Nel ASA

Annual Report (ESEF) • Mar 2, 2023

Untitled number one by nature Annual report 2022 The publication can be downloaded on nelhydrogen.com Title: Annual report 2022 Published date: Oslo, 28 February 2023 info@nelhydrogen.com +47 23 24 89 50 Karenslyst allé 49, PB 199 Skøyen, 0212 Oslo, Norway Table of contents Annual report 2022 1 Letter from CEO ........................................................................................................ 5 2 Member of the board .............................................................................................. 9 3 Management .............................................................................................................. 10 4 Report from the Board of Directors ..................................................................... 13 4,1 Financial development .................................................................................. 16 4,2 Environment, Social and Governance reporting ..................................... 29 5 Board of Directors’ report in relation to the Norwegian code of practice for corporate governance ................................. 54 6 Consolidated financial statements 2022 Nel group ......................................... 60 6,1 Notes to the consolidated financial statements ...................................... 68 7 Parent company financial statements .................................................................. 124 7,1 Notes to the parent company financial statements ............................... 132 8 Alternative performance measures ...................................................................... 149 9 Auditor’s report ......................................................................................................... 151 Nel ASA I Annual report 2022 5 A BIGGER, BETTER, MORE FOCUSED COMPANY An important year 2022 was the year the hydrogen industry made the definitive transition from small to large-scale projects. According to Nel’s research, orders for almost 5 GW of electrolyser capacity were announced. Multiple factors contributed to this important transition: policymakers in the USA and European Union increased production targets and improved support schemes for renewable hydrogen projects; banks and financial institutions gained more experience and understanding of renewable hydrogen, making it easier for hydrogen producers to finance their business plans; and green hydrogen producers were able to secure attractive long- term power purchase and offtake agreements with end- customers. At Nel, we also made the giant leap from small to large- scale projects. Our order backlog more than doubled in 6 months on the back of several exciting contracts. Consequently, we continued to add substantial new production and project execution capacity. • In March, we inaugurated the world’s first fully automated electrolyser manufacturing plant at Herøya in Norway. The Norwegian Minister of Petroleum and Energy gave the opening speech before 150 customers and partners. We are happy to see that what we do is recognized and appreciated by policymakers and customers, and that our Herøya facilities set us apart from competition. • In July, we signed a contract to supply 200 MW of electrolyser equipment to a US customer. Only a few months later, we received another large-scale contract from Woodside Energy and a 40 MW contract from Statkraft. These contracts are essential milestones on Nel’s journey to large-scale electrolyser leadership. • In November, we signed a joint development agreement with General Motors, a company with extensive experience in fuel cell technology development. The purpose of the collaboration is to combine the two companies’ expertise to develop Nel’s PEM (Proton Exchange Membrane) electrolyser technology, with an aim to reduce the cost of hydrogen at the pump for GM’s vehicles. • In December, we received a capacity reservation contract for 16 hydrogen refueling stations from a US customer. This is one of the most significant reservations of refueling stations we have ever received. What an excellent way to end the year! Only the beginning Green hydrogen is a powerful tool for addressing two of the most pressing challenges the world is facing today – ensuring reliable energy supply and fast-forwarding decarbonization initiatives. First, green hydrogen offers a way to transport renewable energy from where it is possible and cheap to produce to where it is needed and consumed. Hydrogen is an energy vector that will help balance supply and demand in a global energy market where trade flows and rules are redrawn. Second, green hydrogen is a prerequisite for decarbonizing hard-to-abate industries such as ammonia, methanol, refinery, steel, aviation, shipping etc. where direct electrification is complicated or even impossible. The pipeline of new large-scale green hydrogen projects is growing rapidly driven by these megatrends. Demand is expected to increase further driven by the US Inflation Reduction Act and the legislative and financial support packages proposed by the EU Commission. I think that everyone can agree that this development is good; we don’t have much time to decarbonize our industries and outcompete fossil fuels. At the same time, the transition from small to large-scale projects implies significant investments. The costs related to the scale-up are real and evident in our bottom-line for the year. Clearly, continuing along this trajectory for many years is not sustainable. We need a path to industry leadership that also allows Nel to become profitable, and this is outlined in our business strategy coined “bigger better focused”. A pathway to industry leadership and profitability Bigger. A market study conducted by Nel shows that large- scale electrolyser projects will account for almost 90% of demand from 2025. Similarly, in fueling, heavy-duty vehicles are expected to become the most promising segment. Nel will therefore concentrate on large-scale electrolyser projects and high capacity fueling stations for high-volume 1 Letter from the CEO 6 Letter from the CEO 2022 2021 2020 2020 2019 2018 2017 2015 2014 2003 2001 1988 1974 1959 1953 1940 1927 Best regards, Håkon Volldal, CEO customers. We will continue to scale up our electrolyser production capacity, both in Norway and in the US, as higher volume is key to unlocking profitability and building trust with customers. For Nel increasing volume is important as it enables better resource utilization and hence higher margins. For customers “seeing is believing” as they tend to place orders with companies that can back up production and delivery schedules with real assets. Better. Being big is essential, but not enough to win in the market. Nel must also have the best technology in terms of total cost of ownership for the customer. Consequently, Nel will continue to invest in research and development to improve the efficiency (OPEX) and cost (CAPEX) of its equipment. The joint development agreement with General Motors is an example of such an investment. Besides enabling more green hydrogen projects to become viable without subsidies over time, continuous efficiency and cost improvements are key to keeping healthy margins over time. Better also means that Nel must continue to improve other aspects of its business than technology. We need to mature, improve and professionalize how we work to create added customer value and improve profitability. Every year we hire many skilled employees with backgrounds and references from other industries we can learn from. Focused. We cannot be the biggest and best at everything. To achieve a leading industry position and make Nel profitable, we must concentrate on what we really do well and not spread ourselves too thin. Creating sufficient focus in Nel is, simply put, one of my top priorities going forward. In Electrolyser, Nel has narrowed its scope of supply from providing complete hydrogen plants worldwide to delivering electrolyser stacks and gas separation modules to customers in Europe and North America. The remaining scope is now delivered by strategic EPC (Engineering, Procurement and Construction) partners. This scope split allows Nel to deliver standardized solutions with less risk and higher margins. In Fueling the product portfolio will be reduced and the focus will be on developing a high-capacity solution for European and North American volume customers. Development and production of certain modules will also be outsourced to world-class external partners. At the grand opening of the Herøya plant I had not yet joined Nel officially, but I was there in the audience. I was impressed by what the Nel team had carried out so far and felt motivated by the company’s mission to “unlock the potential of renewables and enable global decarbonization.” Now, just over half a year later, I have an even stronger belief in Nel. This belief rests on the role green hydrogen will play in the global energy transition and decarbonization efforts, the vast potential for cost and efficiency improvements that will make green hydrogen competitive with fossil fuel, and the ongoing industry scale- up that will enable large projects all over the world. Most importantly, my belief rests on my 600 colleagues in Nel, who undoubtedly have the industry’s deepest hydrogen knowledge. Together we will make Nel a bigger, better, and more focused hydrogen technology company. MORE THAN 90 YEARS OF HYDROGEN INNOVATION. AND THAT’S JUST THE BEGINNING. PIONEERING RENEWABLE HYDROGEN FOR MORE THAN 90 YEARS Signed the first large scale 200MW electrolyser contract Starting up the Herøya plant, first line Setting new record order sizes with orders from Nikola, Everfuel, Iberdrola and Iwatani Corporation Nel opens first H2Station™ in Korea Nel announces construction plans for the world’s largest electrolyser manufacturing plant to accommodate multi-billion NOK orders Nel completes construction of the world’s largest manufacturing plant for hydrogen fueling stations, with a capacity of 300 units per year Nel acquires Proton OnSite, adding world leading PEM electrolysis technology to product portfolio, becoming the world’s largest electrolyser company Nel acquires H2 Logic, adding world leading hydrogen fueling technology to the product portfolio Nel becomes the first 100% dedicated hydrogen company listed on the Oslo Stock Exchange Nel opens the world’s first publicly available hydrogen fueling station in Reykjavik, Iceland Our first pressurised electrolyser introduced to the market The world’s first electrolyser supplier to provide non-asbestos alkali electrolysers Our renowned electrolyser technology made available for other companies and other industries Complete redesign of the electrolyser unit, forming the basis for today’s atmospheric electrolyser from Nel Starts up a second large scale hydropowered electrolyser plant for supplying hydrogen to ammonia production, in Glomfjord, Norway The largest installation in the world of water electrolysers at Rjukan, Norway, with a total hydrogen production capacity exceeding 30.000 Nm3/ hour, from hydropower The first small electrolyser installation at Norsk Hydro, Notodden, Norway. Testing for pure hydrogen to fertilizer production 2022 2021 2020 2020 2019 2018 2017 2015 2014 2003 2001 1988 1974 1959 1953 1940 1927 Nel ASA I Annual report 2022 9 OLE ENGER, CHAIR OF THE BOARD Mr. Enger (born 1948) has worked as CEO in Nordsilmel, Elkem, SAPA, REC, REC Solar and has been in the executive management of Norsk Hydro and Orkla. Ole Enger has an educational background from Norwegian University for Environment and Life Sciences, NHH (Norwegian School of Economics) and IMD Business School. He has board experience as both chairman and board member of a number of private and listed companies. Mr. Enger is a Norwegian citizen and lives in Oslo. Mr. Enger has been a board member since 2017. HANNE BLUME, BOARD MEMBER Ms. Blume (born 1968) is the CHRO in DOVISTA and has previously held the position as CHRO in TDC, Ørsted and DONG Energy, vice president in QHSE and different management positions in the energy sector. Ms. Blume holds a master’s degree in Business administration and commercial law from Aarhus School of Business and Oregon State University. She has management and board experience from both listed and private companies. Ms. Blume is a Danish citizen and resides in Juelsminde in Denmark. Ms. Blume has been a board member since 2019 and currently chairs Nel’s Remuneration Committee. CHARLOTTA FALVIN, BOARD MEMBER Ms. Falvin (born 1966) has held various management positions in the tech industry, including e.g COO of Axis AB and CEO of TAT The Astonishing Tribe AB, with a focus on international business development and organizational growth. Since 2011, she has worked as a professional board member in primarily public companies in the Swedish tech sector, but also in academia, banking and regional incubators for start- ups. Charlotta Falvin holds a Master of Science in Business Administration and Economics from Lund University in Sweden. She is a Swedish citizen and resides in southern Sweden. Ms. Falvin has been a board member since 2020. FINN JEBSEN, BOARD MEMBER Mr.Jebsen (born 1950) has worked for Mars Inc. in the US and Norway and later for 25 years at Orkla ASA, where he held positions as Business Development Manager, CFO, EVP of Financial Investment Division, EVP of Branded Consumer Goods Division, and CEO. From 2005, he has been working as a professional board member and chairman of several private and listed companies. Mr. Jebsen holds a master’s degree in business from NHH and a MBA from UCLA. Mr. Jebsen is a Norwegian citizen and lives in Oslo. Mr. Jebsen has been a board member since 2017. BEATRIZ MALO DE MOLINA, BOARD MEMBER Ms. Beatriz Malo de Molina (born 1972) is a professional advisor to management teams and board member. Beatriz has served as Senior Vice President and Head of M&A at Orkla ASA and has held positions at Kistefos Private Equity and McKinsey & Co in Oslo, after a ten year career in the Investment Banking Division of Goldman, Sachs & Co. in London, Frankfurt, New York City and Mexico City. Ms. Malo de Molina began her career in 1994 within Ernst & Young’s financial advisory department in New York City. Ms. Malo de Molina has board experience from publicly listed and privately held companies both in Norway and internationally, including chairmanship positions. Beatriz graduated summa cum laude from Georgetown University in Washington D.C., attended the Haupt- und Wirtschaftsuniversität in Vienna and holds a Master’s degree in Philosophy from the Law Faculty at UiO in Oslo. Ms. Malo de Molina is a Spanish citizen and has been a resident of Norway since 2006. Ms. Malo de Molina has been a board member since 2017 and currently chairs Nel’s audit, risk and sustainability committee. 2 Members of the board 10 Letter from the CEO HÅKON VOLLDAL, CHIEF EXECUTIVE OFFICER Håkon Volldal (born 1976) was appointed CEO effective 1 July 2022. Mr. Volldal has previous experience as Executive Vice President at TOMRA, and later as President and CEO of Q-Free ASA, creating intelligent technology solutions for efficient, safe, and sustainable transportation. Mr Volldal holds an MSc in Industrial Economics and Technology Management from the Norwegian University of Science and Technology (NTNU) and is a Norwegian citizen. KJELL CHRISTIAN BJØRNSEN, CHIEF FINANCIAL OFFICER Kjell Christian Bjørnsen (born 1976) joined Nel as CFO on March 1, 2020. He served as Chief Financial Officer of the Kavli Group since 2014 and was appointed Chief Financial Officer of Nel from 1 March 2020. He has held positions within business development, strategy and finance in several global industrial companies, including the CFO position of REC ASA. He holds a MSc in Chemical Engineering from the Norwegian University of Science and Technology (NTNU), and is a Norwegian citizen. CAROLINE DUYCKAERTS, CHIEF HR OFFICER Caroline Duyckaerts (born 1970) joined Nel ASA as Chief Human Resources Officer in January 2021. Mrs. Duyckaerts comes from the position as head of HR for one of Hydro’s business areas. She previously also led the People & Leadership development for Hydro and has further HR and change management experience from several well-known companies incl. Hydro, Deloitte, Yara (Hydro Agri), Accenture. Caroline Duyckaerts holds a Master of Engineering and Business Administration from HEC Liège, complemented with an education as executive coach, and is a Belgian citizen. FILIP SMEETS, CHIEF COMMERCIAL OFFICER Filip Smeets (born 1963) was appointed SVP Nel Electrolyser Division in February 2020. Mr. Smeets has been in the electrolyser industry for more than 10 years and comes from a position as Managing Director for Hydrogenics in Belgium where he was responsible for the company´s electrolyser activities. Prior to that he held senior positions in several global industrial companies such as Cabot Corporation and Cytec Industries. Mr. Smeets holds a master’s degree in chemistry from the University of Antwerp, Belgium, and is a Belgian citizen. 3 Management TOM RØTJER, BOARD MEMBER Mr. Røtjer (born 1953). Former Head of Projects at Norsk Hydro ASA, where he held a number of management positions from 1980 to 2018. He was member of Corporate Management Board of Norsk Hydro from 2007-2012. He is currently a board member of HI Entreprenører AS. He has previously held board positions in Det norske oljeselskap ASA (Aker BP ASA), Aibel AS, Qatalum Ltd. Qatar and Green Energy Geothermal Ltd. Mr. Røtjer holds a master’s degree in Mechanical Engineering from the University of Trondheim, Norway. He is a Norwegian citizen and resides in Oslo. Mr. Røtjer has been a board member since 2020. JON ANDRÉ LØKKE, BOARD MEMBER Jon André Løkke (born 1970). Former Chief Executive Officer (CEO) of Nel ASA, as position Mr. Løkke held from 2016-2022. Prior to joining Nel, Mr. Løkke was the CEO of Norsk Titanium AS He has ten years’ experience from the REC Group, including positions as senior vice president in REC Wafer, investor relations officer in REC ASA, and CFO in REC ASA. Mr. Løkke has also worked for the ABB Group. Mr. Løkke is currently a board member of Tunable AS and Bergen Carbon Solutions AS. He holds an International MBA degree from Glasgow University and a bachelor degree in business and economics from Southampton University. He is a Norwegian citizen and resides in Oslo. Mr. Løkke has been a board member since 2022. Nel ASA I Annual report 2022 11 ROBERT BORIN, SENIOR VICE PRESIDENT FUELING Borin (born 1977) was appointed SVP Nel Fueling Division in April 2021. Prior to joining Nel, Mr. Borin held several senior management positions in Vestas and Siemens. He is also the founder of Borin Industrial Advisors. Mr. Borin holds a Master of Science in Mechanical Engineering and Industrial Management from KTH Stockholm, and is a Swedish citizen. STEIN OVE ERDAL, VICE PRESIDENT LEGAL AND GENERAL COUNSEL Stein Ove Erdal (born 1979) joined Nel as Vice President Legal and General Counsel in May 2019. Erdal comes from a position as an Associate General Counsel in Nexans Norway AS where he worked for nine years with complex offshore EPCI and EPC projects. He also has experience from working as a lawyer in the oil and gas division of Arntzen de Besche, as a deputy judge and as a defence counsel. Erdal holds a Cand. Jur., Qualifying Law Degree, from the University of Oslo, and is a Norwegian citizen. HANS H. HIDE, CHIEF PROJECT OFFICER Hans H. Hide (born 1965) joined Nel in March 2019. Mr. Hide has since 2012 held management positions in some of Kvaerner’s largest projects within the oil and gas sector. He has previously served as Project Portfolio Manager in ALSTOM, and as Vice President Projects in REC, where he also held several management positions in the projects covering REC’s expansion program within Solar and Silicon. He holds an MSc in Process Technology and Process Control from Telemark College of Engineering, and is a Norwegian citizen. ESA LAUKKANEN, CHIEF COMMERCIAL OFFICER Esa Laukkanen (born 1966) was appointed COO in August 2022. Esa has a background from leading global operations, industrialization and automation processes, having worked for twenty years in ABB, and later leadership of products, operations, and technology of automated systems at Jepptech. Mr. Laukkanen holds an MSc in Industrial Engineering from Lappeenranta University of Technology, and is a Finnish citizen. Report from the Board of Directors 13 Highlights • Revenue and other operating income increased by 25% from 2021 to 2022. • As a result of Fueling’s current financial performance and delayed growth trajectory, Nel has impaired all goodwill previously recognised in Fueling of NOK 296 million. In addition, Nel recognise an impairment of other intangible assets in Fueling by NOK 31 million. • Year-end cash balance of NOK 3 139 million (2021: 2 723). Nel raised NOK 1 500 million in gross proceeds in a private placement on 23 March 2022. • Order intake in 2022 was NOK 2 275 million (2021: NOK 967 million) which resulted in a record-high order backlog at end of 2022 of NOK 2 613 million, up 112% from 2021. – Received purchase order of NOK 600 million from Woodside Energy for delivery of alkaline electrolyser equipment in the U.S. – Received purchase order for 200 MW alkaline electrolyser from an undisclosed US customer. The contract value is approximately EUR 45 million. – Signed a Capacity Reservation Agreement (CRA) with an undisclosed US energy company, for the delivery of 16 hydrogen fueling stations to be deployed in the US. SUBSEQUENT EVENTS • Investment decision to increase PEM production capacity in Wallingford to ~500 MW. Total capital expenditures estimated to be around NOK 260 million, and estimated to be at full capacity in 2025. • On February 6, 2023, Nel received purchased order from HyCC with a value of approximately EUR 12 million. KEY FIGURES PERFORMANCE MEASURES 2022 2021 2020 Revenue and operating income 994 798 652 Operating expenses 2 272 1 381 1 066 EBITDA -780 -475 -252 Operating loss -1 279 -583 -414 Pre-tax income (loss) -1 187 -1 684 1 246 Net income (loss) -1 171 -1 667 1 262 Net cash flow from operating activities -691 -449 -216 Cash balance end of period 3 139 2 723 2 333 Order intake 2 275 967 1043 Order backlog 2 613 1 230 981 TRIF 1) 11.5 4.9 11.2 Number of fatal accidents 0 0 0 Number of employees 603 507 393 Women in executive management 11.1% 10.0% 12.5% GHG intensity (excluding scope 3) 1.64 2.69 2.18 Alkaline OEE ² 70% 50% na Alkaline stack yield ³ >90% >80% >80% PEM stack yield ⁴ 95% 95% 95% ¹ Total recordable injuries frequency (TRIF) is measured as total recordable injuries per million hours worked. ² Overall equipment effectiveness (OEE) considers all of availability, performance and quality. ³ Yield is defined as a complete product that is quality approved (without repair and rework) and ready for the customer. Material from a not approved product is reused. ⁴ Yield is defined as a complete product that is quality approved (without repair and rework) and ready for the customer. Platinum is recovered. 4 Report from the Board of Directors Nel ASA I Annual report 2022 14 Report from the Board of Directors WHERE WE ARE Nel consists of electrolyser production facilities in Norway and Connecticut, USA, and one fueling station production facility in Denmark, supported by headquarters in Norway. Nel has a sales and support network with global reach, including service organizations close to the main markets for fueling stations – the U.S. West Coast, South Korea, and Northern Europe (based out of Denmark). Nel has historically delivered a few electrolyser systems in Russia. We have sold electrolyser systems to Ukraine during 2021. Business is currently limited in these geographical areas. MARKETS WE SERVE - A PURPLE WORLD In total, we have delivered over 3500 electrolyser solutions to over 80 countries, and more than 120 H2Station™ solutions delivered, or in progress to be delivered, to 14 countries. FUELING STATION SERVICE AND MAINTENANCE San Leandro, CA, USA PEM ELECTROLYSER Wallingford, CT, USA FUELING STATION SERVICE AND MAINTENANCE Seoul, South Korea FUELING STATION Herning, Denmark HEADQUARTER AND ALKALINE ELECTROLYSER Oslo, Norway 16 Report from the Board of Directors 4.1 Financial development Group FINANCIAL REVIEW Amounts in NOK million 2022 2021 2020 Revenue and operating income 994 798 652 Operating expenses 2 272 1 381 1 066 EBITDA -780 -475 -252 Operating loss -1 279 -583 -414 Order intake 2 275 967 1043 Order backlog 2 613 1230 981 Number of employees 603 507 393 Total assets 6 951 6 007 6 137 REVENUE & ORDER INTAKE, ORDER BACKLOG AND EMPLOYEES 489 570 652 798 994 0 400 800 1,200 1,600 2,000 2,400 2018 2019 2020 2021 2022 Revenue and Order intake operating income 2018 2019 2020 2021 2022 350 513 981 1,230 2,613 0 500 1,000 1,500 2,000 2,500 3,000 Order backlog 239 310 393 507 603 100 200 300 400 500 600 700 2018 2019 2020 2021 2022 Employees INCOME STATEMENT Nel is committed to building the organization and production capacity to meet expected market growth, while simultaneously delivering on increasingly larger and more complex projects. This impacted the results for 2022. At Nel, setting up project protocols, partnerships, and systems are still in its early stages. While the company has made notable improvements in ability and effectiveness, further developments are necessary to secure margins and increase profitability. Despite being the company with the most experience in this field, both Fueling and Electrolyser segments face execution challenges. To succeed, Nel must focus on its strengths. The company’s amended electrolyser strategy on large projects is to narrow the scope and concentrate on stacks and balance- of-stacks. As projects grow in size, Nel will partner up with world-class EPC companies. This allows Nel to focus on its core scope while bringing a competitive solution for the hydrogen production system to the customer. Giving up some of the scope will reduce execution risk and improve margins for the equipment produced and sold. Additionally, since summer of 2022 Nel has shifted away from fixed-price contracts, minimizing commodity and currency exposure, which will provide more visibility on nominal margins, and reduce the overall contract risk. Similarly, Nel’s Fueling division has narrowed its technology development focus and will increasingly work with partners to focus on the core development necessary for high capacity fueling. Nel reported revenue and operating income in 2022 of NOK 994 million, up 25% from NOK 798 million in 2021. The growth is the result of Nel Hydrogen Electrolyser’s revenue increasing 61%, while Fueling declined 26%. Electrolyser is the largest segment in Nel and now constitutes 75% of Nel’s total revenue in 2022, up from 58% in 2021. Nel ASA I Annual report 2022 17 Order intake in 2022 was NOK 2 275 million (2021: NOK 967 million) which resulted in a record-high order backlog at end of 2022 of NOK 2 613 million, up 112% from 2021. The backlog only includes firm purchase orders with agreed price, volume, timing and terms and conditions. The increase in order backlog is mainly explained by the two record-size purchase orders for delivery of alkaline electrolyser equipment in the US, with values of NOK 600 million and EUR 45 million. The delivery of electrolyser equipment, and the recognition of revenue related to these orders is expected in 2023 and 2024. Raw materials expenses totalled NOK 585 million (552), an increase of 6% from 2021. The increased raw materials expenses are related to the 21% increase in revenue from contracts with customers. Personnel expenses amounted to NOK 665 million (472). The 41% increase compared to 2021 is mainly explained by a higher number of employees, up from 507 employees by the end of 2021 to 603 at the end of 2022. Other operating expenses also increased 110% and totalled NOK 524 million (250) for the year. The high level of personnel and other operating costs are the results of Nel’s strategic decision to continue to invest in growth and higher activity levels. The employees added are experienced project, production and technology personnel. EBITDA ended at NOK -780 million (-475), negatively impacted by costs for scaling the organisation for growth as mentioned in the section above for personnel expenses and other operating expenses. The EBITDA is also negatively impacted by Nel’s customer projects often including new geography, customer segments, technological components and/or products leading to additional costs and risk. Nel is intent on improving its project execution capabilities, which are still experiencing significant inefficiencies and cost overruns in this early stage of market development. Depreciation, amortisation and impairment increased to NOK 499 million (108), mainly driven by the 2022 impairment of goodwill and technology in Fueling of NOK 327 million. In addition, Herøya manufacturing facility commenced depreciation of NOK 46 million in 2022. As a result of all of the above, the operating loss amounted to NOK -1 279 million (-583). Net financial items amounted to NOK 92 million (-1 101). Nel received NOK 72 million in interest from banks in the current year in comparison to NOK 20 million in 2021, caused by the increased interest rates for NOK in particular. The negative 2021 financial items were driven by a negative fair value adjustment of shareholdings in Everfuel and Nikola, totalling NOK 1 121 million. Pre-tax loss totalled NOK -1 187 million (-1 684) and the net loss for the year was NOK -1 171 million, compared to a loss of NOK -1 667 million in 2021. Financial position Total assets were NOK 6 951 million at the end of 2022, compared to NOK 6 007 million at the end of 2021. Total equity was NOK 5 450 million. Thus, the equity ratio was 78%. Cash flow Net cash flow from operating activities in 2022 was NOK -691 million, compared to NOK -449 million in 2021. The development is mainly due to higher personnel expenses driven by an increase in full time employees. Net cash flow from investing activities was NOK -403 million (-374). Nel has purchased property, plant and equipment for NOK 160 (258) million in 2022, mainly related to the expansion at Herøya, Norway, in the electrolyser division. Nel’s cash balance at the end of 2022 was NOK 3 139 million (2 723). The increase from end of 2021 is mainly due to raising gross proceeds of NOK 1 500 million from the share capital increase in March, offset by negative cash flow from operations and investments. The company estimates it has sufficient working capital for the 12 months following the balance sheet date. In accordance with section 3(3a) of the Norwegian Accounting Act, the board of directors, therefore, confirms that the financial statements have been prepared on the assumption of a going concern. 