchange together with all of you.

With that, I hand over to our CFO, Arno Pfannschmidt, to walk you through the financial figures for the third quarter in more detail.

[Arno Pfannschmidt, executive]

Thank you very much, Werner. A warm welcome also from my side. I'm pleased to present to you the key developments in our financial figures for the third quarter and first 9 months of this fiscal year. Ladies and gentlemen, thyssenkrupp nucera has continued to grow strongly in the third quarter. We have seen good order intake momentum with order intake increasing by 12% year-on-year to EUR 271 million on the back of the alkaline water electrolysis business. Group sales continued to post dynamic growth of 26% and were the highest historically at EUR 236 million. Our EBIT performance was resilient, EBIT fell by just EUR 6 million year-on-year to plus EUR 1 million, driven by the expected lower gross margin and planned higher OpEx.

Let me also reiterate once more our strong cash position. At the end of the third quarter, net financial assets stood at EUR 694 million. As you can see, despite positioning ourselves for future growth we have contained cash outflows since the IPO and will continue to focus on cash management.

On Page 13, we have a more detailed look on order intake. In the third quarter, order intake reached EUR 271 million, 12% above the corresponding prior year figure. This increase was driven by a strong order intake development in the AWE business. Following the receipt of the full notice to proceed from H2 Green Steel in May 2024. The remaining part of the project was recognized which resulted to an order intake of around EUR 200 million. In contrast, order intake in the CA business was below the high level of the previous year which is mainly due to a decline in the new build business in the U.S. The previous year's comparable figure reflected a large order from Oxychem accumulated over the first 9 months of the current fiscal year, order intake reached EUR 522 million. The order backlog at the end of June 2024 stood at around EUR 1.3 billion with the alkaline water electrolysis business contributing around EUR 0.9 billion.

Now diving into our sales development on Page 14. In the third quarter, group sales rose by 26%, thanks to both technologies. AWE sales increased significantly by 20% to EUR 132 million. This increase is primarily due to the ongoing implementation of the NEOM project in Saudi Arabia. The H2 Green Steel project also contributed to sales growth. In the CA business, sales grew by 34% year-on-year to EUR 103 million, which was driven by new build and service projects in South America, the U.S. and China. In the first 9 months of this fiscal year, group sales increased by 24% to EUR 612 million. The green hydrogen business grew dynamically with sales in the alkaline water electrolysis business accounting to EUR 349 million. In the Chlor-Alkali sector, Sales stood at EUR 263 million, slightly up against the prior year period. Overall, I'm pleased with our sales development. It shows that we are on the right track to reach our sales targets for the financial year.

Moving on to the EBIT development on Page 15. In the third quarter, EBIT declined by just EUR 6 million to EUR 1 million. This decline was, as expected, mainly driven by a lower gross margin due to higher sales share of the NEOM project and an increase in other cost of sales for the planned and ongoing AWE ramp-up and capacity increase. We also had higher R&D expenses related to cell and module development in the AWE business. In addition, we saw a strong increase in SG&A expenses driven by the planned ramp-up of the organization. The decline was partially offset by our higher-margin CA business, which performed strongly in the third quarter. Moreover, we recorded some nonrecurring effects from insurance settlements and grant receivables, which positively impacted EBIT in the quarter. At the same time, we have worked on cost containment and will increasingly do so in the coming quarters to further mitigate the knock-on effect of a slowdown in sales growth on cost absorption. EBIT for the first 9 months of '23, '24 was minus EUR 11 million and thereby lower than the corresponding figure in the previous year. This development puts us in a very good position to at least reach our full year EBIT guidance. I will shed more light on our expectations for the remaining fourth quarter in a moment.

Let's first finish with the financial highlights in the third quarter and take a quick look at the performance of the geographical segments. In the third quarter and similar to the development on group level, the sales increase in segment Germany was mainly driven by progress in the execution of the NEOM project. Also similar to the development on group level, EBIT and [ segment ] Germany declined strongly due to the planned ramp-up costs as well as volume and mix effects in the gross margin. The sales increase in the other segments, Japan, China and Rest of World was driven by higher sales in the Chlor-Alkali business. On a 9-month basis, we are particularly pleased with the strong sales performance and positive EBIT development of segment Italy, which was supported by both technologies.