18 Report from the Board of Directors Nel Hydrogen Electrolyser Financial review Amounts in NOK million 2022 2021 CHANGE Revenue and operating income 748 466 61% Operating expenses 1 168 737 59% EBITDA -304 -210 Operating loss -420 -271 Order intake 1 978 763 159% Order backlog 2 224 937 137% Number of employees 304 240 27% Total assets 2 427 1 906 27% The electrolyser segment received two record-size purchase orders in 2022, both of which will be delivered in 2023 and 2024 and are therefore reported as order backlog. The 137% increase in order backlog compared to end of 2021 is mainly explained by these two US orders for alkaline electrolyser equipment, with values of about NOK 600 million and EUR 45 million. Nel Hydrogen Electrolyser reported revenue and operating income 61% higher than in 2021. Growth in alkaline electrolysers was strong as Nel continued the deliveries of electrolyser systems from the manufacturing facility at Herøya according to plan. Revenues from sales of alkaline electrolysers increased 506% compared to 2021, while sales of PEM electrolysers were stable, decreasing 1% from 2021 driven by supply chain challenges. Nel is currently recognizing revenue and other financial results from projects signed in previous years when market conditions were less favourable than today. EBITDA for the year was NOK -304 million (-210). EBITDA decreased as establishing project execution protocols, partnerships and systems is at an early stage at Nel. While significant improvements have been made in our ability and effectiveness in executing projects for our clients, continuous improvements are required in order to safeguard margins and increase profitability. Bringing new technologies to the market in the form of industrial projects of increasing size and complexity brings with it very many challenges. Nel is focused on increasing its efficiency and margins in project execution over time, but a confluence of factors negatively impacted operating performance in the past year. Electrolyser continued its scaling activities including a 27% increase in number of employees. Nel is preparing the delivery of large-scale projects in the coming years, two of which have already been signed. DEVELOPMENT AND KEY PROJECTS Technology development As the renewable hydrogen industry continues to develop, Nel is at the forefront of the industrialization of electrolyser production and of product development within several electrolyser technologies. Nel is continuing to invest in the development of large-scale industrialisation of electrolyser products. In addition, Nel is working to develop a pressurized alkaline Electrolyser which could generate additional demand globally given the technical advantages of this product. Also, further development of the current atmospheric alkaline technology towards larger capacity solutions is ongoing. Finally, in order to meet new large-scale opportunities within the PEM portfolio, Nel is developing a larger single cell- stack PEM platform. All of these three development activities target increases in functionality and decreases in total cost of ownership for our current and future customers, and are intended to increase demand for our products globally. Production capacity development • Alkaline Water Electrolyser (“AWE”) – Official opening of the first 500 MW line at the Herøya facility on April 20, 2022 – As of 2022, with the opening of its 500 MW fully- automated manufacturing facility at Herøya, Nel became the first electrolyser company capable of accommodating large-scale project orders. The line operated at 3-shift operation in most of 2022, and towards the end of the year operators were recruited and trained to go to continuous operation from January 2023. – In an effort to meet the global ambitions for renewable hydrogen, Nel initiated a continued expansion at Herøya in Norway with an additional 500 MW alkaline production line, expected to be operational from April 2024. Given the significant pipeline of projects globally, and the expectation that projects will continue to grow in size, Nel is ready to continue to increase its electrolyser production capacity. The carrying amount for the Herøya second line expansion is NOK 55 million as of 31 December 2022. Total contractual commitments beyond December 2022 for the second line are NOK 230 million, including purchase contracts for all the physical equipment needed. – Further capacity expansion will be closely aligned with commercial backlog. Nel has ordered building modifications at Herøya and long-lead time items for two additional lines to prepare for further expansion. Proton Exchange Membrane (“PEM”) – PEM has been granted approximately USD 6 million in funding from the U.S. Department of Defense (DoD) for accelerating advanced PEM electrolyser stack development. Nel ASA I Annual report 2022 19 – Entered into a joint development agreement with General Motors to help accelerate the industrialisation of Nel’s PEM electrolyser platform. In Q1 2023 Nel has taken the investment decision to improve the production line in Wallingford substantially, introducing automated stack assembly, sputtering, roll-to-roll etc. This will increase PEM production capacity up to 500 MW, while at the same time reducing stack cost and improve stack efficiency. • As a result of the above, Nel have initiated the site selection process for large-scale technology production facility for both PEM and alkaline, to be located in the United States. Key commercial activities • Order intake in 2022 was NOK 1 978 million (2021: NOK 763 million) which resulted in a record-high order backlog at end of 2022 of NOK 2 224 million, up 137% from 2021. • Nel Hydrogen Electrolyser received large purchase orders for: – An alkaline electrolyser to Woodside in the U.S. providing renewable hydrogen to fuel cell vehicles. Value approximately NOK 600 million. – An alkaline electrolyser in the U.S. for industrial application. Value approximately EUR 45 million. – An alkaline electrolyser to Statkraft in Norway. Value approximately NOK 120 million. • Other purchase orders include: – Multiple PEM electrolysers to several customers. The offtake from the renewable hydrogen production in these contracts is for transportation (land and aviation) and food production. Value approximately USD 17 million. – Multiple alkaline electrolysers to several customers. The renewable hydrogen will be used in refinery and ammonia production, amongst other. Value approximately EUR 14 million. SUBSEQUENT EVENTS • Agreed with HH2E for a Front-End Engineering and Design (FEED) study and a Letter of Intent for two 60 MW alkaline electrolyser plants in Germany. The hydrogen produced from the plants will be used for industrial applications, transportation and heat. In total, HH2E is aiming for 4 GW of electrolyser capacity in Germany by 2030. The parties intend to conclude a contract for electrolyser equipment within the first half of 2023. • Investment decision to increase PEM nameplate production capacity at the Wallingford site to ~500 MW. Total capital expenditures estimated to be around NOK 260 million, and estimated to be at full capacity in 2025. • Received purchased order from HyCC for 40 MW alkaline electrolyser equipment for the H2eron project in Delfzilj, Netherlands, focusing on emission reduction for the aviation sector. The value is approximately EUR 12 million. 20 Report from the Board of Directors Nel Hydrogen Fueling Financial review Amounts in NOK million 2022 2021 CHANGE Revenue and operating income 245 332 -26% Operating expenses 972 541 80% EBITDA -352 -169 Operating loss -726 -209 Order intake 297 205 45% Order backlog 388 293 32% Number of employees 269 240 12% Total assets 1 005 1 038 -3% Although Nel Fueling continues to work with potential large framework orders, the division has had a low order intake for a longer period. Revenues were further suppressed by supply chain disruptions, which resulted in longer delivery times. Therefore, revenue for the year declined 26% compared to 2021, while order backlog increased 32%. In the fourth quarter, Nel Fueling entered into a substantial capacity reservation agreement that is expected to lead to a firm purchase order in 2023. Gross margin was negatively impacted by quality costs. There has been a large increase in the utilisation of many of Nel’s installed stations, enabling accelerated learnings and improvements both within product maturity and overall reliability. However, increased utilisation also leads to increases in cost for stations under warranty or fixed rate service contracts as components have to be replaced and service and maintenance costs increase. A hydrogen fueling station is a complex and relatively new technology. The hydrogen industry, including Nel, is still working to mature the technology as well as investing in service and maintenance, robustness, and reliability. Nel will continue to incur high costs related to these activities going forward. The EBITDA was NOK -352 million (-169) in 2022. Fueling EBITDA decreased compared to 2021 due to lower revenues, high quality costs, and an increase in personnel expenses resulting from a 12% increase in the number of employees as well as higher overtime and travel expenses. The results are unsatisfactory and Nel is intensifying actions to improve the performance and profitability of this division. Operating expenses of NOK 972 million in 2022 (compared to NOK 541 million in the prior year) were negatively impacted by a NOK 327 million impairment of goodwill and technology. Other increases in operating expenses include 12% increase in employees. Fueling impairment As mentioned above, there are negative financial development in revenues, gross margin and EBITDA for the Fueling division during the year and Nel expects these challenges to continue. The annual impairment test performed include assumptions impacted by the current financial performance and a delayed growth trajectory. The impairment test indicated that the carrying amount of Fueling exceeded measured enterprise value and required Nel to recognise impairment expenses in 2022. The impairment equals all goodwill previously recognised in Fueling of NOK 296 million and other technology (intangible assets) in Fueling of NOK 31 million. As a result, the operating loss in 2022 for Fueling of NOK -726 million (-209) includes the negative impact of a total of NOK 327 million in impairment expenses for the year. No impairments have been previously made to the Fueling division. DEVELOPMENT AND KEY PROJECTS Technology development Nel Hydrogen Fueling continues to see large increase in the utilisation of many of the stations already installed, and this enables accelerated learnings and improvements both within product maturity and overall reliability. Fueling a hydrogen vehicle (passenger or heavy duty) needs to be as easy and reliable as fueling a gasoline or diesel vehicle. The company will focus on developing its core technology with special focus on high-pressure compression, cooling and control. Nel will continue to incur research and development costs in an effort to advance hydrogen-fuelled transportation as a viable and reliable option across the globe. Nel continues to see the market of Heavy-Duty transportation move fast towards hydrogen. Therefore, the fueling division will continue to invest significantly in the development of next generation Heavy-Duty Vehicle (“HDV”) equipment such as 2019 2020 2021 2022 Europe USA Asia 0 50 100 150 200 250 300 350 400 TONNES OF H2 FUELED FROM NEL H2STATION ® Nel ASA I Annual report 2022 21 70MPa CAR Dispenser high-capacity station modules and dispensers. This is to serve customers who have a need for large capacity dispensing capability, enabling fueling of a heavy-duty truck in 10-15 minutes, to achieve a range of 1 000 km. In addition, there will be ongoing investments in factory and laboratory to be able to accommodate HDV fueling equipment. We believe that we are still at the very beginning of the development of hydrogen as a viable fuel for passenger and heavy-duty vehicles and other methods of transport. Nel fueling continues to be one of the world’s leading innovators and equipment providers in this important sector. Production capacity development • Manufacturing facility, Herning, Denmark – Nel’s H2Station™ manufacturing plant is located in Herning, Denmark. It has a capacity of 300 H2Station™ modules per year, leaving room for significant growth. Combining technology innovations with increased manufacturing capacity should enable Nel to further reduce the cost of our hydrogen fueling station solutions. Key commercial activities • Order intake in 2022 was NOK 297 million (2021: NOK 205 million) which resulted in a record-high order backlog at end of 2022 of NOK 388 million, up 32% from 2021. • Nel Hydrogen Fueling received large purchase orders for: – Signed a Capacity Reservation Agreement (CRA) with an undisclosed US energy company, for the delivery of 16 hydrogen fueling stations to be deployed in the US. Value approximately USD 7 million. The final purchase order is estimated to additional USD 10 million, with a final agreement expected first half 2023. Delivery of the fueling equipment is scheduled to commence in Q4 2023 and run throughout 2024. • Other purchase orders for: – Several H2Station™ modules in Paris, France, fuelling the world’s largest fleet of hydrogen taxis. – One H2Station™ hydrogen fueling module from HTEC in Canada. Value approximately USD 1.5 million. – Two H2Station™ fueling systems from a European client. Value approximately EUR 3 million. – Hydrogen fueling equipment from Biproraf in Poland. Undisclosed value. Multiple H2Station™ units from a European client. Value approximately EUR 8 million. Corporate developments • Nel appointed Håkon Volldal as new Chief Executive Officer (CEO) from July 1, 2022. • Nel raised NOK 1,500 million through a private placement in March 2022 • Subsequent event: In January 2023, Nel sold all its shares in Hyon AS for a total net consideration of about NOK 7 million. • During 2022, Nel has divested all its shares in Nikola Corporation for a total net consideration of about NOK 72 million. 22 Report from the Board of Directors SHAREHOLDERS AND FINANCING Nel’s shares are listed on the Oslo Stock Exchange under the ticker “NEL”. At the end of 2022, the company had 1 563 325 304 issued shares, consisting of 1 562 907 271 outstanding shares and 418 033 treasury shares, held by 27 544 known shareholders in addition to a substantial number of unknown shareholders owning shares through custodians (for example, through Clearstream Banking ). The list of 27 544 known shareholders includes a considerable number of Nordic institutional investors and private investors, while Nel’s investigations into the unknown shareholders through custodians indicate that these seem to be a large number of shareholders largely based in Continental Europe. The nominal value of the Nel share is NOK 0.20 per share. The company has placed considerable emphasis on providing shareholders, stakeholders and investors in general, with timely and relevant information about the company and its activities in compliance with applicable laws and regulations. Nel is committed to increasing awareness of the share in Norway and abroad. Distribution of shareholders Norway; 12.52% United States; 11.01% Sweden; 4.26% France; 1.89% United Kingdom; 1.43% Germany; 1.07% Other; 3.76% Unknown country; 64.07% Norway United States Sweden France United Ki ngdo m Germany Other Unknown country source: Modular Finance AB STRATEGY Nel has a history tracing back to 1927 and is today a leading pure play hydrogen technology company with a global presence. The company specializes in electrolyser technology for production of renewable hydrogen, and hydrogen fueling equipment for road-going vehicles. Nel’s product offerings are key enablers for a green hydrogen economy, making it possible to decarbonize various industries such as transportation, refining, steel, and ammonia. Governments and companies continue to focus on their energy transition and greenhouse gas reduction roadmaps. For many, renewable hydrogen is an integral part of the strategy. Nel is working to meet this rising demand by investing significantly in developing reliable, efficient, and affordable energy solutions that support environmentally sustainable activities. NEL DIVISIONS’ STRATEGIES Nel operates in two separate divisions, Nel Hydrogen Electrolyser, producing electrolysers for hydrogen production and Nel Hydrogen Fueling, producing hydrogen fueling stations for cars, buses, trucks, and other applications. Serving different markets, each division develops and executes its own strategy. NEL HYDROGEN ELECTROLYSER During 2022, the Nel Electrolyser division developed its 2025 strategy: Bigger, Better, Focused. In a market characterized by rising demand for renewable hydrogen solutions, the strategy focuses on maintaining Nel Electrolyser’s market leadership position. Nel Electrolyser’s analysis of the market is in line with the industry trend reports, showing that investments in electrolyser projects will continue to grow significantly in the coming years. While today, some of Europe’s largest installed hydrogen plants are approximately 20 MW in size, future production plants are expected to scale to hundreds of MW and then to GWs over the next years. Nel Electrolyser will pursue a broad market strategy, with a view towards winning large-scale orders. The fully-automated production facility in Herøya, Norway made Nel Electrolyser an early mover in the industrialization of electrolyser production. To enable future growth and decrease cost through scale, volume and automation, Nel Electrolyser plans to further expand its production capacity in Europe and North America. 24 Nel Electrolyser is the leading global electrolyser manufacturer, offering both AWE (alkaline water electrolysis) and PEM (proton exchange membrane) technology globally. Nel’s electrolyser technologies have improved continuously and set the industry standard for performance and total cost of ownership. Key to Nel’s strategy is to continue to improve and standardise current AWE and PEM products for different operating conditions, as well as to develop adjacent technologies. Nel expects to sell and deliver directly primarily in Europe and North America over the next couple of years until larger projects in other projects starts to materialize. As many of the largest projects are likely to be located in geographical areas with abundant resources of wind and solar energy, reducing electricity prices and carbon footprint, important export markets longer term is expected to include Chile and Australia. Nel Electrolyser has a partnership strategy and a network of agents across the globe to service other geographical markets. In addition, for larger capacity projects Nel is narrowing its scope of supply, concentrating on offering high-efficiency/low-cost cell stacks and gas separation units. Working closely with selected EPC, energy providers and downstream technology partners enables Nel to respond to customer requests outside Nel’s preferred scope. NEL HYDROGEN FUELING Nel Hydrogen Fueling is a leading manufacturer of hydrogen fueling stations that provide FCEVs (Fuel Cell Electric Vehicles) with fast hydrogen fueling. The Nel H2Station™ manufacturing plant and headquarter is in Herning, Denmark, while Nel Hydrogen Fueling also has installation and service organizations in South Korea, California, U.S. and in Europe. Since Nel began manufacturing hydrogen fueling stations in 2003, there has been significant investment into research and development, and Nel Hydrogen Fueling was among the first to achieve compliance with the international hydrogen fueling standard (SAE J2601) required by major car manufacturers. The H2Station™ technology is now being utilized daily in several European countries as well as in South Korea and California, and in the U.S., providing fueling stations to mainly light duty vehicles (such as passenger vehicles) as well as for heavy-duty vehicles (such as buses and trucks). There are ongoing strategic considerations on how to best capitalize on a highly experienced workforce and market-leading hydrogen fueling technology. Going forward, the company will focus on developing high capacity fueling stations for heavy-duty transportation, phase out old product platforms and old technology, and cultivate a smaller and better product portfolio. From now on, the company will focus on developing its core technology with special focus on high-pressure compression, cooling and control. Furthermore, Nel will collaborate closely with world-class partners Photo: Ferenc Horvath Report from the Board of Directors Nel ASA I Annual report 2022 25 on other components to offer the best product, reduce technology risk, and improve overall profitability. CLIMATE-RELATED SCENARIO RESILIENCE IN NEL’S STRATEGY Considering that 100 % of Nel’s revenue comes from renewable hydrogen technology, the resilience of Nel’s strategy within the different climate-related scenarios is robust. Key considerations are how fast our customers’ industries will grow and develop, how complex and price competitive green technology will be, and developments within renewable energy and the related grid. Nel’s strategy is stress-tested against different scenarios to assess parity with both fossil energy, grey and blue hydrogen. The hydrogen market is already large, but with only a fraction served by water electrolysis there are significant opportunities to transition the existing market into being increasingly renewable. In addition, we see regulations supporting the transition across the globe, with the EU and the US pledging hundreds of billions of dollars into zero-emission programs where hydrogen is the energy carrier of choice. Growth is expected not only to come from industrial applications, but also from currently transitioning diesel-based heavy-duty transportation into zero-emission renewable hydrogen. In order to meet cost-efficiency comparisons with diesel, these developments will require low-cost electrolysis and ultra-fast fueling, both areas where Nel is the global leader. There is significant uncertainty associated with the timing and pace of the growth expected in the hydrogen industry as it relates to renewable energy (as storage or carrier), the decarbonization of industrial activity (in refinery, steel or fertilizer production), and transportation (heavy duty or other). There is a risk that Nel is moving either too quickly or too slowly, meaning we are either over- or under investing in assets, technology and/or human capital development. Nevertheless, the global focus on addressing climate change through decarbonization is the megatrend that underpins our current strategy, and which is being supported by our increasing levels of multi-year order intake. STRATEGIC ALLIANCES Cooperation is vital in a rapidly growing renewable hydrogen industry. Combining resources, expertise and knowledge is a key enabler that allows us to improve our entire value chain effectively and rapidly, from engineering and procurement through installation, service, commissioning and aftersales. Strategic alliances can help shorten the timeline to achieving full competitiveness for our technologies. We are engaged in numerous strategic alliances, both domestically and internationally, with partners that share our values and commitment to customer dedication. We are actively pursuing new alliances in all areas of our business. Some of our alliances include: • EPC-partners: Enabling turnkey solutions for large scale hydrogen production facilities with predictable project execution. • Energy sources: Working with solar, wind and other technology providers to optimize the interface between renewable energy and electrolysis and optimizing the cost of renewable hydrogen production through seamless operation between the power supply and the electrolysis process. • Downstream technology partners: Optimizing the total offering through technical collaboration with specialists in key customer segments such as ammonia, methanol and local back-up power. MEMBERSHIPS AND ASSOCIATIONS Nel is member of several associations with a national, European and global footprint. Our presence in these associations enables us to communicate our position, market our technologies and support the development of appropriate hydrogen legislation and regulation. Some of our memberships include: • Hydrogen Europe • Renewable Hydrogen Coalition (RHC) • Hydrogen Council • Norsk Hydrogenforum (Norwegian Hydrogen Association) • California Fuel Cell Partnership 26 Report from the Board of Directors Risks and opportunities Nel’s regular business activities entail exposure to various types of risk. The company proactively manages such risks, and the board of directors regularly analyses its operations and potential risk factors and takes steps to reduce risk exposure. Nel places strong emphasis on quality assurance and has implemented quality-assurance systems in line with the requirements applicable to its business operations. Nel is operating in a fast-growing emerging market, with a long list of initiatives in many regions. The need to address growth opportunities and make investments ahead of actual market demand and revenue recognition, balanced with the need to appropriately allocate capital and demonstrate a viable business model, is a continual challenge. In this phase of fast growth, there are especially risks associated with technological change, both related to technology elements within the field of hydrogen as well as technology elements outside of the field of hydrogen. Other technologies under development could potentially make renewable hydrogen less relevant for the future. Additionally, if competitors gain advantages in the development of alternative technologies, this could affect the competitive position of the group. Nel’s ability to grow depends to a substantial degree on its ability to successfully acquire new customers, and to maintain and grow its relationships with existing customers. A number of Nel’s existing and potential customers are themselves planning for substantial growth, and should these customers fail to succeed with their business plans or fail to fulfil their contracts with Nel, Nel’s sales to such customers may be adversely affected. Nel is also to a certain degree dependent on a limited number of third-party suppliers for key production components for its electrolyser and hydrogen fueling products. To reduce the sourcing risk Nel’s supply chain strategy is to have dual supply chains on all components and raw materials. Nel currently has few components with single source and is at the risk of temporary supply chain disruptions should one or more suppliers fail to deliver. Another supply chain risk is whether the suppliers can follow the expected growth of the industry. In addition to making its current supply chain more robust, Nel is working to facilitate increasing volumes from important sub-suppliers. The timing of addressing such elements and risks is important. Moving too fast could result in an unnecessarily high cost level, with cash requirements beyond the current financing plan. CLIMATE-RELATED RISK FACTORS Nel assesses climate transition risks into two major categories: (1) risks related to the transition to a low-carbon economy and (2) risks related to the physical impacts of climate change. Nel constantly monitors product failure and technology obsolescence. There is a risk of reputational damage from product failure and failure to meet high expectation from our customers that Nel’s technology will deliver efficient products within an acceptable price range. Local authorities and governments have an important role in the renewable hydrogen sector by enacting legislations that support research and innovation and scalable investments in production and infrastructure. Reduced and/or delayed support from governments will halt the developments of the renewable hydrogen industry. In 2022, the United States took an important step by enacting the Inflation Reduction Act of 2022 and we believe that other developed countries and the European Union can enact similar legislations between 2023-2025. Raw materials supply issues could surface when the value chain experience exponential growth driven by efforts to abate climate change. For example, raw material Iridium is important for the manufacturing of PEM electrolysers. The total supply is limited and a significant reduction of Iridium consumption in PEM products and very high recycling rates will be necessary to reduce the risk. Our net zero target by 2050 depends on the supply of green steel sources for our production chain. No physical risks from i) temperature increases, or associated changes ii) weather patterns, sea levels, ecology or human habitation. Nel’s electrolysers requires water and may not be relevant to geographies with water stress prior to additional investments. A complete range of operational, financial, market and climate-related risk and opportunity factors are discussed in detail in notes 6.1, 6.2, 6.3 and 6.4, respectively. Nel ASA I Annual report 2022 27 Outlook SUSTAINABILITY FUTURE PROSPECTS Being accountable for our environmental footprint is emerging as a pivotal component in corporate transparency, and we aim to provide information as expected by our key stakeholders. Nel strongly believes that the renewable hydrogen market has a potential of great magnitude, supported by a wide body of research. Virtually every industry needs to realign their energy mix if we are to stand a chance of achieving the UN Sustainable Development Goals, and renewable hydrogen will be a part of the energy mix that enables the transition. Ramp-up investments, organizational expansion, new markets and larger order sizes were a few of the highlights of this past year, signalling an important increase in demand. Combined with an ambitious strategy of drastically reducing the total cost of ownership (TCO) to customers, we have established a solid framework for our technology, engineering and production divisions for the years to come. We must ensure that sustainable business practices are guiding our operations, with scalability, cost- leadership and world-class safety at our core. During the ramp-up stage of our business, taking a precautionary principal approach is necessary to promote sustainability within the organization. Moving forward, our global presence, coupled with strong financing, will help us remain the preferred partner. FINANCIAL OUTLOOK External and internal analyses support a market view that multiple gigawatts of electrolyser projects will reach final investment decision before 2025. Industrial applications represent the most promising near-term opportunities. Projects come first in mature markets, before large greenfield installations integrated with renewable energy sources gradually are expected to become another important market segment. As customers are increasingly looking to secure supply of electrolysers from high-quality suppliers, fearing that future supply could be constrained, market dynamics have improved for Nel during 2022. Nel is now able to negotiate large contracts with more favourable terms and conditions for projects that will be realised several years into the future, and the order book continues to grow. Nel is in a good position to maintain its lead in electrolysers. Nel’s production capability is an important differentiating factor short- to mid-term. Based on a large and growing pipeline of opportunities and improved funding schemes in both the EU and the US, Nel expects to win several new large-scale orders in the coming periods. Higher revenues in combination with higher margins on individual contracts and improved execution is expected to yield significantly improved profitability in electrolyser in the years to come, as revenue is recognized. This positive market outlook drives Nel’s continued investments in engineering, projects, and related personnel. It should be noted that the increasing size of projects leads to a long preparation and negotiation phase with significant paid as well as unpaid engineering work. Despite the positive market momentum, order intake is likely to vary significantly from quarter to quarter. In Fueling, the current market dynamics and outlook are different than in Electrolyser. The long-term market outlook is positive, but short-term demand continues to be challenging. Nel has high-quality energy companies on its customer list that believes that tomorrow’s heavy-duty vehicles will be powered by green hydrogen. These clients want Nel to continue as a provider of hydrogen fueling equipment to secure sufficient supply and contribute to technology developments. Margins in the Fueling division are currently low as quality costs related to the installed base increase with higher utilisation. This will continue until the performance of the installed base has been stabilized. Nel is dissatisfied with the profitability in its Fueling division and is considering and implementing operational and strategic actions to improve performance and profitability. 28 Report from the Board of Directors Nel ASA I Annual report 2022 29 4.2 Environmental, Social and Governance report Nel is reporting on sustainability on a group level, and reports on metrics and targets in an integrated annual report, following the GRI Sustainability Reporting Standards (GRI Standards: Core option). The report implements considerations found in Norwegian Accounting Act, Task Force on Finance Related Disclosures (TCFD), Euronext ESG Guidelines for listed companies, UN Guiding Principles on Business and Human rights, the UN Global Compact and the OECD’s Guidelines for Multinational Enterprises. ESG POLICY At Nel, sustainability is an integral part of the identity. The vision is to empower generations with clean energy forever. This vision is driving ambitions and priorities. Combating climate change is high on the corporate agenda, and sustainability is always incorporated into the strategic decision-making processes. The Board of Directors (BoD) is responsible for sustainability at Nel and is the owner of the ESG policy. The Board Audit, Risk and Sustainability Committee (BARSC) is the preparatory body to assist the BoD in exercising its oversight of ESG matters. Further, the Chief Executive Officer (CEO) has delegated the authority and responsibility to the Chief Financial Officer (CFO) for implementation and execution of the key principles as outlined in this policy. General follow-up and execution of daily operations is conducted by a dedicated ESG committee, consisting of members from group management and the business line”The ESG policy is available on Nel’s website. Visit www.nelhydrogen.com/sustainability. DOUBLE MATERIALITY Implementation of the European Commission adopted legislative Corporate Sustainability Reporting Directive (CSRD) and its European Sustainability Reporting Standards will enter into force for reporting year 2024 in EU and Norway. The directive introduces new reporting standards for reporting in accordance with the concept of double materiality. The concept increases the focus on materiality when reporting on sustainability matters. Information reported should be relevant whether from the perspective of material impacts on people and the environment, or from the perspective of financial materiality, or both. In addition, the information presented should be verifiable and comparable. The GRI Standards Index for Nel can be found on our website. Visit www.nelhydrogen.com/sustainability. STAKEHOLDER DIALOGUE Stakeholders are driving forces in Nel’s operations, and frequent stakeholder interaction is important to account for input across our value chain. Nel engages with a wide range of stakeholders. Overall, Nel experiences continuously rising expectations in all aspects of our work and we strive to address concerns that are expressed. We aim to improve our stakeholder dialogue by setting up a structured stakeholder dialogue program. Nel’s activities show the following key stakeholders: Employees Employees generally express views related to occupational health and safety, career development, and timely two-way communication as key areas of concern. Employees are often the first to address risks and opportunities, so efficient employee dialogue is important. Shareholders and capital market participants Our shareholders are vital contributors to the development of our company and important stakeholders with the power to influence our operations. As such, it is important to maintain regular stakeholder dialogue with our shareholders as our business develops. Quarterly presentations, annual reports, and investor relations activities are channels employed to keep an open dialogue with this group. In January 2021, we held our first capital markets day (CMD), allowing for a deep dive into our current operations and important activities. In April 2022, Nel invited investors and equity analysts to participate in the inauguration of the Herøya facility, providing more insights to capital market participants. Customers Customers are generally concerned with product safety, cost of ownership, responsible supply chains, the applicability of solutions, and general project execution. Our customer relations are formed on a project basis and active communication is required throughout the customer’s journey to deliver a satisfying product to the client, and to take home learnings to the organization. Suppliers Through its supply chain screening and procurement efforts, Nel sets requirements and requires insight into the ESG performance of suppliers. Also, that Nel operates honestly in-line with rules and legislations is important to provide to the suppliers. Most of the topics Nel raised to its suppliers 30 Report from the Board of Directors are related to quality, cost, delivery concerns, and alignment on ESG related topics. Another emerging topic subject to close dialogue is around growth, and whether a supplier can, or has, the ambition to grow with Nel. Partners As we develop and mature our technologies, strategic partners are significant drivers behind our progress. Their concerns are usually aligned with those raised by suppliers and customers, and our dialogue with them follows similar procedures. Governments Governments play a vital role as the regulatory body that forms policies and procedures, awards grants, and presents roadmaps for the energy transition. Regular dialogue and monitoring are necessary to ensure our product development meets requirements set by different governments. Proxy Advisors Nel’s shareholders to a large extent rely on proxy advisors when voting at the general meeting. Proxy advisors therefore provide third party insights and a critical view of proposals set out by the Board of Directors for general meetings. Dialogue with proxy advisors is important to align governance practices, such as management and board remuneration, board composition, selection of auditor and auditors’ fees, and authorization to increase share capital. ESG rating agencies Dialogue with various ESG rating agencies provides insights into ESG reporting materiality. While different agencies focus on somewhat different topics, Nel can, from dialogue to a larger degree, manage to navigate the topic of ESG reporting, which also gives insights to how to structure efficient internal reporting standards. Photo: Ferenc Horvath Nel ASA I Annual report 2022 31 UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS Nel supports the United Nations Sustainable Development Goals, and the company strive to document the actions made to meet the targets. Presented in 2015, the 17 goals were developed to address the most prominent sustainability concerns the society is facing. The Sustainable Development Goals are the most unifying and universally accepted set of goals and aspirations that are to be met by 2030, to protect our planet and the people who inhabit it. Nel continues the commitment through investments and organisational changes to optimise the company’s contribution to this transformative agenda. The company will contribute to the industrialisation of the green hydrogen economy, paving the way for the development of a global hydrogen economy and the trading of renewable hydrogen as a global commodity. Nel is fully committed to the promotion and implementation of the United Nations Sustainable Development Goals and limiting global warming to 1.5 degrees Celsius. Nel support all the sustainability goals outlined by the United Nations; however, we have chosen to focus on those where we can make a significant direct impact: MATERIAL ISSUES IMPACTING STAKEHOLDERS Material topics have been identified by assessing relevant issues that are of importance to key stakeholders and how these issues impact Nel’s operations and strategy. Nel defines material topics as areas that have potential to substantially impact the enterprise value of the company. These material topics will be disclosed and elaborated in the following annual report sections. The material topics has been categorized within the three main sustainability categories: Environmental, Social, and Governance factors and presented in the matrix on the next page. Our selected goals are: Nel provides clean energy production solutions to a vast range of industries and applications. Nel’s product offering is an enabler of clean energy infrastructure, and thus contributes to an increasing adaptation of renewable energy. The main contribution towards SDG #7 is in line with its strategic ambitions of 1) capitalize on the rapid development in the renewable industry by an extensive expansion of the company’s organizational capabilities, and 2) to significantly decrease total cost of ownership for renewable hydrogen production and consequently improve the applicability of renewable energy. At Nel, employees work in a safe and healthy environment. Nel never compromise on safety. The company strongly believe this is an absolute minimum to any successful long term sustainable business. All Nel sites have management systems put in place that safeguards employees’ health and safety. Nel aims to offer a workplace free of harmful incidents and injuries, and to promote a culture that identifies and create awareness through incident reporting and self-accountability. The company has set a HQSE target of zero-tolerance for discrimination of any kind, and grievance mechanisms should such a case emerge. Nel is committed to reducing the cost of green hydrogen production to enable affordable and easier available renewable energy, and thus also adaptation. This is aligned with the company’s vision to empower generations with clean energy forever. Nel is committed to offer market leading equipment for water electrolysis. The company is a frontrunner in technology development, efficiency, and cost reductions. Another key element is to industrialize equipment production at a scale with manufacturing concepts that allow for further technological advancements. Nel’s vision is to empower generations with clean energy forever. The business model is built on facilitating and enabling the energy transition towards a more sustainable society making renewable energy solutions commercially viable. Nel’s product offerings are key enablers for a green hydrogen economy, making it possible to decarbonize various industries such as transportation, refining, steel, and ammonia. 32 Report from the Board of Directors ESG MATERIAL TOPIC PAG E SDGS 2021 2022 TARGET 2023 TARGET 2025 E Climate change opportunity and emissions avoided 27 7, 13 Revenue eligible with EU Taxonomy na 92% 95% 100% Revenue non-eligible with EU Taxonomy na 0% 0% 0% Unallocated revenue na 8% 5% 0% E GHG emissions 29 13 GHG intensity (excluding scope 3) 2.69 1.64 1.30 1.00 Total GHG emissions (in ktCO2e) - scope 1 0 0 0 0 Total GHG emissions (in ktCO2e) - scope 2 2 1 2 4 Total GHG emissions (in ktCO2e) - scope 3 na 7 15 30 E/S Sustainability in electrolyser production 30 9, 13 Overall equipment effectiveness (own production) 50% 70% ~80% >80% Alkaline stack yield >80% >90% >95% >95% PEM stack yield 95% 95% >95% >98% E/S Responsible supply chain 33 8, 9, 13 S/G Transparency Act 33 8 Supplier audits concluded within the fiscal year 15 21 10 10 Third-party Integrity Due Diligence na 85% 100% 100% S Operational health and safety 32 8 Total recordable injuries frequency (TRIF) 4.9 11.5 0 0 Fatality rate 0 0 0 0 S Well-being at work 32 8 Gender balance 18.4% 18.5% >18.5% na Sick leave rate 2.4% 2.7% <2.7% na Employee turnover rate na 20% <20% na S Product safety 33 8, 9 Product-related safety incidents 0 0 0 0 S Cyber security 34 Cyber Security Training Awareness 87% 90% 100% 100% G Ethical business conduct and compliance 37 8 Compliance training (Nel's employees) na 93% 100% 100% Compliance training (Management and BoD) 100% 82% 100% 100% G Innovation and R&D 40 9 R&D spend in % of annual revenue and other income 22% 25% 10% 10% Total R&D spend (NOK millions) 173 248 na na * Accurate comparable numbers not available. ** Nel has initiated increased production capacity in Norway from 0.5 GW to 1 GW. Norway has a lower GHG emission per kWh than average in Nel, therefore, it is expected that the increased activity in Norway will reduce the GHG intensity for scope 2 in particular. *** Board of Directors Photo: Melissa Rose Nel ASA I Annual report 2022 33 Environment CLIMATE CHANGE OPPORTUNITY AND EMISSIONS AVOIDED Global emissions will have to fall more than 70% from 2020 until 2050 according to current pledges by governments in order to reach net zero collectively. in absolute terms, emissions would be reduced from 34 Gt today to below 10 Gt in 2050. If today’s trajectory continues the estimate is 43 Gt, clean hydrogen can contribute 7% reduction, i.e., 3 Gt reduction in 2050 . The use of renewable hydrogen will be an increasingly important part of tomorrow’s energy mix. It promotes energy security and resilience as well as provides economic value and environmental benefits for diverse applications across multiple sectors in the economy. Green hydrogen holds a central role in the global megatrend that is climate change. This is because efforts to limit global warming to 1.5 degrees Celsius, as recommended by the Paris Climate Agreement and the IPPC special report, has accelerated the drive towards low carbon solutions in all sectors, including industries and transport. It has generated renewed interest from governments and business owners in renewable hydrogen as an important part of the solution. Governments are recognizing renewable hydrogen’s ability to decarbonize sectors that would otherwise be impossible to fully decarbonize – such as personal or public transport, freight logistics, industrial heating and industry feedstock – and its role in energy security. There are numerous ways of producing renewable energy, but there is a lack of flexible storage and distribution solutions. Green hydrogen is a fully functional energy carrier produced from renewable energy sources but can also be an intermediary storage solution in situations where production and use occur at different points in time. Also, to produce renewable energy where it is cheap and in abundance, and transport to where the demand is, hydrogen could play a crucial role. This is integrated in Nel’s vision of empowering generations with clean energy forever, as hydrogen is unlocking the potential of renewables and enables global decarbonization. EMISSIONS AVOIDED Nel’s mission is to unlock the potential of renewables and enable global decarbonization. Nel believes that the emissions avoided from reference hydrogen products based on comparative assessments to renewable hydrogen will be substantial. According to IEA there was demand for 94 million metric tons of hydrogen in 2021, hydrogen predominantly derived from fossil sources. Current production of hydrogen is responsible for more than 900 million tons of CO2 emissions. Water electrolysis from renewable energy can reduce these emissions substantially, a transformation is relatively easy from a technical point of view. The generally accepted accounting methodologies for measuring emissions avoided in the next years (before climate related scenario of abundance renewable energy) has not been readily available to Nel. Nel has therefore not been able to report on the relative emissions avoided for Nel’s customers globally current year. Nel will follow the requirements within the ‘European Sustainability Reporting Standard” when in force, and report the emissions avoided in accordance with accepted methodology, when available. The sections below showcase some of the significant opportunities for renewable hydrogen, with emissions avoided as the basis for such assumption. FOSSIL FUEL PARITY To increase the distribution and adaptation of green hydrogen it must be cost competitive with hydrogen made from natural gas. The hydrogen market is already massive. 94 million tonnes per year is already produced and used in various applications. According to IRENA, about 4% of hydrogen production comes from electrolysis, though with a global average renewable share of about 33%, about 1% of hydrogen production was derived directly from renewable sources. The rest is derived using fossil fuels, which create carbon emissions and are damaging to the environment. It will therefore be a lower hurdle for companies to reduce emissions when green hydrogen reaches the same price level as fossil-based hydrogen. Nel is committed to continue with cost reductions and efficiency improvements for its technology in order to enable a green hydrogen economy. Electrolyser climate-related opportunities 1 Everything Nel is involved in relates to renewable hydrogen, and the energy transition. As such, climate related opportunities are the only opportunities for the company. Nel’s capital expenditures (Capex) and operating expenditures (Opex) are all related to renewable hydrogen technology. Case 1: Decarbonizing ammonia (“industrial application”) - How hydrogen is vital to sustainable farming Renewable hydrogen production by electrolysis is proving a viable pathway to sustainable ammonia, making fertilizer manufacturing and modern agriculture green. 1 Nel is a pure play renewable hydrogen company consisting of two operating segments, electrolyser and fueling. Both segments focus fully on the climate related opportunities. The percentage presented for each segment ties to financial statements disclosures for revenue, order backlog, capital expenditures and operating expenses, refer to disclosure 2.3, 2.1, 2.3 and 2.3, respectively. Corporate operating expenses are business and support related expenses for both electrolyser and fueling division 34 Report from the Board of Directors Renewable hydrogen is critical to sustainable ammonia production. It can reduce costs, boost capacities, and achieve decarbonization for the energy, mobility, and industrial sectors. This is to the benefit of the environment, as more than 235 million tons of ammonia produced globally every year represent 1-2% of the world’s energy consumption and around 1% of all human emissions. The uniquely interesting ammonia Although hydrogen’s role in producing ammonia for fertilizer manufacturing is just one of the hundreds of current and coming uses of hydrogen, ammonia is exceptionally interesting. Apart from unlocking the decarbonization potential, it can play an essential role as a life-sustaining commodity and be a high-density carrier of hydrogen energy, allowing the exportation of hydrogen and, thereby, cost-effective energy. Furthermore, it is relatively easy to ‘crack’ the ammonia to liberate hydrogen at the point of use for various applications. Also easing the cost is the fact that a massive ammonia distribution infrastructure is already in place. Meeting the fast-growing demand Nel has delivered electrolyser equipment to green ammonia projects, among them one of Europe’s largest renewable hydrogen plants, located in Puertollano, approximately 250 km south of Madrid. There, the energy company Iberdrola produces renewable hydrogen for Fertiberia’s fertilizer plant. The 20 MW PEM electrolyser plant will reduce the CO2 emissions from fertilizer production as green hydrogen replaces fossil fuels. Nel will also deliver an alkaline electrolyser system for Skovgaard Energy to produce green ammonia in the small village of Ramme in Western Jutland, Denmark. The plant, to be built by Skovgaard Energy and their Danish project partners, Topsoe and Vestas, will be the world’s first dynamic green ammonia plant, where renewable electricity from wind and solar will be connected directly to the electrolyser. Case 2: Mobility (“fuel cell electric vehicles”) - Fueling future transportation Green hydrogen is witnessing a surge in demand, also in the heavy-duty transportation sector, as companies and governments strive to adopt greener energy sources. This shift towards clean energy opens new opportunities for green hydrogen technology companies like Nel. Electrolyser 75 % Fueling 25 % R E V E NUE Electrolyser 85 % Fueling 15 % O RDER BACK L OG Electrolyser 59% Fueling 34% Corporate 7% O P E X Electrolyser 81 % Fueling 19 % CAPEX Nel ASA I Annual report 2022 35 Today, the transport sector accounts for as much as 15% of the world’s greenhouse gas emissions. Many governments are therefore setting ambitious targets to reduce their carbon emissions, and hydrogen is seen as a promising solution for reducing the footprint of the transportation sector. For example, the EU aims to develop a network of hydrogen fueling stations for every 100-150 km in Europe. Green hydrogen, produced using renewable energy sources such as wind and solar power, is particularly attractive because it has no emissions during use, making it a cleaner alternative to fossil fuels. In addition, hydrogen fuel cell vehicles have a range like conventional vehicles and can be fueled quickly, making it a practical choice for use cases needing high utilization. Nel is therefore investing in developing fueling stations and electrolyser equipment. In 2022 Nel entered a collaboration with General Motors, which has decades of experience developing fuel cells for hydrogen vehicles. The partnership aims to create more efficient and cost-effective hydrogen production equipment, making renewable hydrogen competitive with fossil fuels. Many of Nel’s customers are planning to produce hydrogen for heavy-duty vehicles. One of them is Woodside Energy, which has ordered large-scale electrolyser equipment for a hydrogen facility in Ardmore, Oklahoma, an area well suited for hydrogen production with good availability of water and energy. This further demonstrates Nel’s commitment to supporting the growth of renewable hydrogen in heavy-duty transportation and reinforces its position as a leader in the industry. Furthermore, Nel is delivering fueling station systems to high- quality energy companies, such as Shell, that firmly believe tomorrow’s heavy-duty vehicles will be powered by green hydrogen. First, however, the technology must be further developed and improved to meet society’s growing demand for fueling stations. Nel will therefore focus on developing high capacity fueling stations for heavy-duty transportation, phasing out old product platforms and technology, and cultivating a smaller and better product portfolio. In addition, Nel will focus on developing its core technology with a particular focus on high-pressure compression, cooling, and control. Nel will also collaborate with world-class partners on other components to offer the best product, reduce technology risk, and improve overall profitability. CLIMATE-RELATED RISK FACTORS Nel assesses climate transition risks into two major categories: (1) risks related to the transition to a low-carbon economy and (2) risks related to the physical impacts of climate change. Nel constantly monitors product failure and technology obsolescence. There is a risk of reputational damage from product failure and failure to meet high expectation from our customers that Nel’s technology will deliver efficient products within an acceptable price range. Local authorities and governments have an important role in the renewable hydrogen sector by enacting legislations that support research and innovation and scalable investments in production and infrastructure. Reduced and/or delayed support from governments will halt the developments of the renewable hydrogen industry. In 2022, the United States took an important step by enacting the Inflation Reduction Act of 2022 and we believe that other developed countries and the European Union can enact similar legislations between 2023-2025. Raw materials supply issues could surface when the value chain experience exponential growth driven by efforts to abate climate change. For example, raw material Iridium is important for the manufacturing of PEM electrolysers. The total supply is limited and a significant reduction of Iridium consumption in PEM products and very high recycling rates will be necessary to reduce the risk. Our net zero target by 2050 depends on the supply of green steel sources for our production chain. No physical risks from i) temperature increases, or associated changes ii) weather patterns, sea levels, ecology or human habitation. Nel’s electrolysers requires water and may not be relevant to geographies with water stress prior to additional investments. 