Moving on from EBIT to earnings per share on Page 17. Ladies and gentlemen, in the third quarter, earnings per share came in almost on prior year's level at EUR 0.05, thanks to a strong financial result, which was driven by higher interest income earned on our high net cash position. Higher interest income was also the main driver behind the improvement in the financial result in the first 9 months of '23, '24 which helped to somewhat absorb the EBIT decline. As a result, we see a positive EPS of EUR 0.01.

Let's now move on to the outlook for the financial year '23, '24 on Page 18. Based on our sales and EBIT performance in the first 9 months, we confirm the outlook. We continue to expect group sales to come in between EUR 820 million and EUR 900 million. The execution of already contractually agreed AWE projects will be the major driver here. AWE sales are expected to reach between EUR 500 million and EUR 550 million. For group EBIT, we continue to expect a negative figure in the mid-double-digit million euro range. Ladies and gentlemen, since it is already mid-August and our financial year ends in less than two months, let's also look at our expectations for the fourth quarter, in particular. This will also help to put our full year guidance into perspective.

Sales are expected to continue growing in Q4, driven by the ongoing execution of the significant green hydrogen order backlog. Sales in the CA division are expected to normalize to the level of the first half of this financial year. In the particular strong Q3, we reached relevant milestones in several projects, which caused the jump in sales. But EUR 100 million of quarterly Chlor-Alkali sales will not be the new normal for us.

Regarding EBIT, I know that some of you were surprised that we did not upgrade our guidance for the full year, considering that EBIT was down to only minus EUR 11 million on a 9 months basis. While there is definitely some upside potential, please keep in mind that we benefited from some onetime effects in Q3 which by nature will not repeat in the final quarter. At the same time, we still expect start-up costs associated with the implementation of our growth strategy and the scaling of the organization to accelerate in Q4. One example in that regard are accelerating R&D activities related to the SOEC technology. Nevertheless, in light of the lower than previously expected sales in the AWE division for the next fiscal year, we have certainly increased our focus on costs which may already have a positive impact in the final quarter. And of course, we wouldn't mind a better result in the end. But after the developments of the last few weeks, we don't want to promise too much too soon.

With that, I hand back to Werner, who will summarize today's earnings call with a look ahead at the next quarters.

[Werner Ponikwar, executive]

Yes. Thank you, Arno. So how do we see the coming quarters? What kind of market development are we expecting? And what is the short-term focus of our company? So firstly, let's take a moment to think about the market development along our different technologies. In the Chlor-alkali segment, the market for new build projects is picking up again. This positive development is being driven by mainly North America and the Middle East, where we expect FIDs for new projects in the short to midterm. Additionally, we expect demand in the service business to remain on its high level. With that, over to Green hydrogen.

The market is expanding more slowly than originally expected. But the medium- to long-term prospects are very promising in our view. Specifically, we expect more project FIDs from spring 2025 onwards based on continued government support in Europe and the U.S. with clarified regulation and [indiscernible] rules. For the Middle East, India and Australia, we expect further project announcements given the attractive conditions for cost-competitive production of green hydrogen in those regions. That will ensure a growing project pipeline also in the long run. Lastly, on the offtake side, we expect new large offtake agreements for green hydrogen to be signed, creating additional demand for production capacity.

Now how do we react to those market developments as thyssenkrupp nucera? For us, internally, it is clear that we will keep our relentless focus on the execution of our order backlog. We will deliver our projects in line with the customer schedule and ensure solid contribution margins. Our business development and sales teams will further strengthen our customer relationships and partnerships in the key regions to ensure a steady inflow of order intake coming from industrial scale projects. With a view to profitability and liquidity, we will continue to press ahead with our organizational and operational expansion but very much synchronized with the market developments. To this end, we will also utilize our asset-light business model and its inherent facility to the maximum extent.