36 Report from the Board of Directors EU TAXONOMY The Taxonomy Regulation entered into force on 12 July 2020 within EU. In 2021, Norwegian law adopted a new act on sustainable finance that implements that Taxonomy Regulation and the Disclosure Regulation. It has been decided to incorporate the regulations into the EEA Agreement and the decision enter into force in 2023. The purpose of the framework is to have common definitions for what constitutes sustainable activities and to be used by any relevant market participant. Nel’s business activities are covered by the EU Taxonomy on Sustainable activities for Climate Mitigation listed in economic activity 3.2 Manufacture of equipment for the production and use of hydrogen. Nel’s equipment has the quality to comply the technical screening in 3.10 for the life-cycle emissions savings assuming a scenario including sufficient renewable energy in the grid. Therefore, Nel’s revenue of core equipment is an eligible economic activity within the EU Taxonomy framework. All of Nel’s activity is within renewable hydrogen sector, therefore, capital expenditures (Capex) and operating expenditures (Opex) are all generally related to renewable hydrogen technology. To be fully aligned with the EU Taxonomy framework, Nel needs to qualify on the basis of i) Substantial Contribution, ii) Do No Significant Harm to other sustainability objectives and iii) Minimum Safeguards. In the course of 2023, Nel will report on the percentage of its activities that are taxonomy aligned after completing the necessary analyses of the above requirements. As all Nel’s current economic activities have the potential to be taxonomy aligned Nel regards the potential for close to full alignment with the EU taxonomy as high. Eligible 92% Non-eligible/ unallocated 8% Revenue The measure of 92% eligible activity refers to the sum of turnover of equipment in Electrolyser and Fueling compared to total turnover, in 2022. The remaining 8% is for now reported as unallocated non-eligible pending on conclusive analysis on whether services delivered in conjunction with the equipment delivery will qualify. Examples of such revenue streams in Nel includes FEED study, EPC, installation, commissioning and operating and maintenance. Eligible 99% Non-eligible 1 % Capex All capital expenditures relevant for the manufacturing facilities and related technology development has been included as eligible economic activities. The non-eligible economic activities comprise capital expenditures related to other corporate capital expenditures. Aligned activities include Opex related to assets or processes associated with Taxonomy-aligned economic activities, including training and other human resources adaptation needs, and direct non-capitalised costs that represent research and development. Nel understands that the definition of Opex in the numerator and denominator is not readily available and that the establishment of standard interpretation and practice might vary. Eligible 80 % Non-eligible 20 % Opex Nel ASA I Annual report 2022 37 Water consumption and withdrawal in water-stress areas Based on the atomic properties of water, 1 kg of hydrogen requires 8.92 litres of water. Comparing water consumption for electrolysis with other energy processes, the water footprint of certain fossil-based pathways exceeds that of hydrogen. Crude oil recovery and diesel refining uses around 40% more water than the production of green hydrogen per unit of energy. 2 From a circular economy perspective, hydrogen technology doesn’t consume water as water is produced, in its purest form, at the end of the cycle. It also avoids water contamination associated with various fossil-fuel processes. Water is also produced as a biproduct when hydrogen is used in mobility applications. However, distribution of water could offer a challenge. Currently, electrolyser technology uses highly purified water. This does not mean, however, additional strain on freshwater systems. The water needed for large-scale electrolysis, can be provided by any water resource (sea water, wastewater, 2 (PDF) Development of a Life Cycle Inventory of Water Consumption Associated with the Production of Transportation Fuels (researchgate.net) etc.) once demineralised via reverse osmosis (RO) plants. 3 Continuous development of adjoint water desalination plants, alternative modes of low-grade and saline surface water electrolysis 4 , and water provision via wastewater treatment plants provide evidence of their feasibility and cost- effectiveness. Water stress can also be minimised by adding desalination plants at the electrolyser site. This investment acts as a precautionary instrument to shield local population from water resource deprivation. In fact, should the need exist, water desalination plants for electrolysis could be planned to produce water not just for the production of hydrogen, but also for local use as a freshwater resource for human consumption and/or irrigation, thus creating multiple benefits to the local area. 3 Quantification of freshwater consumption and scarcity footprints of hydrogen from water electrolysis: A methodology framework - ScienceDirect 4 Electrolysis of low-grade and saline surface water | Nature Energy GREENHOUSE GAS (“GHG”) EMISSIONS Nel strives to be transparent with regards to our impact on the environment and continue to improve the internal process for collecting data that provides an overview of our emissions and their origins. The inclusion of scope 3 emissions is dependent on data from several sources, e.g., travel agencies, freight forwarders, other logistics and meters. To date, this is not included in our calculation of CO2 intensity as it has been challenging to gather complete and accurate data. For future reports, the company aims to extend the reporting scope and to include a selection of scope 3 emissions. These have been identified to be business travel, waste, and downstream distribution. Fueling PEM AWE ASA Scope 1 yes yes yes yes Scope 2 yes yes yes yes Scope 3 yes yes yes Business travel yes yes yes Waste yes yes Purchased goods and services yes Use of sold products yes yes yes yes = data points have been included in the reported scope 1-3 emissions, while blank means it has not been included. All other scope 3 emissions categories not listed has not been included in the scope 1-3 GHG inventory reported in 2022. While there will be emissions in all categories, Nel is a global company with global distribution and therefore estimates that transportation (inbound and outbound) is the main data point missing for complete data. Purchased goods and services includes the emissions from significant raw materials. 38 Report from the Board of Directors GHG consolidation method The greenhouse gas emissions disclosed in this report were consolidated using the control approach. Under the control approach, a company accounts for 100% of the GHG emissions from operations over which it has control. 0 0 0 0 1 1 2 1 7 0 1 2 3 4 5 6 7 8 9 10 2019 2020 2021 2022 ktCO2e Total GHG emissions (in ktCO2e) ktCO2e (scope 1) ktCO2e (scope 2) ktCO2e (scope 3) Scope 1 Nel has 29 cars and 11 forklifts. Around 50 % of the vehicles are either battery electric or fuel cell electric. The majority of the scope 1 emissions of 401 tCO2e is therefore fuel consumption. Scope 2 The majority of emissions from scope 2 of 1 223 tCO2e is the use of electricity from grid connected production in company owned or leased locations. The electrolyser division consumes energy while performing tests on our products before they are shipped to our customers. Nel’s absolute emissions the next years will correlate with the activity level achieved. An increase will occur if Nel continue to increase production capacity. Nel’s goal is to decrease the CO2 footprint per product produced. We will achieve this by improving the stability and scalability of our production processes. In addition, Nel pledges to become fully electrified and use renewable energy to the extent available. The measurement of the reported greenhouse gases is the energy consumption multiplied with emissions factor for the relevant connected grid. Nel’s manufacturing facilities are connected to the grid in Norway, Denmark and Connecticut, US. Each grid has its own emission factor based on location- and marked based emissions. These emissions factors are updated regularly by the source provider. Norway The manufacturing facility in Herøya is connected to the grid in price area NO1. Norway’s energy production mix comprise of over 90% of hydro power, however Norway is connected to the European continent by power cables resulting in a lower percentage of renewable energy in the mix. Nel has decided to not purchase green certificates for its electricity, and has therefore used a ”Nordic Mix” to measure its CO2 emissions from energy consumption in Norway. The emission factor for the energy use in Norway is measured at 0.031 kgCO2/kWh. Denmark The electricity usage in Herning, Denmark, consist of mainly heating and input to the production facility. Both location- and market-based emissions are accounted for. The emission factor for the energy use in Denmark is measured at 0.125 kgCO2/ kWh. Connecticut, United States The facility in Wallingford, Connecticut, has an energy mix that consists of approximately gas, nuclear, hydro, wind and biomass. In total, about 20% of the fuel mix is renewable. The emission factor for the energy use in Wallingford is measured at 0.224 kgCO2/kWh. Scope 3 Purchased goods A significant portion of Nel’s greenhouse gas inventory stems from purchased goods, such as metals, steel, nickel, platinum and iridium. Use of sold products The fueling stations, alkaline electrolysers and PEM electrolyser equipment produced by Nel have no emissions in use when connected to renewable power sources like wind, solar, or hydro power, either grid-connected or off-grid. Nel has no control over the renewable energy mix in its customers production facilities, and this will not be 100% emission free until there is sufficient energy production from renewable sources. All customers producing hydrogen from water electrolysis has its plan to produce from renewable energy sources to reduce the carbon footprint from its operations. Nel has in the scope 3 reporting assumed zero emissions from use of sold products. Nel ASA I Annual report 2022 39 GHG intensity The GHG intensity is presented excluding scope 3 as the complete scope 3 has not yet been included. The GHG intensity has decreased in 2022 compared to prior years as a result of increased revenue in the group from particular the increased production in Norway. Norway has low GHG emission, below the group’s average. 2.71 2.18 2.69 1.64 0 1 1 2 2 3 3 2019 2020 2021 2022 ktCO2e/MNOK turnover GHG intensity (excluding scope 3) GHG intensity (excluding scope 3) NET ZERO 2050 - GREENHOUSE GAS EMISSION (GHG) TRAJECTORY The outlook for scope 1-3 in Nel includes several forward- looking data points with significant estimations uncertainty and involves risk of low reliability and/or comparability. Nel does not provide any guiding on production volume or revenues, therefore, Nel has not been able to show the detailed absolute emission trajectory towards net zero. Nel reported that GHG emissions this year is not significant, however, it is evident that the renewable hydrogen industry will witness increasing GHG emissions when going through industrialisation, while the total absolute annual GHG emissions should be very limited comparing to conventional technology. Thus, the emissions avoided is significant, refer section “Climate change opportunity and emissions avoided” above. Nel’s ESG policy include a pledge to reduce greenhouse gas emissions per produced unit by 25%, 50% and 100% within 2030, 2035 and 2050, respectively, compared to 2020. Nel will monitor the reduction plan by improved reporting procedures and data quality for material scope 1, 2 and 3 emissions. The majority of GHG emissions in Nel would be categorised as Scope 3 emissions, where reductions will mainly come from purchased goods and transportation. An example of significant purchased good in Nel is steel. The timing of decarbonization of the steel industry is uncertain but roadmaps already include likely decarbonization from sustainable amendments in steel production (hot direct reduced iron, hot briquetted DRI, blast furnace). It is therefore expected that a certain volume will be available before 2030. Nel’s GHG reduction trajectory includes estimates that the volume of commercialised renewable steel will increase from 2030-2040. The steel production market is a climate-related opportunity for Nel. In addition to reductions within purchased goods, Nel estimate GHG reductions in the transportation industry when the mobility fleets become more sustainable (electrification, e-fuels and biofuels). Also in this spectrum, Nel’s GHG reduction trajectory estimate the majority of these reductions become visible beyond 2030. Nel also estimates that GHG reductions per unit will be achieved by increased volumes produced, as some GHG emissions are not fully variable and correlated to the production volume. Base year Stabilty and scalability Electrification Green steel Mobility 2030 Stabilty and scalability Electrification Other emissions Green steel Mobility 2035 Green steel Mobility Other emissions 2050 0 10 20 30 40 50 60 70 80 90 100 Greenhouse gas emissions per unit 25 % reduction from base 50% reduction from base 100% reduction from base SUSTAINABILITY IN ELECTROLYSER PRODUCTION Nel is committed through its company ESG Policy to state- of-the-art sustainable production facilities for both current productions, committed expansions and if further scaling up. The environmental footprint of a product throughout its lifetime, factoring in the hydrogen output and production costs, is markedly reduced by utilizing hydrogen solutions compared to traditional energy sources. This does not mean that the production of our applications is entirely carbon- neutral, however. Sustainability in production is a vast topic and is necessary to address in more detail. In our decision to report in accordance with established international sustainability standards lies an important commitment to increase our focus on sustainability in our actions, not just in the opportunities that arise from our products in operation. This requires an organizational realignment, and we will continuously pursue improvements in all our operations going forward. During 2022, the alkaline electrolyser recertified ISO 9001, 14001 and 45001, and implemented ISO 50001 Governance system and procedures at Herøya. PEM added ISO 14001 and 45001 certifications to ISO 9001 certification in 2022. Key metrics and targets include increasing stack energy efficiency and eliminate the use of dangerous hydrofluoric acid (HF) from the cell stack assembly room. The plan to eliminate such use is implementation of a sputtering process. Sputtering will reduce the number of parts that go through an electrochemical etching process. Nel will improve on emission reporting, formalise initiatives through policies and procedures, and encourage dialogue across divisions to identify key areas of improvement. RESILIENCE IN ELECTROLYSER MANUFACTURING FACILITIES Nel has expanded electrolyser production to accommodate large-scale projects by constructing a fully automated manufacturing facility at Herøya, Norway. The factory is designed according to lean manufacturing and industry 4.0 principles and represents the first industrial-scale production of the most efficient electrolysers on the market, at a game- changing low production cost. The capacity of the facilities in 2022 was 0.5 GW annually, with committed expansion to 1 GW capacity from second quarter 2024. The Herøya facility can be expanded further to 2 GW. Nel has announced further expansion plans in the US, where a site selection process is expected to be concluded in the first half of 2023. Nel’s new manufacturing facility in the US is planned to have capacity to grow to a total of 4 GW, distributed between PEM and alkaline. The resilience in Nel’s manufacturing facilities is robust considering new state-of-the-art fully automatized production concept located close to highly skilled technology personnel, capacity aligned to the market, and also close to the customers. Sustainability in electrolyser production metrics and targets as of end of 2022: KPI 2021 2022 2023 2025 2030 Electrolyser production, Alkaline Stack yield >80% >90% >95% >95% >98% Overall equipment effectiveness 50% 70% ~80% >80% >85% Electrolyser production, PEM Stack yield 95% 95% >95% >98% >98% System yield 85% 85% >85% >90% >90% Nel ASA I Annual report 2022 41 Social ORGANISATION AND OCCUPATIONAL HEALTH AND SAFETY At Nel, social responsibility refers to how we address social issues that ultimately impacts our contribution to society at large. Nel’s focus on safety is integrated into a company-wide programme. The purpose of the programme is to foster a common, sustainable safety culture that drives a zero-tolerance attitude towards HSE incidents for all Nel employees. This ongoing effort drives a culture of continuous improvement and a sustainable safety culture at Nel. The approach is anchored with Nel’s executive management team and Board of Directors and is reviewed on a regular basis by a steering group. The programme focuses on all aspects of safety including, workplace safety, product safety and stakeholder safety. Following HSE and quality being #1 priorities within Nel, all Nel sites have management systems in place that safeguard our employees’ health and safety. Relevant indicators on work related injuries and illness are monitored and reported at a corporate, divisional and local level. Nel aims to provide a workplace for everyone that is free of incidents and injuries, and to promote a culture of hazard identification and awareness through incident reporting and self-accountability. Employees are provided with appropriate training and equipment to perform their job safely. The guiding principles for workplace safety are laid out in the Nel Code of Conduct. TRIR (total recordable injuries per million hours worked) in 2022 was 11.5 (4.9) and there were 0 (0) fatal accidents. Nel recognises that ensuring i) workplace, ii) stakeholder and iii) product safety in a diligent manner is a license to operate within the Hydrogen industry. The above three categories will have the following focus areas: 1. Transition to a “HSE-first” mindset and development of a commitment culture 2. Ongoing development and implementation of a Nel HSE management system 3. Standardization of programme activities where relevant throughout the organization 4. Training and evaluation of the organization and system effectiveness PRODUCT SAFETY Safety is the number one priority at Nel. Management and all employees are strongly committed to the company’s promise of delivering fail-safe products to our customers. The product safety risks include the risk range from major accidents to near misses related to malfunctions in our products and/ or insufficient service during operations and maintenance. Each division and legal entity in Nel are responsible for the development, implementation and maintenance of risk management framework and system within each discipline. In our development of products, Nel never compromises on safety requirements, codes and standards. Where applicable, safety requirements include third-party product certification for design and manufacturing. In addition, a Nel HSE committee that works across the organization and consists of participants from each legal entity, as well as the corporate function, ensures learning across sites and the establishment of best practice. Third-party experts are involved as subject matter experts when applicable. In 2023, Nel will continue the implementation of even more rigorous methodologies, e.g., a review system where specific areas will be assessed to identify areas of improvements. In 2022, Nel implemented Nel Business System (NBS) across the whole organisation. NBS focuses on how Nel will achieve customer satisfaction and have HSE, quality and ethics as first priorities to achieve this. The introduction and training for both leadership and Nel as a whole for this initiative was started in 2022. The Nel Business System is a part of our employee value programme. Product safety targets for 2023: • Zero product-related incidents, including at sites with Nel equipment • Recognized safety leader within the industry, setting new industry safety standards across the value chain 42 Report from the Board of Directors RESPONSIBLE SUPPLY CHAIN A well-functioning supply chain is determined to be one of Nel’s key success factors. Nel’s spend on purchasing goods and services in 2022 was a significant part of total revenue, equalling about NOK 1 100 million. Nel expects that the total spend will increase in line with Nel’s increased activity level. A responsible supply chain is therefore an integral component of our sustainability efforts, and we seek to select and further develop suppliers with high standards. Nel is committed to work with the whole supply chain in a structured approach to meet the company’s overall targets within ESG. One of the key activities in 2022 was to continue to strengthen the supplier base with new competitive suppliers capable of managing the marked growth and also being able to deliver large and complex systems at the highest standards. Although 2022 was a very challenging year due to post-pandemic issues and the war situation in Europe, Nel continued to qualify and enter supplier agreements with a number of new key suppliers, while also strengthening the relations with existing core suppliers. This sums up in a robust supply chain which provides Nel the predictability and capability for continued growth. The effects from the corona pandemic continued to challenge the process of conducting on-site supplier audits, most considerably in the first quarters. Despite the challenges, Nel managed to conduct 21 audits in 2022 well above the target of 10 key supplier audits. We continue to perform supplier audits as a part of Nel’s supplier selection process and aim to conduct audits on 100% of our new key suppliers. Nel has met its 2022 target of developing and screening new direct high-risk suppliers using the revised pre-qualification process. The supplier pre-qualification process has been implemented across the Nel Group for complex projects. It contains a foundation of common questions for all business units, with adjustments made to fit the objective for each case or business unit. The process is formalised in a digital environment to optimize the pre-qualification process. Nel experiences a continued increase of focus and expectations related to ESG topics. The established dedicated Nel Procurement Community has had quarterly meetings throughout 2022, and consistently included ESG as the backbone in all meetings. By working systematically with ESG, the company ensures compliance with both legal requirements as well as alignment with initiatives in which Nel has committed to. As a result, ESG was prominent in supply chain efforts in 2022, and the company will continue its efforts of identifying synergies in supply chain activities across Nel going forward as well. Nel ASA I Annual report 2022 43 Other significant organizational developments: • Centralized responsibility for planning, sale and execution of large-scale projects • Areas of strategic purchasing competence have been strengthened throughout the year • Development of best practices and the procurement toolbox • Strengthen the supply chain organization significantly to scale-up for increased size and number of projects Significant supply chain changes • Ramp up of Supplier capacity to meet the increasing demand • Opening of Herøya facility • Continued to develop the partnerships with major EPC companies • Increased local contractor capacity. Building on the goals and targets laid out for this year, the Nel Procurement Community has identified a selection of key areas for development throughout 2023. This includes continuing to develop the pre-qualification and supplier development programme, and to: • Implement a supplier declaration to secure commitment to good business ethics throughout the supply chain. • Establishing a supplier portal enabling Nel suppliers readily available access to amongst other our whistleblower programme, the “Nel Ethics Hotline”, key documents, including code of conduct, Nel’s values and other information and relevant tools for the engagement with Nel • Secure the required capacity and supply of goods in a challenging market, so the supply of goods will be delivered on time and with no or limited delays in operations and installation • Ensure highest quality and HSSE performance through additional supplier audits and launch of supplier development programme TRANSPARENCY ACT According to the Norwegian Transparency Act which entered into force July 1st, 2022, Nel has a duty to carry out a due diligence assessments related to fundamental human rights and decent working conditions in its own businesses and supply chains. Guidelines and Measures To ensure awareness in Nel’s organisation concerning the challenges related to fundamental human rights and decent working conditions and to prevent adverse impact on human rights in Nel’s business activities Nel has implemented a Human Rights policy. The policy describes how Nel shall manage human rights in our operations, as well as in the communities affected by Nel’s business operations. The policy is applicable to Nel ASA, its subsidiaries and to all Nel employees. The policy also applies to all suppliers of Nel. Furthermore, as part of Nel’s procurement process, and in accordance with Nel’s Third Party Management and Integrity Due Diligence Procedure (the “IDD Procedure”), Nel performs an integrity due diligence (“IDD”) on all suppliers (and the majority of the parties it contracts with). All IDDs are performed by a third-party company which specializes in IDDs, and the extent of the IDD will depend on an initial risk assessment of the supplier (low, medium or high). In addition to the IDD, which is performed on all suppliers, new direct high-risk suppliers will going forward also be subject to a more thorough pre-qualification process, ref. Section responsible supply chain above. Moreover, during 2023 Nel will implement a specific mandatory supplier declaration to further increased awareness and secure commitment to good business ethics throughout its supply chain. If red-flags are uncovered during the IDD, the IDD Procedure sets out the process for how such red-flags shall be handled. If the procurement process is not stopped as a result of the finding, adequate measure will be put in place to prevent or mitigate the risk. Nel also has a system in place where employees, business partners and stakeholders can report anonymously (the Nel “Ethics Hotline”), refer separate section “Whistleblowing” if they have observed or experienced acts that violate the respect for human rights in connection with Nel or its business operations. If any such reports are received, they will be investigated in accordance with Nel’s Investigation Procedure, and if the investigation finds that there is merit to the report, appropriate measures will be implemented. 44 Report from the Board of Directors General Risk Assessment of Nel’s Own Operation and Nel’s Supply Chain The risk of human and labour rights abuses differs between countries and when making a general assessment of the risk of human rights abuses it is relevant to look at the countries in question. When assessing country risk Nel has used the “Corruption Perception Index” published by Transparency International (the “TI-Index”). The TI-Index scores each country from 1 – 100 where 100 is the highest score. Nel ASA and all business units, including subsidiaries, are based in jurisdictions which score amongst the top 18% of the 180 countries scored in the index. Norway, Denmark and the United States, where Nel’s main facilities are located, are ranked no. 4, 1 and 24, respectively, on the index. Further, the terms of employment and working conditions of Nel employees are in accordance with local legislation and international norms. The risk related to Nel’s own operations is therefore considered to be low. Each Nel business unit has its separate supply chain which must be assessed separately. In the figures below we have assessed country risk in the supply chain of each business unit and overall, across all business units. For the purpose of the diagrams below we have split the index into five intervals (diagrams are based supply chain information from 2022). The figures to the right documents that overall Nel predominantly has suppliers from low-risk jurisdictions. 99% of Nel’s suppliers are within the top two intervals (55% and 44% respectively), and there are no suppliers in the two bottom intervals. For Fueling and Alkaline 86% and 93% respectively are in the top interval. For PEM, 4% are in the top interval and 95% are in the second interval. For PEM 91% of their suppliers are based in the United States which is in the second interval with a score of 69 (ranked 24 of all 180 countries). Based on an overall assessment of country risk, risk of violations of fundamental human rights and decent working conditions in Nel’s Supply chain is considered too be low. In addition to country risk, the risk of human rights abuses also differs between product categories. Metals and minerals are product categories which generally implies a high risk, related to both the extraction and the processing of the metals/ minerals, and a particular high level of awareness is required in respect of minerals on the OECDs list of so-called conflict minerals . Metals are also a key component of Nel’s products. The Alkaline electrolysers contain steel and nickel, the PEM electrolyser contain steel, aluminium, nickel, copper, platinum, titanium and iridium, and the Fueling stations contain steel. None of these metals are on the OECD’s list of conflict minerals, but due to the general high risk related to metals, Nel’s supply chains related to metals demand a specific focus. SUPPLY CHAIN FUELING 81-100 86% 61-80 14% 41-60 0% 21-40 0% 1-20 0% SUPPLY CHAIN OVERALL 81-100 55% 61-80 44% 41-60 1% 21-40 0% 1-20 0% SUPPLY CHAIN PEM 81-100 4% 61-80 95% 41-60 1% 21-40 0% 1-20 0% SUPPLY CHAIN AWE 81-100 93% 61-80 4% 41-60 3% 21-40 0% 1-20 0% Nel ASA I Annual report 2022 45 CYBER SECURITY Protecting our operations is essential and will become increasingly important as the global use of connected devices continues to rise. Protecting our intellectual property will remain a priority, especially as the use of big data, such as for our fueling stations and electrolysers, continues to increase in importance and being part for critical infrastructure. Nel continues to invest in protection measures to mitigate exposure to safety and reliability issues in our production sites, in addition to leakage of confidential data, legal and regulatory compliance violations, insider threat from dismissed employees or contractors and loss or malicious modification of business-critical data. The inherent cyber security risk continues to increase as malicious players innovate and evolve their techniques to increase their success rate, therefore Nel continue to invest in preparedness. All employees are required to complete monthly IT-security training. A total of 90% of Nel employees have completed monthly cyber security awareness training during 2022. The training covers essential topics of cyber security. External consultants have been engaged to uncover and report on IT-related security threats. All of Nel’s cloud suppliers have the required certifications and have been selected after a thorough supplier due diligence process. Nel’s manufacturing facilities are only somewhat integrated into the IT-systems and run mostly independent. Part of the production process involves higher degree of robotisation which are connected and consequently constitutes an increased risk. There were no breaches of customers’ privacy in 2022, nor were there any reported cases of identified leaks, thefts, or loss of customer data. DIRECTORS & OFFICERS INSURANCE (D&O) Based on requirements brought by the Norwegian Accounting Act section 3-3a, information about our D&O insurance is provided. Nel has entered into a D&O liability insurance. This insurance is meant to prevent employees and members of the Board at Nel from being held personally responsible for decisions made by the company. The insurance applies to all material decisions made by employees on behalf of Nel. Photo: Unsplash.com 46 Report from the Board of Directors WELL-BEING AT WORK In 2022, Nel has strengthened its global HR development with Nel Business System as backbone for all development. In January 2022 we introduced a common HR-system across the different divisions and locations, optimising the HR processes. The HR-system is module based, which means it can be combined and configured to meet requirements of the company. In January, the company introduced modules for core HR, appraisal and development processes and the learning management. During the last quarter of 2022, the company implemented the recruitment module making it customer friendly for both applicants, leaders and HR. It also contributes to develop and improve our talent acquisition pool. This implementation ensures a more efficient recruitment process. In 2023, Nel will continue to strengthen its HR developments across the company. One key priority will be to develop and implement activities that contribute to create a common culture. These activities will ensure a tighter connection to its core values and a deeper internal understanding of the business strategy. A common onboarding program will be launched, improving the change management and resilience capabilities and the ability to lead in a continuously changing global market. Nel has low sick leave and reduced turnover in current year and will continue to further improve the working environment and work-life balance for the employees. WORKING HOURS POLICY Nel strives to ensure that employees do not exceed reasonable working hours to provide a balance between work and personal life. All managers in Nel are responsible for monitoring the working hours of their direct reports, making sure these are within acceptable limits. Nel is also working to initiate additional measures to prevent employees from exceeding reasonable working hours. These measures will be implemented in 2023. TALENT DEVELOPMENT PROGRAM Throughout 2022 Nel has onboarded approximately 200 new employees. Managers are monitoring the needs for on-the- job training, knowledge adoption and further competence development needs through the new appraisal and goals setting process. The purpose is to ensure that development activities help employees in their current and/or future role. Based on identified needs, some employees have also been assigned to specific external learning sessions. The talent process is at its early stages and will continue to be developed. Early 2023, a behavioural awareness training program based on dilemma situations will be launched. The program helps the organization to face challenging situations employees can be exposed to through working in the different geographies. Designing and rolling out a common culture program anchored in the different locations will be a key focus in 2023. ABSOLUTE NUMBER AND RATE OF EMPLOYMENT PERMANENT EMPLOYEES, BY REGION AND GENDER FEMALE (%) FEMALE MALE TOTAL 2022 2021 2020 Norway 37 156 193 19 % 20 % 22 % United States 39 147 186 21 % 21 % 23 % Denmark 33 162 195 17 % 15 % 15 % Others 3 23 26 12 % 17 % 12 % Total 112 488 600 Employees that defines themselves as non-binary or undefined are excluded due to privacy concerns. We strive to increase our gender balance across the different locations, we have a focus on diversity through recruitment ensuring we offer equal opportunity to all relevant applicants. Women in executive management is 1, or 11.1%. MALE-FEMALE PAY GAP Norway 12 % United States 22 % Denmark 7 % Nel ASA I Annual report 2022 47 The male-female pay gap is the difference between average gross hourly earnings of male paid employees and of female paid employees expressed as a percentage of average gross hourly earnings of male paid employees. Nel’s remuneration policy was approved by the General Meeting 15th of April 2021. Refer to remuneration report 2022 which describes how the policy has been applied during 2022. EMPLOYEE TURNOVER AND NEW EMPLOYEE HIRE AGE Employee turnover <31 31-49 50+ Total Total number 26 60 17 103 Rate 36 % 21 % 11 % 20 % Opening count 2022 73 281 153 507 New employee hires <31 31-49 50+ Total Total number 54 107 38 199 Percentage of hires 27 % 54 % 19 % The gender balance focus as other diversity focus is included in our recruitment and sourcing activities. GENDER EMPLOYEE TURNOVER FEMALE MALE TOTAL Total number 21 82 103 Rate 22 % 20 % 20 % Opening count 2022 94 413 507 NEW EMPLOYEE HIRES FEMALE MALE TOTAL Total number 39 160 199 Percentage of hires 20 % 80 % AGE DISTRIBUTION OF WORKFORCE 2022 2021 2020 < 31 113 73 62 31-49 314 281 201 50+ 176 153 130 TOTAL 603 507 393 2022 2021 2020 Sick-leave 2.69 % 2.40 % 4.28 % Coverage of employees 100 % 90 % 91 % PARENTAL LEAVE Nel facilitates for all female and male to take out parental leave and assure them to be employed after their leave as it is important for our employees in terms of work-life balance and well-being. MALE FEMALE Entitled to parental leave 30 3 Took parental leave 30 3 Percentage of entitled employees that took parental leave 100 % 100 % Returned to work after parental leave ended 30 3 Still employed 12 months after their return from parental leave N/A N/A It has not been possible to report on “still employed 12 months after their return from parental leave” in 2022 as 12 months has not passed as of 31 December 2022. 48 Corporate governance COLLECTIVE BARGAINING AGREEMENTS 2022 2021 2020 Norway 24 % 26 % 24 % Denmark 34 % 34 % 42 % USA 0 % 0 % 0 % Other 0 % 0 % 0 % PERMANENT AND TEMPORARY POSITIONS PERMANENT EMPLOYEES, BY REGION AND GENDER FEMALE (%) FEMALE MALE TOTAL 2022 2021 2020 Employee contract Female Male Total Female Male Total Permanent employees 18 % 82 % 571 104 467 571 Time-limited employees 21 % 79 % 29 6 23 29 Total 110 490 600 110 490 600 Permanent employees Full-time 90 % 90 % 514 94 420 514 Part-time 10 % 10 % 57 10 47 57 Total 104 467 571 104 467 571 Employees that defines themselves as non-binary or undefined are excluded due to privacy concerns. Nel ASA I Annual report 2022 49 Governance ETHICAL BUSINESS CONDUCT AND COMPLIANCE Nel conducts business on all continents and the demand for Nel’s hydrogen solutions is growing. Through the expanding portfolio of international projects, Nel has a significant number of third-party relationships, and frequently collaborates with other companies operating in the hydrogen industry. For businesses with a significant international footprint, a robust culture of compliance is vital to achieve sustainable value creation and success. In 2022, the Board of Directors and the executive management team have continued their work to strengthen Nel’s compliance system. The Board of Directors approves the content of the overall compliance program and the individual compliance policies. The individual procedures are approved by the CEO. The Board of Directors and the executive management team are enrolled in the compliance training program and their training is monitored and followed up in the same manner as for other employees. The purpose of the compliance program is to prevent and mitigate compliance risks by enabling all persons and entities working for or on behalf of Nel to understand, observe, and adhere to Nel’s governance framework. All Nel’s activities must comply with national, regional, and international laws. Through the Nel Code of Conduct, we stipulate the essential requirements that all Nel’s activities should be conducted in an ethical and sustainable manner. During 2022, the Nel Anti-bribery and Corruption Policy was published on our webpage to increase the general public’s access and insight on how we work to prevent bribery and corruption in the organisation. The first quarter of 2022 saw the completion and launch of the Nel Data Protection Policy. The purpose of the policy is to ensure compliance with EU General Data Protection Regulation (“GDPR”). As a necessary supplement to the Data Protection Policy, Nel also launched the Procedure for Handling Data Subject Requests and Procedure for Handling Data Protection. The Export Compliance Procedure was completed and released in April 2022 and finally the Human Rights Policy was completed and released in November 2022 and marks the completion of the process of revising Nel’s Compliance system. In the third quarter of 2021 Nel Third- Party Management and Integrity Due Diligence Procedure (“Third Party Procedure”) was launched, and during the last part of 2021 and 2022 it has been gradually implemented in all parts of the organisation. In December 2022 the company performed an audit to check the organisation’s compliance with the Third-Party Procedure. The result of the audit shows that overall, across all divisions and at the corporate level, the Third-Party Procedure is followed in 85% of dealings with third parties. Nel will continue to focus on this throughout 2023 to make sure that compliance is increased to an acceptable level. Training of employees is crucial for an effective compliance program, and in 2022 Nel developed an Annual Compliance Wheel to systemize compliances tasks in regard to e-learning, physical training and internal audit of Policies and Procedures. The e-learning includes various compliance topics and is supplemented by digital training and face-to-face training conducted by Group Legal and Compliance. • 93% of the employees have completed training in accordance with the Annual Compliance Wheel, which includes training in anti-bribery and corruption including gifts and hospitality, sexual harassment and introduction to data protection and privacy. • 82% of Nel’s executive management team and Board of Directors have completed the anti-bribery and corruption training for 2022. Whistleblowing The company’s whistleblowing channel – the Nel Ethics Hotline – has been operational since September 2020. The whistleblowing channel is operated by a third-party service provider ensuring full anonymity for the reporter. In addition to English, the channel is available in Norwegian and Korean ensuring a low language barrier for reporting a concern. The whistleblowing channel is open for third parties/external stakeholders as well as employees of Nel and a link to the whistleblowing channel is published on Nel’s official website. That there is an awareness of the whistleblower channel with external stakeholders is documented by the fact that in 2022 we for the first time also received reports from outside of the organization. Following the launch in September 2020 and throughout 2021 and 2022, Nel have consistently worked to raise awareness of the whistleblower channel within Nel and also with external stakeholder, and a steady rise in reports has been seen. In 2021 Nel’s Ethic Hotline received 4 notifications and in 2022 the number has increased to 15. 50 Corporate governance The notifications received in 2022 can be categorized as follows: • Human Resources, 5 cases • Health & Safety, 3 cases • Harassment, 3 cases • Financial, 2 cases, and • Other, 2 cases Of the 15 notifications received in 2022, 6 are resolved and 9 are still open. The outcomes of cases resolved differs, but have resulted in disciplinary sanctions of involved individuals, and cases have also led to broader initiatives, such as the development of a behavioural training program which was initiated in the first quarter of 2023. All reports of concerns received through Nel’s Ethics Hotline are handled in accordance with Nel’s Ethics Hotline Procedure and Nel’s Investigation Procedure. According to the procedures all reports of concern are received by a team consisting of three people – the ethics hotline team – which will initiate the investigation of the report. Depending on the category of the case, subject matter experts will be involved on a case-by-case basis. All received reports are kept confidential and investigated in accordance with fundamental principles of due process. The extent of management involvement in a specific case will be determined on each case dependent on a specific risk assessment. Compliance targets for 2023: • 100% of relevant Nel employees to have completed e-learning compliance training in accordance with the Annual Compliance Wheel. • 100% of Nel’s executive management team and Board of Directors to have completed the anti-bribery and corruption training during 2023. • Complete and roll out Code of Conduct behavioural training during first quarter 2023. 52 Corporate governance INNOVATION AND TECHNOLOGY FINANCIAL INVESTMENT CONTRIBUTION (NOK million) FUELING AWE PEM GROUP 2022 Research and maintenance 56 29 44 130 Capitalised technology 27 50 40 118 Total R&D spend (NOK millions) 84 80 85 248 R&D spend in % of annual revenue and other income 34% 23% 21% 25% 2021 Research and maintenance 37 4 14 54 Capitalised technology 39 33 47 119 Total R&D spend (NOK millions) 76 36 61 173 R&D spend in % of annual revenue and other income 23% 64% 15% 22% All research and development (R&D) work at Nel targeting safe, high performing, and cost-efficient products for all our stakeholders. This includes reducing initial capital expenditures and operational expenses during the products’ lifetime, at the same time improving performance. Maintaining a leading position requires that Nel pursues product optimization and cost-reduction programs reducing the products total cost of ownership (TCO) for Nel’s customers. At Nel, being “number one by nature” will always be our strategic ambition, and consistent R&D is necessary to maintain and develop this position further. The technology portfolio includes multiple key development programs for both electrolysers and fueling stations. Nel has an active IP protection strategy and has more than 100 active patents. Nel’s IPR strategy is managed and further developed by a Nel IPR committee that works across the organization and meets bi-weekly. ELECTROLYSER Our electrode manufacturing process for alkaline electrolysers in Norway has almost a century-long history. Leveraging on the extensive experience, the strategy continues to include further improving and strengthening electrode manufacturing. The goal is to reduce the number of processes required, thus reducing the consumption of energy, raw materials, chemicals, and the factory footprint. By implementing these changes, Nel will be able to reduce the cost and emission of electrode manufacturing. Standardization is an important step for scaling up manufacturing with related cost-reduction programs in place. The standardization will be containing prefabricated modules where all safety standards are embedded in the system. In addition, Nel sees the potential to improve the efficiency and capacity of its cell stacks. To achieve this, key enablers are improvements to the electrode design, increasing the active electrode area, and increasing current density. FUELING Nel has in recent years carried out development activities to support its light-duty fueling station products. Some of the core technologies are the control and cooling systems, as these ensure a fast, safe and complete fueling of the vehicle according to the SAE J2601 standard, which is required by the car manufacturers. Some of these components are also compliant with international emission standards. In addition, the entire system and platform design are key to achieving a stable and reliable system, ensuring high availability for vehicle users. Nel has also initiated a heavy-duty fueling station product platform development that will serve the increased need for truck, bus and train hydrogen fueling. Overall, we see a large increase in utilization of our fueling stations and are investing in engineering to continuously improve on their safety and reliability. Innovation and technology targets for 2023: • 10 % of revenue to be spent on Innovation and Technology • Five new innovative ideas and two new patent applications/trade secrets to be developed in 2023. Nel ASA I Annual report 2022 53 RESPONSIBILITY STATEMENT “We confirm that, to the best of our knowledge, the financial statements for the period from 1 January 2022, up to and including 31 December 2022, have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the company, and that the directors’ report includes a fair review of the development and performance of the business and the position of the company as a whole, together with a description of the principal risks and uncertainties the company faces.” OSLO, 27 FEBRUARY 2023 THE BOARD OF DIRECTORS Ole Enger Beatriz Malo de Molina Charlotta Falvin Chair Board member Board member (Electronically signed) (Electronically signed) (Electronically signed) Finn Jebsen Hanne Blume Tom Røtjer Board member Board member Board member (Electronically signed) (Electronically signed) (Electronically signed) Jon André Løkke Håkon Volldal Board member CEO (Electronically signed) (Electronically signed) 54 Corporate governance 5 Board of Directors’ report in relation to the Norwegian Code of practice for corporate governance 1. Report on corporate governance The Board of Directors (also, the board) and management of Nel are committed to maintaining high ethical standards and promoting good corporate governance. The company believes that good corporate governance builds confidence among shareholders, employees, partners, customers, and other stakeholders, and thereby supports maximum value creation over time. The equal treatment of all shareholders lies at the heart of the company’s corporate governance policy. Nel’s Corporate Governance Report is based on the Norwegian Code of Practice for Corporate Governance (“the code” from NUES), dated 17 October 2018 and its amendments. The code is available on www.nues.no Observance of the recommendations is based on the “comply or explain” principle. Nel’s board and management have resolved to follow the recommendations of the Code to the extent deemed reasonable in view of the company’s size and stage of development. 2. Business Nel ASA’s business purpose is defined in the company’s Articles of Association, section 3: “The Company’s business is to conduct business, invest in and/or own rights in production and sale of hydrogen plants, hydrogen fueling stations, or other related areas.” Nel is a leading pure play hydrogen technology company with a global footprint, developing optimal solutions to produce, store and distribute hydrogen from renewable energy. Our hydrogen solutions cover important parts of the value chain: enabling decarbonization of industries such as cement, steel and fertilizer production, while also providing fuel cell electric vehicles with the same fast fueling and long driving range as fossil-fuelled vehicles - without any emissions. Nel is committed to create value for shareholders in a sustainable manner. 3. Capital and dividend The company’s registered share capital as of 31 December 2022 consisted of 1 563 325 304 shares, including both outstanding shares and treasury shares, with a par value of NOK 0.20 per share. Under the company’s strategy, dividends are not currently planned during this stage of the company’s development. 4. Equal treatment of shareholders and transactions with related parties All shares in Nel carry one vote, and the shares are freely transferable. The company has only one share class, and all shareholders have equal rights. Existing shareholders are given priority in the event of share capital increases unless special circumstances warrant deviation from this principle. At the annual general meeting on 21 April 2022, the board was granted authorisation to increase the share capital with up to NOK 29 219 985 through one or several capital increases. The board has also been granted authorisation to acquire shares in Nel on behalf of the company, for a total nominal value not exceeding 9% of the share capital at any given time. In addition, a separate authorisation to increase the share capital of up to NOK 2 921 598 for issue of shares in connection with incentive programs for employees was granted at an extraordinary general meeting on 2 August 2023. Transactions between the company and related parties, including members of the board or persons employed by the company either personally or through companies belonging to related parties, must be based on terms achievable in an open, free and independent market, or on a third-party valuation. Major transactions with related parties must be approved by the general meeting. Nel ASA I Annual report 2022 55 5. Free transferability The company’s shares are listed on the Oslo Stock Exchange under the ticker “NEL” and are freely transferable. The Articles of Association contain no restrictions on transferability. 