Looking at technology and R&D which is at the heart of our company, we are further increasing our R&D efforts, particularly in AWE and SOEC, but also in Chlor-Alkali. We do that to maintain and also strengthen our leading competitive position.

Now wrapping up today's earnings call, I would like to reiterate some of our key messages. Our project execution efforts are in full swing and on plan, and I'm very pleased with what our teams are doing here. Our 20-megawatt electrolyzer at CF Industries is our first AWE plant deployed at a customer site and it has already produced green hydrogen. So it is the first of many more proof points to come of our 20-megawatt modernized systems in the real-world operations. In terms of financial performance, we delivered strong financial results with the highest ever quarterly sales figures and resilient and profitability. Based on the performance in the first 9 months, we confirm our guidance for the current fiscal year '23, '24. At the same time, taking the ongoing uncertainties and low predictability in the market into account, we could not maintain the outlook for the alkaline water electrolysis business for the next fiscal year '24, '25. Overall, we are very confident that the delays observed on the customer side will not affect the long-term development prospects of our company, thyssenkrupp nucera. With our robust and successful business model, our outstanding technologies and our ability to deliver industrial scale electrolyzers, we at thyssenkrupp nucera will continue to consistently exploit the opportunities of the growing market for green hydrogen.

Thank you for your attention, and we look very much forward to receiving your questions now.

[Operator]

[Operator Instructions] The first question comes from Erwan Kerouredan, RBC.

[Erwan Kerouredan, analyst]

First, on breakeven expectations for next year. So you previously had the close to breakeven guidance, which you would do obviously a couple of weeks ago. The question is that is there anything else you can say how can we think about the path to breakeven? And what levers do you have to limit losses or to stay in the positive territory for the coming quarters? I guess that would be my question.

And then the second question, maybe more for Arno on capital allocation. Question is how ongoing uncertainties impact and potentially change your capital allocation strategy you previously had investing in capacity, obviously, solid oxide and potentially in-sourcing more elements internally [ versus ] relying on external partners as well as potentially engaging in M&A activities, are these still the priorities and how ongoing [ uncertainties ] have changed your strategy? These are my two questions, please.

[Arno Pfannschmidt, executive]

This is Arno speaking here. So I will answer here those questions. First of all, regarding the breakeven expectation, and I think you talk about the guidance for '24, '25, which we have now explained we are not maintaining. We had issued the guidance to come close to breakeven with AWE in the next fiscal year. And we are not maintaining that due to a delay here in the top line growth. Of course, we are looking here also on the cost ramp up accordingly. So we try to synchronize that but it is, of course, not so easy. And therefore, at the moment, we do not maintain that, and we will come with more details in the disclosure of the full year financials mid of December, then we can give you more details on that.

The second question regarding investments, so capital allocation. It is clear that once we see now here the postponement of the top line growth that we will also slow down the capacity increase accordingly, which, of course, has an impact also on the investments. That means also investments are shifting for the capacity increase. Nevertheless, you mentioned SOEC, here, we will continue as planned, step-wise with, first, putting into operation a pilot plant in 2025. And we have here a long-term plan, and we will not compromise on that.

Regarding the other questions on in-sourcing of certain supply components, that's also something where we continue to look here for opportunities, which give us more strength and resilience moving forward. I hope that answers your questions.

[Operator]

The next question is from Michael Kuhn, Deutsche Bank.

[Michael Kuhn, analyst]

Two from my side. Firstly, on for Alkali, you mentioned some volume figures for new projects in the market next year. Is it possible to give an indication on potential order intake volume to be awarded next year? And would you assume to, let's say, get your market share of around 50% of that cake to be distributed next year?

And then secondly, I guess, an all important topic, U.S. tax credits. I think we have been discussing that topic for several months now. There are ongoing delays. And I think there was very little -- hardly anything in the news as of late. Have you heard anything on the progress in the U.S. and a potential time line of finalization of the guidance on the tax credits?