6. General meeting Shareholders can exercise their rights at general meetings, and the company wants general meetings to be a meeting place for shareholders and the board. The company will seek to enable as many shareholders as possible to participate in general meetings. Meeting documents will be published on the company’s website no later than 21 days before a general meeting. The company endeavours to ensure that meeting documents are sufficiently detailed to enable shareholders to take a view on all matters to be considered. The deadline for notifying attendance at a general meeting is set as close to the meeting as possible. Shareholders who are unable to participate themselves may vote by proxy. The proxy form will be designed so that it can be used to vote on all matters up for consideration, and on candidates for election. In 2022, the annual general meeting was held on 21 April and 8.65 percent of the total share capital was represented. The annual general meeting was conducted digitally, with a live webcast and electronic voting on each item. An extraordinary general meeting was held on 2 August and 10.14 percent of the total share capital was represented. The extraordinary general meeting was conducted physically at the company’s headquarters in Oslo, Norway. The company encourages board members and nomination committee to attend general meetings. The external auditors are also invited to attend. In accordance with the articles of association, general meetings are chaired by the board chair if no-one else is elected to do so. Minutes of general meetings are published in the form of stock exchange notifications and on the company’s website. 7. Nomination committee In accordance with Nel’s articles of association, the general meeting shall establish a nomination committee comprising of three to five members. These must be shareholders or representatives of shareholders. The nomination committee evaluates and proposes board members to the general meeting and makes recommendations on director remuneration. No board members or representatives of company management are members of the nomination committee. Nomination committee members are elected for a one-year term. At the general meeting on 21 April 2022, the following persons were elected to the nomination committee and serve until the 2023 annual general meeting: • Eivind Sars Veddeng, chair • Leif Eriksrød, member • Andreas Poole, member 8. Board of Directors composition and independence The board members and chair of the board are elected by the general meeting. The board’s composition is designed both to represent the interests of all shareholders and meet the company’s need for expertise, capacity, and balanced decision-making. The board should function as an effective collegiate body. The board is elected for a one-year term, and board members may stand for re-election. The CEO is not a member of the board. According to its articles of association, Nel’s board must have between four and seven members. At the annual general meeting 21 April 2022, Ole Enger, chair of the board, Hanne Blume, Finn Jebsen, Beatriz Malo de Molina, Charlotta Falvin and Tom Røtjer were all re-elected to the board. Jon André Løkke was elected as a new member of the board. Each of the board members are considered independent from the company’s day-to-day management. The board is qualified to assess the day-to-day management and significant contracts entered into by the company on an independent basis. See also note 7.4 (group) and note 12 (parent company) for transactions with related parties. 9. The work of the Board of Directors A plan for the boards’ work is prepared every year. The board has also adopted instructions for the board and CEO, detailing the work and responsibilities of the board and CEO, 56 Corporate governance respectively. The board ensures the company’s business is properly organised and that plans and budgets are prepared. The board’s plans and rules of procedure ensure the board is kept informed of the company’s financial position and that the business, asset management, and accounts are subject to controls. Nel’s Code of Conduct includes guidelines for how conflicts of interests that may arise should be handled with. The code applies to all members of the board and employees of Nel. The board are not aware of any transactions that were material between the group and its shareholders, board members, executive management or related parties in 2022. The chair of the board ensures the proper functioning of the board. The chair of the board leads the board meetings and prepares board matters in cooperation with the CEO. The CFO keeps minutes of board meetings, which are approved and signed by all board members. In addition to ordinary board meetings, annual strategy meetings are held, devoted to the in-depth assessment of major challenges and opportunities for the company. The board manages the company’s strategic planning and assesses its strategy regularly. The board evaluates its composition and the board work at least once per year. The evaluation may also cover the way in which the board functions, at both individual and group level, in relation to the objectives that have been set for its work. The evaluation reports are presented to the nomination committee. In 2022, the board conducted 13 board meetings with 100% meeting attendance, with the exception of one meeting where Board member Jebsen was unable to attend but gave his input in advance. The meetings were held at group headquarters in Oslo and/or virtual meetings due to travel convenience, and also treated a number of issues by circulation of documents. The company has an audit committee consisting of 2 members from the board, which is governed by the Norwegian Public Limited Liability Companies Act. The audit committee assist the board in exercising its oversight responsibility with respect to the integrity of the company’s financial statements, financial reporting processes and internal controls, risk management, compliance system and the company’s environmental, social and governance (“ESG”) reporting. With the broader mandate, the committee is referred to as Board Audit, Risk and Sustainability Committee. The members of the audit committee are appointed by and from the members of the board, and currently consist of Beatriz Malo de Molina as chair and Charlotta Falvin as member. Current members are independent of the company’s management. The audit committee conducted 7 meetings with 100% meeting attendance in 2022. The company has a remuneration committee, which consist of 2 members from the board. The committee shall assist the board in exercising its oversight responsibility, in particular to compensation matters pertaining to the CEO and other members of the executive management, compensation issues of principal importance and strategic people process in the company, in particular related to succession, recruitment, talent and diversity and inclusion. The committee currently consist of Hanne Blume as chair and Ole Enger as member. The committee has held 7 meeting with 100% meeting attendance in 2022. The committee was also involved in discussions related to the recruitment of strategic positions for Nel and key organisational adjustments through the year. The Remuneration Committee has onboarded the new CEO mid-2022. 10. Risk management and internal controls Risk management and internal controls are important to Nel. They enable the company to achieve its strategic objectives, and are an integral part of management decision- making processes, the organisational structure, and internal procedures and systems. Nel’s enterprise risk management process is value driven and aims to identify, assess and manage risk factors that could impact the value of the company. The process is to mitigate potential damages and loss, and to explore business opportunities. The enterprise risk management function has the responsibility to facilitate the legal and operational risk management activities and develop risk policies and tools as well as maintaining an aggregated view of risk exposure. The function reports to the CFO, with active involvement by Nel’s General Counsel. Risk management and internal control requirements have been evaluated by management and the board, and a set of appropriate procedures and our established framework is inspired by the Committee of Sponsoring Organisations of the Treadway Commission (COSO) ERM framework and the ISO 31000 risk management standard. The materiality of each risk factor is determined by assessing the likelihood and consequence. Risks are evaluated to determine whether the level is acceptable or unacceptable and to prioritise those that have the greatest potential to impact our value. Nel ASA I Annual report 2022 57 We implement mitigating strategies to ensure that each risk is optimally managed. Risk mitigation plans are based on evaluations of the cost of control and potential impacts relative to the benefits of reducing the risk. The operating segments are responsible to maintain business continuity plans. The post-mitigation residual risks are continually monitored by the operating segments. The mitigation strategies, residual risks and risk appetite are reviewed and updated by the executive management during bi-yearly dedicated business review meetings. The board believes that expressing the company’s risk appetite within important areas of its business activity helps to convey how the company approaches and evaluates risk to investors, customers and society at large. The audit committee performs ongoing evaluations of the Company’s Enterprise Risk Management process. In this context, emphasis is also given to ensuring that the company operates in accordance with accepted ethical guidelines and values, including guidelines on how employees can communicate matters relating to illegal or unethical behaviour on the company’s part to the board. Nel believes that its values and control procedures meet requirements found within the environmental, social, and governance domain, and are proportionate to the scope and nature of its business. Nel’s regular business activities entail exposure to various types of risk. The company proactively manages such risks, and the board regularly analyses its operations and potential risk factors and takes steps to reduce risk exposure. Nel places a strong emphasis on quality assurance, and has quality systems implemented, or under implementation, in line with the requirements applicable to its business operations. The most significant risk factors are discussed in more detail in the notes 6.1-6.4 to the annual accounts. The company’s financial reporting complies with the laws and regulations applicable to companies listed on the Oslo Stock Exchange. The board reviews the company’s financial position frequently through reporting and reviews at board meetings and reviews the financial statements at the end of every quarter. At least once per year, the board assesses the company’s risk profile by reference to strategic, operational, and transactional factors. As a listed company, Nel has a special responsibility relating to the insider trading rules, the provision of information, and share trading. The company has guidelines to ensure board members, senior management, and other insiders comply with relevant legislation and rules relating to insider trading in the company’s shares. 11. Board remuneration Nel’s general meeting determines the remuneration of the board based on a recommendation by the nomination committee. Board remuneration must reflect the board’s expertise and time investment, as well as the complexity of the business and the fact that Nel is a listed company. Remuneration takes the form of a fixed annual amount and is not tied to the company’s performance or share price. An assessment regarding the independence of the directors and chair of the board is set out in section 8 above. The board remuneration for 2022 is outlined in note 7.4 to the annual accounts. 12. Remuneration of senior management The board prepares guidelines on the remuneration of the company’s senior management. These guidelines, as well as details of the remuneration packages and incentive schemes of the CEO and other senior executives, are set out in the note 7.2 to the annual accounts. The guidelines on the remuneration of senior management must be submitted to the general meeting. The remuneration policy was approved by the shareholders at the general meeting held in 2021. The board considers that the remuneration paid to senior management reflects market practice and that the remuneration packages do not include any unreasonable terms, for example in connection with resignation or termination of employment. In accordance with section 6-16b of the Norwegian Public Limited Liability Companies Act, the board has prepared a report on salary and other remuneration to the executive management. The remuneration report for 2022 will be presented to the general meeting in 2023 for an advisory vote. The remuneration report will become available during March 2023, on www.nelhydrogen.com. The shareholdings of executive management are outlined in note 7.2 (group). 13. Information and communication The company publishes a financial calendar on an annual basis, which includes the dates of general meetings and dates for the presentation of interim reports. Presentation of the 58 Corporate governance quarterly reports are broadcasted through webcasts. Press releases and stock exchange notifications are typically posted on the company’s website, www.nelhydrogen.com. All stock exchange notifications are also available at www.newsweb.no. The company complies with all applicable disclosure laws and practice, including equal treatment requirements. The ability to provide information about the company in addition to published reports is restricted under stock exchange regulations. Inside information is only released to persons other than primary insiders when the company considers it necessary, and then only in accordance with a system of insider declarations and insider lists. The insider lists are maintained by the CFO. Notice to general meetings of shareholders is sent directly to shareholders with known addresses unless they have consented to receive these documents electronically. All information sent to the shareholders is made available on www.nelhydrogen.com when distributed. Nel wishes to maintain a constructive, open dialogue with its shareholders, analysts, and the stock market in general. The company holds regular presentations for investors, analysts, and shareholders. The company’s CEO is responsible for external communication and investor relations. The CEO and chair of the board are both authorised to speak on behalf of the company and may delegate their authority in this regard as they consider appropriate. 14. Company takeovers In the event of a takeover situation, the company’s board and management will endeavour to ensure the equal treatment of shareholders. The board will ensure that shareholders are given information and time to evaluate any bona fide bid and will endeavour to provide a recommendation to shareholders as to whether or not the bid should be accepted. The board and management will help ensure that there are no unnecessary disruptions to the business in the event of a takeover. Moreover, such a situation will be governed by the provisions applicable to listed companies. 15. Auditor The external auditor attends the board meeting at which the annual financial statements are approved. As part of the approval, the board should at least once a year review the company’s internal control procedures with the external auditor, including weaknesses identified by the auditor and proposals for improvement. The external auditor participates in all meetings of the audit committee. The auditor presents an annual audit plan to the audit committee. The summary of the audit is presented to the audit committee and the board. The board has adopted guidelines on management’s use of the auditor for services other than auditing. The new Public Audit Act entered into force on January 1, 2021. Extended tasks including purchase of non-audit services and follow- up of the external auditor are considered by the audit committee. Non-audit services are subject to pre-approval as defined by the audit committee. The fee payable to the auditor is specified in note 7.3 to the annual accounts and is categorised under the items statutory audit, attestation and non-auditing services. The board submits proposals regarding the fees payable for the statutory audit to the general meeting for approval. Nel ASA I Annual report 2022 59 OSLO, 27 FEBRUARY 2023 THE BOARD OF DIRECTORS Ole Enger Beatriz Malo de Molina Charlotta Falvin Chair Board member Board member (Electronically signed) (Electronically signed) (Electronically signed) Finn Jebsen Hanne Blume Tom Røtjer Board member Board member Board member (Electronically signed) (Electronically signed) (Electronically signed) Jon André Løkke Håkon Volldal Board member CEO (Electronically signed) (Electronically signed) 60 6 Consolidated financial statements 2022 Nel group Nel ASA I Annual report 2022 61 Consolidated statement of comprehensive income ...................................................................................................................................... 62 Consolidated statement of financial position as of 31 December ............................................................................................................ 63 Consolidated statement of cash flows ............................................................................................................................................................... 65 Consolidated statement of changes in equity ................................................................................................................................................. 66 Note 1.1 Corporate information ....................................................................................................................................................................... 68 Note 1.2 Basis of preparation ............................................................................................................................................................................ 68 Note 1.3 Significant accounting policies......................................................................................................................................................... 69 Note 1.4 Changes in accounting policies ....................................................................................................................................................... 70 Note 1.5 Significant accounting judgements and estimation uncertainty ............................................................................................. 70 Note 2.1 Revenue from contracts with customers ....................................................................................................................................... 70 Note 2.2 Other operating income ................................................................................................................................................................... 75 Note 2.3 Segment information ......................................................................................................................................................................... 76 Note 2.4 Raw materials ....................................................................................................................................................................................... 78 Note 2.5 Personnel expenses ............................................................................................................................................................................ 78 Note 2.6 Other operating expenses ................................................................................................................................................................ 81 Note 2.7 Finance income and cost .................................................................................................................................................................. 81 Note 2.8 Income taxes ........................................................................................................................................................................................ 82 Note 2.9 Earnings per share .............................................................................................................................................................................. 84 Note 3.1 Intangible assets .................................................................................................................................................................................. 85 Note 3.2 Property, plant and equipment ....................................................................................................................................................... 92 Note 3.3 Leases .................................................................................................................................................................................................... 93 Note 3.4 Investments in associated companies and joint ventures ......................................................................................................... 98 Note 3.5 Non-current financial assets ............................................................................................................................................................. 99 Note 4.1 Inventories ............................................................................................................................................................................................ 100 Note 4.2 Trade receivables ................................................................................................................................................................................. 100 Note 4.3 Prepaid expenses and other current assets.................................................................................................................................. 101 Note 4.4 Cash and cash equivalents ............................................................................................................................................................... 103 Note 5.1 Share capital and shareholders ....................................................................................................................................................... 104 Note 5.2 Long-term debt and guarantees .................................................................................................................................................... 105 Note 5.3 Deferred income ................................................................................................................................................................................. 106 Note 5.4 Other liabilities ..................................................................................................................................................................................... 107 Note 5.5 Provisions .............................................................................................................................................................................................. 108 Note 6.1 Operational risk factors ..................................................................................................................................................................... 109 Note 6.2 Financial risk factors ........................................................................................................................................................................... 111 Note 6.3 Market risk factors .............................................................................................................................................................................. 114 Note 6.4 Climate-related risks and opportunities ........................................................................................................................................ 115 Note 6.5 Hedge accounting .............................................................................................................................................................................. 115 Note 6.6 Financial instruments .......................................................................................................................................................................... 118 Note 6.7 Contractual commitments and commitments for future investments ................................................................................ 119 Note 7.1 Composition of the group ................................................................................................................................................................ 120 Note 7.2 Executive management remuneration .......................................................................................................................................... 120 Note 7.3 External audit remuneration ............................................................................................................................................................. 121 Note 7.4 Related parties ..................................................................................................................................................................................... 122 Note 7.5 Events after the balance sheet date ................................................................................................................................ ............... 123 Note 7.6 Going concern ..................................................................................................................................................................................... 