[Werner Ponikwar, executive]

This is Werner speaking. Starting with the Chlor-Alkali outlook actually on the market that we were providing. And I think you're referring to the 5 million tonnes of [ innovatorine ] production capacity that we believe would be coming to the market until actually end of 2025. So here, actually, our expectation would be that, I would say, around 1/3 of that should be awarded to us based on actually our market position. Of course, actually, there is some volatility amongst the years. So it's difficult to actually pin that down to individual years as you can imagine. But I would say 1/3 in general, is a good assumption here. In addition to that, actually, maybe it's also important to understand that our plants are typically actually operating for a longer period of time than typically the plans of our competitors. So therefore, actually, in terms of market share, in terms of installed capacity, we would see ourselves being closer to 50% based on that effect.

To your second question around the U.S. and the IRA, now I had have to basically get my crystal ball, I guess. Otherwise, it's very difficult to tell. I mean, we have seen now actually that at the beginning of this year in January, there was a first draft issued by the Treasury Department of the [ IRA ] rules, in particular, the 45V, of course, which is relevant to us. and it's dragging along, right? I mean, in March, basically, everyone was expecting that in a few weeks or months, that will be fine finalized. Now we have August, nothing has been released and discussions are still ongoing. And what we hear in the market is actually that the likelihood that will be released before the elections is very low. So again, it's very difficult to say if and when this will be finally released. And again, I think this is one of those uncertainties that makes it for us very difficult to predict also how projects will move ahead in next year. If that is something that is now released very quickly, actually, we would believe this is a major trigger point for many of the projects in the U.S. if that is released actually later, then also, we believe that many projects will be moving ahead and proceeding actually towards FID later. So it's very much depending actually on factors actually, which are very much outside of our control.

[Michael Kuhn, analyst]

And maybe as a follow-up, as you mentioned, it might well be delayed until after the election. Isn't there a risk of, let's say, that the thing being -- maybe not skipped but rethought altogether and an all-new scheme being implemented by potential new U.S. government, which could result in [ further ] place?

[Werner Ponikwar, executive]

Yes. Again, I would have to ask my crystal ball there. I mean, there's always a risk actually, and there's always an opportunity that things are even getting better. So it's very difficult, of course, to predict at this point in time. In general, I think that actually everyone also in the U.S. understands that we need to change here when it comes to the way how we produce and use energy. I think that also in the years, it is clear that climate change is real and it's something actually that we need to fight and green hydrogen is one essential element of that, that needs to come into play and as such, basically, I would not believe that someone will actually wipe that off the table now regardless whether that's left wing, right wing or any other wing. I think that's actually something that is too important actually to be just quickly neglected. But again, I think we all need to wait actually for the elections to see what will happen afterwards. Don't forget that the ruling that is now currently in place, the IRA and everything around that was a bipartisan decision. So actually, it was actually also decided by the conservatives, by the Republicans. So as such, basically, I would not expect that there will be super significant changes. But again, you are right, there's always a risk to this.

[Operator]

The next question comes from Yoann Charenton, Bernstein.

[Yoann Charenton, analyst]

I would like to ask three questions, if you don't mind. The first one is pretty straightforward. What is the time line for booking the major CA project you announced in the UAE last week into your order intake?

And the second question will be in relation to operating cash flow. Are you able to articulate all operating cash flow will evolve in the coming quarters? And what sort of level of working capital is consistent with what you refer to as a postponement of the top line growth?

And then the third question will be just trying to echo one of the points you made during this presentation. You aim to make the most of the asset-light business model of nucera in the coming quarters. Can you please spell out what it means for the PPE line of your balance sheet in the coming quarters? Are we talking about a steady level on this line going forward?

[Werner Ponikwar, executive]

So the first one was actually on the time line of order intakes for the different opportunities. in particular, with TA'ZIZ. So as we have explained, I think that we've now signed a contract for the basic engineering and design package, which will typically take almost a year actually to be finalized. So we would expect also larger order intake from that project being booked as order intake in the course of '25 and that will be predominantly around our proprietary equipment. So you could potentially expect a higher double-digit, million euro amount actually as order intake for that.