123 62 Consolidated financial statements Consolidated statement of comprehensive income (Amounts in NOK thousands) Nel group NOTE 2022 2021 Revenue from contracts with customers 2.1, 2.3 914 853 753 096 Other operating income 2.2 78 728 44 905 Total revenue and operating income 993 581 798 001 Raw materials 2.4 584 815 551 695 Personnel expenses 2.5 664 815 472 010 Depreciation and amortisation 3.1, 3.2 171 483 103 116 Impairment of tangible and intangible assets 3.1, 3.2 327 298 4 500 Other operating expenses 2.6 523 824 249 533 Total operating expenses 2 272 235 1 380 854 Operating loss -1 278 654 -582 853 Finance income 2.7 97 629 28 276 Finance costs 2.7 -5 972 -1 129 224 Share of profit (loss) from associates and joint ventures 3.4 0 -35 Pre-tax income (loss) -1 186 997 -1 683 836 Tax expense (-income) 2.8 -15 828 -16 984 Net income (loss) attributable to equity holders of the company -1 171 169 -1 666 852 OTHER COMPREHENSIVE INCOME THAT ARE OR MAY SUBSEQUENTLY BE RECLASSIFIED TO PROFIT OR LOSS (NET OF TAX) Currency translation differences 65 035 -7 108 Cash flow hedges, effective portion of changes in fair value 6.5 -6 900 -3 086 Cash flow hedges, reclassified 6.5 -6 848 -3 244 Comprehensive income attributable to equity holders of the company -1 119 882 -1 680 290 Earnings per share (NOK) attributable to Nel shareholders 2.9 -0.76 -1.15 Diluted earnings per share (NOK) attributable to Nel shareholders 2.9 -0.76 -1.15 The accompanying notes are an integral part of the consolidated financial statements. Nel ASA I Annual report 2022 63 (Amounts in NOK thousands) Nel group ASSETS NOTE 2022 2021 NON-CURRENT ASSETS Technology 3.1 547 387 496 579 Customer relationship 3.1 21 489 32 381 Goodwill 3.1 365 580 615 184 Property, plant and equipment 3.2, 3.3 785 488 623 514 Investments in associates and joint ventures 3.4 2 886 2 298 Non-current financial assets 3.5 250 072 92 889 Total non-current assets 1 972 902 1 862 845 CURRENT ASSETS Inventories 4.1 504 595 328 465 Trade receivables 4.2 460 735 211 408 Contract assets 2.1 96 322 178 769 Other current assets 4.3 777 408 702 728 Cash and cash equivalents 4.4 3 138 550 2 722 769 Total current assets 4 977 610 4 144 139 TOTAL ASSETS 6 950 512 6 006 984 The accompanying notes are an integral part of the consolidated financial statements. Consolidated statement of financial position as of 31 December 64 Consolidated financial statements (Amounts in NOK thousands) Nel group EQUITY AND LIABILITIES NOTE 2022 2021 EQUITY Share capital 5.1 312 665 292 160 Treasury shares 5.1 -84 -81 Share premium 5.1 7 098 186 5 596 248 Other capital reserves 5.1 61 768 53 422 Retained earnings 5.1 -2 142 805 -971 636 Other components of equity 5.1 119 878 68 591 Total equity 5 449 608 5 038 704 NON-CURRENT LIABILITIES Deferred tax liabilities 2.8 45 529 48 543 Long-term debt 5.2 22 431 23 191 Lease liabilities 3.3 170 177 113 505 Deferred income 5.3 64 049 69 537 Other non-current liabilities 5.4 7 102 8 452 Total non-current liabilites 309 288 263 228 CURRENT LIABILITIES Trade payables 201 744 132 962 Lease liabilities 3.3 30 438 19 916 Contract liabilities 2.1 672 291 360 821 Other current liabilities 5.4 133 704 103 246 Provisions 5.5 153 440 88 106 Total current liabilities 1 191 617 705 051 Total liabilities 1 500 905 968 279 TOTAL EQUITY AND LIABILITIES 6 950 512 6 006 984 The accompanying notes are an integral part of the consolidated financial statements. Consolidated statement of financial position as of 31 December Nel ASA I Annual report 2022 65 (Amounts in NOK thousands) Nel group NOTE 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Pre-tax income (loss) -1 186 997 -1 683 836 Adjustments for interest expense 2.7 11 166 3 678 Depreciation, amortisation and impairment 3.1, 3.2 498 781 107 616 Change in fair value equity instruments 2.7, 4.3 30 614 1 113 189 Equity-settled share-based compensation expense 2.5 8 342 9 Change in provisions 5.5 65 334 13 371 Change in inventories 4.1 -176 130 -91 336 Change in trade receivables and contract balances 2.1, 4.2 144 590 6 987 Change in trade payables 68 782 51 392 Changes in other balances 4.3, 5.4 -155 062 29 471 Net cash flow from operating activities -690 580 -449 458 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment 3.2 -160 486 -258 283 Payments for capitalised technology 3.1 -118 251 -118 870 Purchase of other investments 3.5, 4.3 -206 450 -46 966 Investments in other financial assets 3.5 -5 296 -13 125 Proceeds from sales of property, plant and equipment 3.2 0 26 056 Investments in associates and joint ventures 3.4 -1 160 -1 272 Proceeds from sales of other investments 3.5, 4.3 88 555 38 844 Net cash flow from investing activities -403 088 -373 616 CASH FLOWS FROM FINANCING ACTIVITIES Interests paid 2.7 -11 166 -3 678 Gross cash flow from share issues 5.1 1 545 866 1 255 103 Transaction costs from share issues 5.1 -23 426 -15 562 Payment of lease liabilities 3.3 -14 400 -15 467 Payment of non-current liabilities 5.2 -1 889 -4 464 Net cash flow from financing activities 1 494 985 1 215 932 Effect of exchange rate changes on cash 14 464 -2 943 Net change in cash and cash equivalents 415 781 389 915 Cash balance as of 01.01 4.4 2 722 769 2 332 854 Cash balance as of 31.12 4.4 3 138 550 2 722 769 The accompanying notes are an integral part of the consolidated financial statements. Consolidated statement of cash flows 66 Consolidated financial statements (Amounts in NOK thousands) Nel group SHARE CAPITAL TREASURY SHARES SHARE PREMIUM OTHER RESERVE RETAINED- EARNINGS CURRENCY TRANSLATION DIFFERENCE HEDGING RESERVE TOTAL EQUITY Equity as of 31.12.2020 281 559 -79 4 367 306 43 937 693 563 70 585 11 444 5 468 316 Total comprehensive income -1 666 852 -7 108 -6 330 -1 680 290 Increase of capital 2021 10 600 1 228 940 1 239 541 Options and share program -1 1 9 485 9 485 Other changes 1 653 1 653 Equity as of 31.12.2021 292 160 -81 5 596 248 53 422 -971 636 63 477 5 114 5 038 704 Total comprehensive income -1 171 169 65 035 -13 748 -1 119 882 Increase of capital 2022 20 505 1 501 935 1 522 440 Options and share program -3 3 8 346 8 346 Other changes - 0 Equity as of 31.12.2022 312 665 -84 7 098 186 61 768 -2 142 805 128 512 -8 634 5 449 608 Consolidated statement of changes in equity OSLO, 27 FEBRUARY 2023 THE BOARD OF DIRECTORS Ole Enger Beatriz Malo de Molina Charlotta Falvin Chair Board member Board member (Electronically signed) (Electronically signed) (Electronically signed) Finn Jebsen Hanne Blume Tom Røtjer Board member Board member Board member (Electronically signed) (Electronically signed) (Electronically signed) Jon André Løkke Håkon Volldal Board member CEO (Electronically signed) (Electronically signed) 68 Notes to the consolidated financial statements 2022 1.1 Corporate information Nel ASA (Nel) is a global, dedicated hydrogen company, delivering optimal solutions to produce, store and distribute hydrogen from renewable energy. The company is domiciled in Norway. The company specializes in electrolyser technology for production of renewable hydrogen, and hydrogen fueling equipment for road-going vehicles. Nel’s product offerings are key enablers for a renewable hydrogen economy, making it possible to decarbonize various industries such as transportation, refining, steel, and ammonia. The group has two divisions: Nel Hydrogen Electrolyser and Nel Hydrogen Fueling. The ultimate parent of the group Nel ASA (org. no 979 938 799) was formed in 1998, incorporated in Norway. Nel ASA is a Norwegian public limited liability company listed on the Oslo Stock Exchange. The group’s head office is in Karenslyst allé 49, N-0279 Oslo, Norway. 1.2 Basis of preparation The group’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). Accounts are based on the principle of historical cost, except for certain financial instruments, which are measured at fair value. The consolidated financial statements are presented in Norwegian kroner (NOK). The functional currency of Nel ASA is NOK. All values are rounded to the nearest thousand, unless when indicated otherwise. As a result of rounding differences numbers or percentages may not add up to the total. The financial statements are prepared based on a going concern assumption. The consolidated financial statements were approved by the Board of Directors and the Chief Executive Officer on February 27, 2023. DEFINITION AND APPLYING OF MATERIALITY JUDGEMENTS IN PREPARATION OF THESE CONSOLIDATED FINANCIAL STATEMENTS These consolidated financial statements aim to provide useful financial information which increase the understandability of Nel and its performance. To meet the information needs of its primary users, Nel apply materiality judgments which are necessary to meet this objective, and Nel has made such judgments related to recognition, measurement, presentation and disclosures. Within these consolidated financial statements information is considered material if omitting, misstating or obscuring it could reasonably be expected to influence decisions taken by primary users based on the information provided. In practice this will lead to Nel omitting certain information if it is assessed it will obscure the material information. The materiality judgments are reassessed at each reporting date and updated based on changed facts and Nel specific circumstances. BASIS OF CONSOLIDATION The consolidated financial statements comprise the financial statements of the parent company and its subsidiaries as of 31 December 2022. Consolidation of a subsidiary begins when the group obtains control over the subsidiary and ceases when the group loses control of the subsidiary. Control is achieved if, and only if, the group has power over the investee, is exposed to, or has rights to, variable returns from its involvement with the investee, and has the ability to affect those returns through its power over the investee. Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the group has less than a majority of the voting or similar rights of an investee, the group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: i) The contractual arrangement with the other vote holders of the investee, ii) Rights arising from other contractual arrangements and iii) The group’s voting rights and potential voting rights. The group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Assets, liabilities, income and expenses of a subsidiary acquired or Notes to the consolidated financial statements Nel ASA I Annual report 2022 69 disposed of during the year are included in the consolidated financial statements from the date the group gains control until the date the group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the group. There are no non-controlling interests in the Group as all subsidiaries are 100 % owned. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the group are fully eliminated upon consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities and other components of equity while any transaction gain or loss is recognised in statement of comprehensive income. FOREIGN EXCHANGE AND CURRENCY Transactions and balances Transactions in foreign currencies are converted to functional currency to the exchange rate on the transaction date. Exchange rate gains and losses are recognised within ‘finance cost’ in the profit or loss. Foreign currency monetary items are translated into functional currency using the balance sheet closing rates. Non-monetary items that are measured in terms of historical cost in a foreign currency continue to be translated using the exchange rate that prevailed at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates that prevailed at the date when the fair value was measured. All foreign currency translations are recognised in profit or loss as finance cost except for foreign currency translations where a hedging relationship exists, and hedge accounting has been applied. Additional information is provided in note 6.2 and 6.5. Consolidation of subsidiaries The individual financial statements of a subsidiary are prepared in the subsidiary’s functional currency. In preparing the consolidated financial statements, the statement of comprehensive income items from the subsidiaries are converted to NOK using the respective monthly average exchange rates, while statement of financial position items is converted using the rate at year-end. Exchange rate gains and losses are recognised net within Other comprehensive income and accumulated in Currency translation differences in ‘Other components of equity’. STATEMENT OF COMPREHENSIVE INCOME The Group present a single statement of ‘Consolidated statement of comprehensive income’ which comprise all components of profit or loss, OCI and the comprehensive income for the period. STATEMENT OF CASH FLOWS The Group uses the indirect method for the presentation of the cash flow statement. 1.3 Significant accounting policies Accounting policies and estimate uncertainty are largely incorporated into the individual notes. Table of contents for where the significant policies are elaborated. Revenue from contracts with customers 2.1 Research and development 3.1 Goodwill 3.1 Property, plant and equipment 3.2 Leases 3.3 Investment in associates and joint ventures 3.4 Inventories 4.1 Trade receivables 4.2 Impairment of non-derivative financial assets 4.4 Government grants 5.3 Provisions 5.5 Derivative financial instruments and hedge accounting 6.5 70 Notes to the consolidated financial statements 2022 1.4 Changes in accounting policies A few amendments to IFRS have been implemented for the first time in the current year, including amendments to IAS 37 and measurement of onerous contracts. The amendments did not have any material impact for the Group. In addition, several amendments to IFRS are issued up to the date of issuance of the consolidated financial statements but are not yet effective. The Group has not applied the new IFRSs and the impact of applying the amendments is not expected to have a material impact on the Group’s financial statements. 1.5 Significant accounting judgements and estimation uncertainty The preparation of financial statements requires management to make judgements and estimates that influence amounts recognised in certain accounts for assets, liabilities, income and expenses. The actual results may deviate from such assumptions. Estimates and underlying assumptions are subject to continuous assessment. JUDGEMENTS The following are Nel’s accounting policies that involves significant judgement and complexity which have most significant effect on the amounts recognised in the consolidated financial statements, including reference to where it is discussed: Revenue recognition 2.1 Deferred tax assets 2.8 Development costs 3.1 Leases 3.3 ASSUMPTIONS AND ESTIMATION UNCERTAINTY Revenue recognition 2.1 Share-based payments 2.5 Impairment of goodwill and intangible assets 3.1 2.1 Revenue from contracts with customers The revenue in Nel is from sale of both complete hydrogen electrolyser systems and hydrogen fueling stations, including installation, commissioning, and long-term service agreements. Additionally, Nel earns revenue from replacement parts and accessories in the aftermarket. Project execution is key in Nel’s large construction projects. The group’s revenues result from the sale of goods or services and reflect the consideration to which the group is and expect to be entitled. IFRS 15 requires the group to assess revenue recognition based on a five-step model. For its customer contracts, the group identifies the performance obligations (goods or services), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognises the revenue when (or as) the performance obligations are satisfied. Revenue recognition is determined on a contract-by-contract basis by determining the terms and performance obligations given in a specific contract. Based on the specific contract and its obligations, revenue under IFRS 15 is either recognised at a point in time or over time, 49% (58%) and 51% (42%) of revenue in 2022, respectively. Revenue is recognised over-time using the method that best depicts the pattern of the transfer of control over time. The method applied is the cost-to-cost input method, adjusted as time and goods are delivered to the customer. Contract costs are expensed as incurred. Nel ASA I Annual report 2022 71 Significant accounting judgements – revenue recognition The Group applied the following judgements that significantly affect the determination of the timing of revenue from contracts with customers: Performance obligations In determining whether revenue from a specific contract can be classified as customised and in turn recognised using a progress-based measurement, several criteria must be evaluated. The first criterion is related to alternative use. Manufacturing a customised product or piece of equipment for a specific customer that would require significant cost to modify to be able to transfer it to another customer, then the contract would likely meet the criteria of no alternative use. The other important criterion is that an enforceable right to payment exists in the contract between the group and the customer. Right to payment entails that the group has a right to receive payment from the customer if the contract would be terminated. Upon termination at a certain time, the group should be able to recover costs incurred and a reasonable margin. Determining whether revenue from a contract should be recognised over time or at point in time could have a significant effect on the financial statements and are to some extent dependent upon judgements from management. Estimation uncertainty – revenue recognition The Group applied the following estimations that significantly affect the determination of the i) timing and ii) amount of revenue from contracts with customers: i) Timing Total contract costs In a customised customer project, Nel uses cost-to-cost input method when measuring progress; thus, the total cost estimates can significantly impact measured progress and revenue recognition. The total project cost comprises estimates on the ability to execute the planned engineering and design phase, the availability of skilled resources, performance of subcontractors, commodity prices, foreign currency and Nel’s manufacturing capacity, productivity and quality. ii) Amount Liquidated damages (LDs) LDs are pre-defined penalties for breaches of contract. LDs are most commonly used with respect to delay. As the payment to the customer is not in exchange for a distinct good or service that transfers to Nel, LD’s must be accounted for as a reduction of revenue. If a project does not meet the defined milestone in a contract, a provision reducing the transaction price is made unless it is highly probable that LD will not be imposed. The estimated LD provision is highly judgmental. The assessment of the LD provision is based on experience from similar LD situations in addition to client relationship, contractual position and status on negotiations. Nel estimates variable consideration using the most likely amount. 72 Notes to the consolidated financial statements 2022 TYPE OF GOODS OR SERVICES The group generates revenue from customer contracts from two principal sources: i) Equipment and projects and ii) Service and aftermarket. The equipment and projects sales are generated from both standard and customised equipment. Standard equipment The group recognises revenue at the point in time at which it satisfies a performance obligation by transferring the control of a good or service to the customer, generally this upon agreed incoterms, which is mainly at shipment. The customer has control of a good or service when it has the ability to direct the use of and obtain substantially all of the remaining benefits from the good or service. If customer acceptance of products is not assured, revenue is recorded only upon formal customer acceptance. The point in time measurement basis for standard equipment has been the main method of recognising revenue in Electrolyser US division, aftermarket segment in the Electrolyser Norway division and the Fueling divison. Customised equipment Most of Nel’s revenue stems from standard equipment, however, in certain contracts the customisation required qualifies customised equipment. Customised equipment occurs when Nel is creating a good that it cannot sell to another customer without significant re-work and Nel would incur significant economic losses to direct the asset for another use. Such sale of customised equipment is recognised as revenue over-time if Nel has an enforceable right to payment for performance completed to date. Projects The project contracts typically comprise • equipment (standard product or customised), • design, siting, installation and commissioning of the equipment, Electrolyser. Revenue from sale of customised equipment and projects is determined to be a bundle of goods where all of the components constitute the combined output, i.e. one performance obligation. The performance obligation is satisfied over time and Nel recognise revenue over the period the performance obligation is satisfied, using a cost-to-cost input method that best depicts the pattern of the transfer of control over time. The contracts have mainly firm contract price including clauses for penalties (LDs). Additionally, contracts usually include service agreement and extended warranty for a specific period. Both service and extended warranty are separate performance obligations satisfied over 12 months or more, refer service and aftermarket. The progress-based measurement of revenue has been the main method of recognising revenue from electrolyser projects of large-scale electrolyser systems. Fueling. Sale of fueling equipment often include a standard installation service and commissioning, each assessed as individual performance obligation. Revenue recognition for equipment depends on assessment of standard or customised equipment. Revenue for installation and commissioning is recognised over-time measuring progress using input method cost-to-cost. Service and aftermarket Service and aftermarket comprise operations and maintenance (O&M), extended warranty, repair, replacement parts and accessories. For separately sold operating and maintenance contracts where the group has agreed to provide routine maintenance services over a period of time for a fixed price, revenue is recognised on a straight-line basis over the contract period as the stand-ready obligation is time elapsed. For sales of replacement cell stacks and accessories, revenue is recognised when performance obligation is satisfied, generally upon delivery of the replacement parts and accessories. The following table show the revenue from contracts with customers by type of goods or service: Nel ASA I Annual report 2022 73 The following table show the revenue from contracts with customers by type of goods or service: 2022 2021 SEGMENTS FUELING ELECTROLYSER TOTAL FUELING ELECTROLYSER TOTAL Type of goods or service Equipment and projects 151 377 630 960 782 337 220 321 379 844 600 165 Service and aftermarket 56 662 75 854 132 516 96 845 56 086 152 931 TOTAL Revenue from contracts with customers 208 039 706 814 914 853 317 165 435 930 753 096 Timing of revenue recognition Revenue recognised at point in time 151 377 297 036 448 413 220 321 219 820 440 140 Revenue recognised over time 56 662 409 777 466 440 96 845 216 111 312 955 TOTAL Revenue from contracts with customers 208 039 706 814 914 853 317 165 435 930 753 096 Onerous contracts. In the circumstance that the unavoidable costs directly related to project is expected to exceed the economic benefits expected to be received under the contract, the estimated loss on the contract will be recognised in its entirety in the period when such loss is identified. Additional information for onerous contracts is disclosed in note 5.5 ‘Provisions’. CONTRACT BALANCES Equipment contracts with a customer will have milestone payments with variable structures. The contract price will be invoiced when certain criteria are met. A typical milestone structure could be contract acceptance, placement of major supplier purchases, delivery/shipment and complete installation and commissioning. The payment structure of the contracts typically results in advance payments and progress billings exceed the satisfaction of performance obligations in progress. Consequently, creating a net contract liability. In certain circumstances based on the order value, credit worthiness of geographic location, the group may require payment in advance of shipment. The group does not accept returns of product or provide customers refunds or other similar concessions. Contract assets A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. As of the balance sheet date, the cumulative costs incurred plus recognised profit (less recognised loss) on each contract is compared against the advances and progress billings. Where the cumulative costs incurred plus the recognised profits (less recognised losses) exceed advances and progress billings, the balance is presented as due from customers on construction contracts within “contract assets”. When the contract assets become an unconditional right to consideration they are reclassified and presented separately as trade receivables, usually when invoices are issued to the customers. Contract liabilities A contract liability is the obligation to transfer goods or services to a customer for which the group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the group transfers goods or services to the customer, a contract liability is recognised when the payment is made, or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the group performs under the contract. Where advances and progress billings exceed the cumulative costs incurred plus recognised profits (less recognised losses), the balance is presented as due to customers on construction contracts within “contract liabilities”. CONTRACT BALANCES 2022 2021 CONTRACT ASSETS CONTRACT LIABILITIES TOTAL CONTRACT ASSETS CONTRACT LIABILITY TOTAL Rights to consideration on contracts in progress 556 141 525 812 1 081 953 477 688 332 324 810 011 Less - advances and progress billings -459 819 -1 198 103 -1 657 922 -298 919 -693 145 -992 063 TOTAL Contract assets (liabilities) 96 322 -672 291 178 769 -360 821 74 Notes to the consolidated financial statements 2022 CONTRACT LIABILITIES 2022 2021 Balance as of 01.01. -360 821 -193 082 Revenue from amounts included in contract liabilities at the beginning of the period 251 205 129 125 Billings and advances received not recognised as revenue in the period -554 596 -292 133 Basis adjustment - effect of hedge accounting -8 080 -4 731 Balance as of 31.12. -672 291 -360 821 CONTRACT ASSETS 2022 2021 Balance as of 01.01. 178 769 127 976 Transfers from contract assets recognised at the beginning of the period to receivables -167 774 -103 613 Increases due to measure of progress in the period 83 271 161 251 Revaluation 2 056 -6 845 Balance as of 31.12. 96 322 178 769 Order backlog The performance obligations in contracts with customers vary from a few months to 4 years. The order backlog as of December 31, 2022, was NOK 2 612.6 million (2021: NOK 1 230.1 million). The order backlog in electrolyser and fueling is NOK 2 224.5 million and NOK 388.1 million, respectively. The transaction price allocated to the remaining performance obligations is illustrated in table below: AS OF 31.12.2022 2023 2024 2025 2026 OR LATER TOTAL BACKLOG Partly unsatisfied performance obligations 1 166 434 989 315 66 529 11 596 2 233 875 Unsatisfied performance obligations 336 133 42 602 0 0 378 735 TOTAL backlog 1 502 568 1 031 917 66 529 11 596 2 612 610 AS OF 31.12.2021 2022 2023 2024 2025 OR LATER TOTAL BACKLOG Partly unsatisfied performance obligations 683 249 176 416 62 818 3 758 926 241 Unsatisfied performance obligations 249 737 28 557 15 544 10 026 303 864 TOTAL backlog 932 986 204 973 78 362 13 784 1 230 105 Revenue recognised in 2022 for performance obligations delivered in prior years due to revenue being constrained was NOK 0 (2021: 0) Nel ASA I Annual report 2022 75 2.2 Other operating income OTHER OPERATING INCOME 2022 2021 Government grants 22 307 14 679 Research and design study reports 34 549 25 637 Sub-lease 2 205 1 920 Gain and loss on disposal of property, plant and equipment 0 2 254 Other income 19 667 416 TOTAL Other operating income 78 728 44 905 Other income includes NOK 19.5 million as warranty compensation from supplier for replacement of equipment delivered to customers in the fueling division. Government grants within ‘other operating income’ SEGMENT COUNTRY 2022 2021 Electrolyser Norway 4 638 466 Fueling Denmark 17 668 14 213 TOTAL 22 307 14 679 Government grants related to assets, amortised 22 307 14 679 TOTAL 22 307 14 679 76 Notes to the consolidated financial statements 2022 2.3 Segment information Nel operates within two operating segments, Nel Hydrogen Fueling and Nel Hydrogen Electrolyser. The identification of segments in the group is made based on the different products the division offers as well as geographical areas the divisions operate in. The executive management group is the chief operating decision maker (CODM) and monitors the operating results of its operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial statements. Billing of goods and services between operating segments are effected on an arm’s length basis. NEL HYDROGEN FUELING Nel Hydrogen Fueling is a manufacturer of hydrogen fueling stations for Fuel Cell Electric Vehicles. Nel’s H2Station® manufacturing plant is located in Herning, Denmark. NEL HYDROGEN ELECTROLYSER The Nel Hydrogen Electrolyser division is a global supplier of hydrogen production equipment based on both alkaline and PEM water electrolysis technology. Nel Hydrogen Electrolyser currently has production facilities in Herøya, Norway, and in Wallingford, Connecticut, USA. 2022 OPERATING SEGMENTS REVENUES BY GEOGRAPHIC REGION BASED ON CUSTOMER LOCATION FUELING ELECTROLYSER OTHER 1) TOTAL Norway 422 6 073 0 6 495 United States 103 498 337 544 0 441 041 North America ex United States 8 760 9 131 0 17 891 Asia 28 979 108 247 0 137 226 Europe ex Norway 66 380 201 397 0 267 777 Middle East 0 26 218 0 26 218 Africa 0 13 206 0 13 206 South America 0 3 487 0 3 487 Oceania 0 1 512 0 1 512 TOTAL REVENUE FROM CONTRACTS WITH CUSTOMERS 208 039 706 814 0 914 853 Other operating income 37 183 41 545 0 78 728 Operating expenses -596 925 -1 052 054 -124 475 -1 773 454 EBITDA -351 703 -303 695 -124 475 -779 873 Depreciation and amortisation -47 448 -116 372 -7 663 -171 483 Impairment of tangible and intangible assets -327 298 0 0 -327 298 OPERATING LOSS -726 449 -420 067 -132 138 -1 278 654 Finance income 12 5 044 92 573 97 629 Finance costs 3 417 -16 801 7 412 -5 972 Tax income (expense) 8 318 6 586 924 15 828 NET INCOME (LOSS) -714 702 -425 238 -31 229 -1 171 169 TOTAL ASSETS 1 005 347 2 427 284 3 517 881 6 950 512 TOTAL LIABILITIES 456 231 977 392 67 282 1 500 905 Capital expenditures 54 373 229 660 1 160 285 193 1) Other and eliminations comprises parent company, holding entity, excess values on intangible assets and related depreciation and tax expense (income) derived from the consolidation of the financial statements not allocated to the operating segments. In 2022, revenue from single customers above 10% of total revenues include Nikola Corporation (electrolyser), recognised revenue of NOK 164.8 million. In 2021, revenue from single customers above 10% of total revenues include Iberdrola (electrolyser) and Iwatani Corporation of America (fueling), recognised revenue of NOK 128.4 and NOK 147.3, respectively. Nel ASA I Annual report 2022 77 (Amounts in NOK thousands) 2021 OPERATING SEGMENTS REVENUES BY GEOGRAPHIC REGION BASED ON CUSTOMER LOCATION FUELING ELECTROLYSER OTHER 1) TOTAL Norway 538 4 479 0 5 017 United States 203 794 161 805 0 365 599 North America ex United States 9 937 3 618 0 13 555 Asia 38 612 42 543 0 81 155 Europe ex Norway 64 285 204 750 0 269 034 Middle East 0 9 216 0 9 216 Africa 0 1 663 0 1 663 South America 0 2 085 0 2 085 Oceania 0 5 771 0 5 771 TOTAL REVENUE FROM CONTRACTS WITH CUSTOMERS 317 165 435 930 0 753 096 Other operating income 14 589 30 316 0 44 905 Operating expenses -500 721 -675 928 -96 589 -1 273 238 EBITDA -168 967 -209 681 -96 589 -475 237 Depreciation and amortisation -39 886 -56 385 -6 845 -103 116 Impairment of tangible and intangible assets 0 -4 500 0 -4 500 OPERATING LOSS -208 852 -270 566 -103 434 -582 853 Finance income 18 64 28 194 28 276 Finance costs -5 390 -240 -1 123 595 -1 129 224 Share of loss from associates and joint ventures 0 0 -35 -35 Tax income (expense) 10 175 5 885 924 16 984 PRE-TAX INCOME (LOSS) -204 049 -264 857 -1 197 946 -1 666 852 TOTAL ASSETS 1 038 376 1 842 253 3 126 354 6 006 984 TOTAL LIABILITIES 276 511 644 274 47 494 968 279 1) Other comprises parent company, holding entity, excess values on intangible assets and related depreciation and tax expense (income) derived from the consolidation of the financial statements not allocated to the operating segments. 