[Arno Pfannschmidt, executive]

Then I would continue with your second question regarding the operating cash flow in the coming quarters. As you have seen, we are in the operating cash flow negative consistently over the last quarters, and we expect also to continue with that. That's, by the way, in line with our original guidance where we said also fiscal year '24, '25 would be a cash negative but indeed, the investments, we will look closely here regarding the capacity increase. However, you were asking for the operating cash flow so that's the answer on that.

Regarding the asset light business, yes, indeed, that's where we're coming from, from the Chlor-Alkali business, also the green hydrogen business is structured like that. We intend to change it here for the SOEC business, but that's far away so there we still have to wait some time. And regarding the in-sourcing potentially of manufacturing capacities, for example, in the U.S., you remember the DOE announcement that we have made. That's, of course, something where we consider the time line that this is matching also with the top line and as we said, we try to synchronize here the cost development with the top line development.

[Operator]

The next question comes from Kevin Roger, Kepler Cheuvreux.

[Kevin Roger, analyst]

I have two questions, if I may. The first one would be related to next year. I know you don't want to provide any guidance for now because you say that the visibility is relatively limited. But I was wondering, in the previous guidance, you say that 2/3 of the top line in the hydrogen business will be linked to the existing backlog so mostly NEOM and H2 Green Steel. In the remark that you made this morning, you said that majority of the projects should be awarded from spring '25 when all the uncertainties on the regulation, et cetera, should be solved. So does it mean in a way that it would be very difficult to add any revenues from new projects next year except coming from H2 Green Steel and NEOM? That would be the first question.

And the second question, you gave some details on the EBIT for the Q4, but clearly, you said you are at minus [ 11% ] up to now. You said mid-double-digit loss. So implicitly, it will mean something like minus [ 30 ], is there any color that you can provide in the increase in the research and development costs, all those kinds of stuff to give us some magnitude of what should be the deterioration in the EBIT Q4 versus Q3, please?

[Werner Ponikwar, executive]

This is Werner talking, Kevin. I'll take the first one, I guess, that Arno is taking care of the second one. In terms of next year, [ as I said ], we believe that it's currently very difficult to predict how the market will pick up and when the market will pick up in particular, but of course, you're right, actually, we have a significant order intake that we will convert next year into revenues. That's for sure. And the order of magnitude that you were mentioning, I think, is quite correct. In this respect, what else will come on top is actually really something that we will have to assess over the next weeks and months. And we will come up with our prognosis in our guidance, actually, as Arno was mentioning, mid of December when we are disclosing our full year results. We do expect that there will be additional order intake and with that also additional revenues actually in the next fiscal year on top of our existing order backlog and the revenue related to that. But the amount actually is something that really that depends on many factors that we're currently assessing and where we really have to see how the market is developing right now.

[Arno Pfannschmidt, executive]

Regarding your second question, EBIT in Q4 and particularly the ramp-up [ here ] of costs, research and development expenses, we have here traditionally kind of a hockey stick during the year regarding the research and development expenses. So they are expected to increase significantly in quarter 4 compared to the previous quarters, and that's one of the reasons why we expect an EBIT deterioration. The other explanation was also given that the volume of Chlor-Alkali projects will not be as high in quarter 4 as in quarter 3, that was a record quarter, so to say. So that's also contributing to that. We have here mix effects, we had [ these one timers ] in Q3, which we do not expect also for Q4 so all of that further smaller increases in SG&A expenses, a significant increase of R&D expenses and also the other cost of sales, which includes certain product-related costs, together also with the ramp-up of the SOEC business will contribute to that EBIT burden in Q4.

[Operator]

At the moment, there are no more questions in the queue. There seems to be no more questions coming. So with that, I would like to close the Q&A session and give the floor back over to the hosts.

[Werner Ponikwar, executive]

Yes. Ladies and gentlemen, thank you very much for your time and all your questions. So in case you have still some open questions, please reach out to Investor Relations. And with that, let me conclude today's earnings call. Goodbye. and take care. Thank you very much.

[Arno Pfannschmidt, executive]

Thank you.