78 Notes to the consolidated financial statements 2022 2.4 Raw materials (Amounts in NOK thousands) 2022 2021 Raw material 557 149 528 699 Freight expense 13 939 12 346 Other consumables 13 728 10 650 TOTAL 584 815 551 695 2.5 Personnel expenses (Amounts in NOK thousands) 2022 2021 Salaries 581 677 471 735 Social security tax 51 843 37 544 Pension expense 29 508 22 926 Other payroll expenses 1 ) 41 584 27 042 Capitalised salary to technology development -39 796 -87 237 TOTAL 664 815 472 010 1) Included here are expenses amounting to NOK 7.6 million (8.9 in 2021) related to the Group’s share option program. 2022 2021 Average number of full time employees 580 486 Hereof women 105 90 SHARE OPTION PROGRAM In 2021, Nel compensated employees with share options as part of a program to incentivize and retain key employees. The share option program was distributed groupwide and granted shares to all employees employed in the group during 2021 on certain tenure conditions. When granted, there is only service-time based vesting conditions. Vesting requires the option holder to still be an employee in the Group. The share-based payment is equity-settled. Each option, when exercised, will give the right to acquire one share in the Group. The options are granted without consideration. Refer below for additional information on share option program 2019, 2020 and 2021. The share option program for all employees was terminated in 2022 and was replaced by a STI bonus scheme linked to employee performance and Nel’s financial performance. Options granted July 2019: A total of 11.1 million share options were granted. Pursuant to the vesting schedule, 40% of the options will vest two years after the day of grant, and 60% of the options will vest three years after the day of grant. The exercise price is equal NOK 7.8 per share based on the average price of the Nel ASA share price the five trading days before grant date (NOK 7.22) and including an 8% premium. Gain per instrument is capped at NOK 5.00 maximum per share option. The options that have not been exercised will lapse 4 years after the date of grant. Options granted July 2020: A total of 12.8 million share options were granted. Pursuant to the vesting schedule, 40% of the options will vest two years after the day of grant, and 60% of the options will vest three years after the day of grant. The exercise price is equal NOK 21.72 per share based on the average price of the Nel ASA share price the five trading days before grant date (NOK 20.11) and including an 8% premium. Gain per instrument is capped at NOK 5.00 maximum per share option. The options that have not been exercised will lapse 4 years after the date of grant. Options granted July 2021: A total of 7.8 million share options were granted. Pursuant to the vesting schedule, 40% of the options will vest two years Nel ASA I Annual report 2022 79 after the day of grant, and 60% of the options will vest three years after the day of grant. The exercise price is equal NOK 15.125 per share based on the average price of the Nel ASA share price the five trading days before grant date (NOK 14.00) and including an 8% premium. Gain per instrument is capped at NOK 10.00 maximum per share option. The options that have not been exercised will lapse 4 years after the date of grant. Assumptions, costs and social security provisions The Group uses the Black-Scholes-Merton option pricing model at time of grant to determine the impact of stock option grants in accordance with IFRS 2 - Share-based payment. The model utilises the following parameters as input: • the company’s share price • the strike price of the options • the expected lifetime of the options • the risk-free interest rate equalling the expected lifetime • the volatility associated with the historical price development of the underlying share As all employee options granted are “non-transferable”, and the gains are taxed with personal income tax (higher), whereas gains on ordinary shares are taxed with capital gains tax (lower), it is reasonable to assume that participants tend to exercise early. Hence estimated lifetime of the options is expected to be shorter than the time from grant until expiry. However, exercise patterns are monitored frequently and expected option lifetime for future grants will reflect exercise behaviour. To estimate the volatility in the option pricing model comparable companies have been used. Nel does have sufficient traded history, however – the company has been through a rapid development in recent years and the assumption made at grant was that traded history the previous years was not the best estimate for the future years. Hence, volatility input to the Black-Scholes-Merton model is based on a group of peer companies. Further the total fair value of the share-based instruments is amortised over the vesting period of the instrument. IFRS 2 presumes that the fair value of the services expected to be received is the same as the fair value of the equity instruments granted at grant date. Therefore, although the services are recognised over the vesting period, they are measured only once, at grant date, unless the arrangement is modified. Social security tax provisions are accrued on a quarterly basis and becomes payable at exercise of the options. The social security tax provisions are estimated based on the gain on the share-based instruments multiplied with the relevant social security tax rate. The total expense recognised for the share-based programs, excluding social security, during 2022 was NOK 8.3 (9.5) million. The total social security accruals at the end of the year are NOK 0.0 (0.7) million (social security costs on exercised options has been paid in connection with the relevant exercises, hence taken out of the accruals accounts). The total intrinsic value of the company’s share-based instruments is NOK 0.1 (37.9) million as of 31 December 2022. Key assumptions option pricing model 2021 2020 Volatility 63.04% 28.65% Interest rate 0.96% 0.149% Dividend 0.00 0.00 No new share options were issued in 2022. 80 Notes to the consolidated financial statements 2022 ESTIMATION UNCERTAINTY - Share-based payments Estimating fair value for share-based payment transactions requires determination of the most appropriate evaluation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option or appreciation right, volatility and dividend yield and making assumptions about them. The groups’ equity-settled share-based payments are measured at fair value at the grant date. (amounts in NOK thousands and number of options/shares in thousands) SHARE OPTION PROGRAM OPENING BALANCE GRANTED EXERCISED FORFEITED CLOSING BALANCE STRIKE PRICE VALUE 1) REMAINING CONTRACT UAL LIFE July 2019 2) 5 032 0 -4 487 -528 17 7.80 5.00 0.51 July 2020 2) 10 816 0 0 -1 308 9 508 21.72 - 1.52 July 2021 2) 7 588 0 0 -888 6 699 15.13 - 2.63 TOTAL 23 436 0 -4 487 -2 724 16 225 VESTED 2) EXPIRY 2) NAME 2022 2023 2024 2025 TOTAL 2023 2024 2025 EXPENSE FOR THE PERIOD 3) Håkon Volldal 0 0 0 0 0 0 0 0 0 Kjell Christian Bjørnsen 128 254 93 0 476 0 321 155 250 Anders Søreng 124 248 93 0 465 0 310 155 277 Filip Smeets 128 254 93 0 476 0 0 476 250 Esa Laukkanen 0 0 0 0 0 0 0 0 0 Robert Borin 0 0 0 0 0 0 0 0 0 Jørn Rosenlund 0 0 0 0 0 0 0 0 -441 Hans Hide 126 254 96 0 476 0 316 160 288 Stein Ove Erdal 140 274 96 0 510 0 350 160 303 Caroline Duyckaerts 0 62 93 0 155 0 0 155 114 Other employees 3 187 7 025 3 456 0 13 667 17 7 891 5 759 7 300 TOTAL 3 834 8 371 4 020 0 16 225 17 9 187 7 020 8 342 1) The value of the share options equals share price less strike price, capped at NOK 5.0 for 2019 and 2020 program, and 10.0 for 2021 program. 2) All share options are granted, vested and expired at the beginning of July in a given fiscal year, except for share option program 2021 which is August. 3) Cost of period does not include social security No share options expired during the period. The first expiry date is 1. July 2023 for the options granted July 2019. The weighted-average share price at the date of exercise in 2022 was 15.5 (13.8). As shown in the table above, the share options exercised during 2022 had a strike price of mainly 7.8. Employee benefits were capped at NOK 5 or share price 12.8. Pensions The group has defined contribution pension scheme for its employees. This scheme is funded through payments to insurance companies. A defined contribution plan is one under which the group pays fixed contributions to a separate legal entity. The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. For defined contribution plans, the group pays contribution Nel ASA I Annual report 2022 81 to publicly- or privately administered pension insurance plans on an obligatory, contractual or voluntary basis. The group has no further payment obligations once the contributions have been paid. The contributions are recognised as a salary expense when they fall due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. The parent company and the Norwegian subsidiaries have pension plans that meet the requirements of the Pension Act of Norway. The Danish and the US subsidiary have pension plans that meet their respective requirements. 2.6 Other operating expenses (Amounts in NOK thousands) 2022 2021 Research and development expenditure 73 942 21 378 Utilities 23 809 12 398 Professional fees 116 108 79 046 Travel expenses 37 227 18 188 IT and communication costs 25 891 18 527 Changes in provisions 46 178 17 368 Repair and maintenance 10 572 5 577 Premises costs 29 147 12 182 Sub supplier services 76 337 29 993 Other expenses 84 611 34 876 TOTAL Other operating expenses 523 824 249 533 2.7 Finance income and cost (Amounts in NOK thousands) 2022 2021 Interest income 72 201 19 735 Change in fair value financial instruments 19 504 7 586 Other 5 924 954 Finance income 97 629 28 276 Interest expense 693 1 140 Interest expense lease liabilities 10 473 8 792 Capitalised interest 0 -5 902 Net foreign exchange loss -56 459 3 526 Change in fair value financial instruments 50 118 1 120 776 Other 1 147 893 Finance cost 5 972 1 129 224 Net finance income (cost) 91 657 -1 100 948 The change in fair value financial instruments is mainly due to change in fair value of Nel’s shareholdings in Everfuel and Nikola Corporation of NOK 26.2 (-1 073.0) million and NOK 23.9 (-47.8) million, respectively. For additional information, refer note 4.3. Net foreign exchange gain is mainly unrealised effects from revaluing internal loans. 82 Notes to the consolidated financial statements 2022 2.8 Income taxes TAX The tax expense in the statement of comprehensive income comprises of the tax payable for the period and of the change in deferred tax. Deferred tax is calculated at the prevailing tax rate in the respective countries where the parent company and subsidiaries are tax resident. Deferred tax is calculated based on temporary differences that exist between accounting and tax values, as well as any tax loss carry forward at the end of the financial year. The deferred tax asset is recognised if it is probable that the company will have a sufficient tax profit to be able to utilise the tax asset. Significant accounting judgements - Deferred tax asset Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies. The group has NOK 497.3 million of tax amounts from tax losses carried forward (NOK 420.0 million in 2021). These losses relate to subsidiaries that have a history of losses, do not expire, and to some extent may not be used to offset taxable income elsewhere in the group. On this basis, the group has determined that it cannot recognise deferred tax assets from the tax losses carried forward. Deferred tax assets not recognised in the statement of financial statement amount to NOK 532.5 million in 2022 (399.1 in 2021). CALCULATIONS OF THE TAX BASE FOR THE YEAR 2022 2021 Income (loss) before tax -1 186 997 -1 683 836 Permanent differences 365 343 1 094 455 Change in temporary differences 183 538 76 041 Use of tax losses carried forward -149 070 -12 331 The year's taxable income -787 186 -525 671 RECONCILIATION OF TAX EXPENSE TO NORWEGIAN NOMINAL STATUTORY TAX RATE Nominal tax rate 22 % 22 % Income (loss) before tax -1 186 997 -1 683 836 Tax this years income (loss), estimated -261 139 -370 444 Tax effect of: Tax rates different from Norway 2 833 1 960 Permanent differences 78 196 242 500 Change in tax rates recognised in temporary differences -3 702 0 Change in deferred tax -8 103 -7 405 Change in not recognized deferred tax assets (tax liabilities) 163 930 123 411 Other differences 12 158 -7 068 Currency translation differences 0 62 Income tax expense -15 828 -16 984 The tax effect of permanent difference of NOK 242.5 million is mainly related to unrealised changes in fair value of shareholdings. Nel ASA I Annual report 2022 83 INCOME TAX EXPENSE COMPRISE Income tax payable -7 726 -9 579 Change in deferred tax -8 103 -7 405 Total income tax expense (income) -15 828 -16 984 TAX EFFECTS OF TEMPORARY DIFFERENCES 2022 2021 Trade receivables and customers contracts -12 949 -1 593 Intangible assets 38 663 69 546 Property, plant and equipment 8 762 5 093 Inventories -147 5 076 Accrued warranty -16 726 -13 519 Leases -6 530 -4 889 Deferred income -15 700 -4 811 Other accruals -30 500 -45 864 Shares and other investments 0 11 922 Tax losses carry forward -497 326 -420 013 Deferred tax asset -532 453 -399 052 RECONCILIATION TO STATEMENT OF FINANCIAL POSITION 2022 2021 Deferred tax asset -532 453 -399 052 Deferred tax asset not recognised in statement of financial position 577 982 447 595 Deferred tax liability in the statement of financial position 45 529 48 543 CHANGES IN RECOGNISED DEFERRED TAX LIABILITY 2022 2021 Balance as of 01.01. 48 543 55 144 Recognised in the income statement -8 103 -7 405 Translation differences on deferred taxes 5 089 804 Balance as of 31.12. 45 529 48 543 The majority of the deferred tax asset is related to tax losses carry forward. As of 31 December 2022, it is considered not to be likely that the deferred tax asset can be utilised in near future, therefore no deferred tax asset has been capitalised. Table below show net operating losses carried forward by country multiplied with the tax rate, the deferred tax asset not recognised. TAX LOSSES CARRY FORWARD BY COUNTRY 2022 2021 Norway 233 084 188 442 Denmark 170 687 104 349 United States 88 753 122 878 South Korea 4 802 4 344 Balance as of 31.12. 497 326 420 013 84 Notes to the consolidated financial statements 2022 2.9 Earnings per share Earnings per share are calculated by dividing the profit/loss for the year by the corresponding weighted average of the number of outstanding shares during the reporting period. ‘Diluted earnings per share’ is based on the same calculation as for earnings per share, but it also considers all potential shares with dilutive effect that have been outstanding during the period. Potential shares relate to agreements that confer the right to issue shares in future. Options are excluded if their effect would have been anti-dilutive. Earnings per share is calculated as profit/(loss) attributable to the equity holders of the parent company divided by the average number of shares outstanding. (Amounts in NOK thousands) 2022 2021 Net loss attributable to the equity holders of the parent company and for the purpose of basic and diluted shares -1 171 169 -1 666 852 Basic earnings per share Issued ordinary shares at 1 January 1 460 799 1 407 797 Share options exercised 4 487 3 502 Share issued 98 039 49 500 Issued ordinary shares at 31 December 1 563 325 1 460 799 Effect of weighting (share options exercised and share issued during the year) -25 202 -48 Weighted-average number of shares outstanding for the purpose of basic earnings per share 1 538 123 1 460 751 Basic earnings per share for loss attributable to the equity holders of the parent company (NOK) -0.76 -1.14 Diluted earnings per share Weighted-average number of shares outstanding for the purpose of basic earnings per share 1 538 123 1 460 751 Effect of share options on issue 1) 0 0 Weighted-average number of shares outstanding for the purpose of diluted earnings per share 1 538 123 1 460 751 Diluted earnings per share for loss attributable to the equity holders of the parent company (NOK) -0.76 -1.14 1) As of 31 December 2022, 16 224 525 weighted-average options were excluded from the diluted weighted-average number of ordinary shares calculation because their effect would have been anti-dilutive (earnings per share is negative). Nel ASA I Annual report 2022 85 3.1 Intangible assets RESEARCH AND DEVELOPMENT Research Research activities are defined as activities whose purpose is to generate new technological understanding or knowledge. Research costs are expensed as incurred. Development Capitalised development costs are recognised at historical cost after the deduction of accumulated amortisations and impairments. The capitalised value is amortised over the period of expected future earnings from the related project on a straight-line basis. Technology As an indication of the level of internal technology costs, Nel currently has 60 and 59 full time employees working directly with R&D in the electrolyser and fueling division, respectively. Of the 60 full time employees working with electrolysers, 40 engineers are dedicated to technology at Proton OnSite in Wallingford, U.S. and 20 are dedicated to the technology at Nel Hydrogen Electrolyser AS in Notodden, Norway Electrolyser Nel invests in development of large-scale industrialisation of Electrolyser products. Work is in progress to develop a pressurized alkaline Electrolyser targeting 1000Nm3/h single cell stack to support and meet the demand of our customers. In addition, also development of the current atmospheric alkaline technology into larger capacity solutions are on- going. Finally, in order to meet new large-scale opportunities within the PEM portfolio, Nel is developing a larger single cell-stack PEM platform. All these three development activities are targeting to reduce total cost of ownership for our customers. The Electrolyser division has recognised on the statement of Financial Position Technology from internal development of NOK 262.3 (189.4) million as of 31.12.2022. Fueling Nel continues to see the market of Heavy-Duty transportation move fast towards Hydrogen. Therefore, in the fueling division there will be a significant investment in the development of next generation HDV equipment like high- capacity station modules and dispensers. This is to serve customers who have a need for large capacity dispensing capability, enabling fueling of a heavy-duty truck in 10-15 minutes, to achieve a range of 1 000 km. In addition, there will be ongoing investments in factory and laboratory to be able to accommodate HDV fueling equipment. The Fueling division has recognised on the statement of Financial Position Technology from internal development of NOK 71.9 (109.1) million as of 31.12.2022. Significant accounting judgements - Development costs Development expenditures on an individual project are recognised as an intangible asset when the group can demonstrate: • The technical feasibility of completing the intangible asset so that the asset will be available for use or sale • How the asset will generate future economic benefits • Its intention to complete and its ability and intention to use or sell the asset • The availability of resources to complete the asset • The ability to measure reliably the expenditure during development To demonstrate technical feasibility and availability of resources, it should be a high certainty that Nel have the intention and ability to complete. Nel categorise its intention and ability to complete in a matrix with the overarching risk to complete buckets low, medium and high. In the phase of a project where the risk of completing is medium to high, then the development costs are expensed as incurred. A capitalised development project commence amortisation when a succesful pilot is demonstrated. After a succesful pilot, the technology is in the condition necessary for it to be capable of operating in the manner indented by management and enters ‘ramp-up’ stage. Subsequent expenditure is maintenance of existing technology (expensed). Total technology spend for 2022 was NOK 248.4 (172.6) million, of which NOK 118.3 (118.9) million and NOK 130.1 (53.8) million has been capitalised and expensed, respectively. 86 Notes to the consolidated financial statements 2022 USEFUL LIFE, AMORTISATION PLAN • Technology has a useful life of 3-7 years • Customer relationship has a useful life of 7-10 years • Goodwill has indefinite life CUSTOMER RELATIONSHIP Customer relationship is acquired through business combinations. Customer relationship is initially measured at cost and subsequently amortised over useful life, using the straight-line method. At period end customer relationship is recognised at historical cost after the deduction of accumulated depreciation and impairments. GOODWILL Goodwill recognised in the statement of financial positions has been acquired through business combinations. Goodwill occurs as the residual in the business combination, being the excess of the aggregate of the consideration transferred and any previous interest held, over the net identifiable assets acquired and liabilities assumed. Goodwill is initially measured at cost which is net of tax amount. Subsequent to initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the group’s cash-generating units (CGUs) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units. (Amounts in NOK thousands) TECHNOLOGY CUSTOMER RELATIONSHIP GOODWILL TOTAL Acquisition cost as of 01.01.2021 630 430 96 812 620 198 1 347 440 Additions from internal development 99 160 0 0 99 160 Additions acquired separately 19 710 0 0 19 710 Disposals -97 0 0 -97 Currency effects -396 -35 -4 547 -4 978 Acquisition cost as of 31.12.2021 748 807 96 777 615 651 1 461 235 Additions from internal development 115 742 0 0 115 742 Additions acquired separately 2 509 0 0 2 509 Disposals -26 100 0 0 -26 100 Currency effects 45 598 2 418 46 835 94 851 Acquisition cost as of 31.12.2022 886 556 99 195 662 485 1 648 237 Accumulated amortisation and impairment as of 01.01.2021 203 089 52 117 467 255 673 Amortisation 52 918 12 278 0 65 196 Reclassification -97 0 0 -97 Impairment -1 118 0 0 -1 118 Currency effects -2 564 0 0 -2 564 Accumulated amortisation and impairment as of 31.12.2021 252 228 64 395 467 317 091 Amortisation 69 313 13 310 0 82 623 Reversed amortisation disposals -20 772 0 0 -20 772 Reclassification 1 632 0 0 1 632 Impairment 30 860 0 296 438 327 298 Currency effects 5 908 0 0 5 908 Accumulated amortisation and impairment as of 31.12.2022 339 169 77 705 296 905 713 779 Carrying value as of 31.12.2021 496 579 32 381 615 184 1 144 144 Carrying value as of 31.12.2022 547 387 21 489 365 580 934 456 Nel ASA I Annual report 2022 87 Impairment loss NOK 327.3 (0.0) million, from categories Technology and Goodwill, is included within “Impairment of tangible and intangible assets” in profit or loss. The impairment of technology is related to the technology development of fueling stations for the Light-Duty vehicles segment. The assessment includes uncertainty of future economic benefits from these products, both from actuals historical results and as Fueling develops new technology that will replace existing. Fueling will focus on developing its core technology with special focus on high-pressure compression, cooling and control. The fueling division will continue to invest in the development of next generation Heavy-Duty Vehicle (“HDV”) equipment such as high-capacity station modules and dispensers. Specification of carrying amount 2022 (Amounts in NOK thousands) TECHNOLOGY CUSTOMER RELATIONSHIP GOODWILL TOTAL Internal development 334 176 0 0 334 176 Acquired separately 881 0 0 881 Acquired through business combinations 212 331 21 489 365 580 599 401 Carrying value as of 31.12.2022 547 387 21 489 365 580 934 456 2021 (Amounts in NOK thousands) TECHNOLOGY CUSTOMER RELATIONSHIP GOODWILL TOTAL Internal development 298 539 0 0 298 539 Acquired separately 1 369 0 0 1 369 Acquired through business combinations 196 671 32 381 615 184 844 236 Carrying value as of 31.12.2021 496 579 32 381 615 184 1 144 144 ESTIMATION UNCERTAINTY - Impairment of goodwill and intangible assets Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the budget and strategy forecasts for the next five years and do not include restructuring activities that the group is not yet committed to or significant future investments which has not commenced that will enhance the performance of the assets of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and further explained in this note. 88 Notes to the consolidated financial statements 2022 GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIVES - IMPAIRMENT CONSIDERATIONS Goodwill, and CGUs where goodwill has been allocated, are required to be tested for impairment annually. The group performed its annual impairment test in December 2022. Impairment losses are recognised where the recoverable amount is less than the carrying amount. The group has recognised goodwill impairment expense of NOK 296.4 (0.0) in 2022, impairing goodwill in the Fueling division which occurred initially from the acquisition of Fueling in 2015 when Nel bought the division for NOK 300 million. The impairment charge was primarily due to the reduction in the projected growth rate for the Fueling division as a consequence of the weaker order intake in 2022, increasing personnel cost, combined with high quality costs on delivered stations out in the field. In addition, the pre-tax nominal WACC rate increased to 14.0% in 2022 (8.5% in 2021) mainly due to the increase in the risk-free rate in response to raising inflation in Europe during 2022. ANNUAL IMPAIRMENT TEST - ASSUMPTIONS CGU The annual impairment test is performed for all the Group’ Cash Generating Units (CGUs). A CGU is defined as the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups thereof. The way management monitors operations assisted in the judgements of identifying the CGUs. The Group’ CGUs are • Electrolyser Norway, • Electrolyser US and • Fueling SPECIFICATION OF ALLOCATED GOODWILL PER CGU 2022 2021 Electrolyser US 304 216 272 184 Electrolyser Norway 61 364 61 364 Fueling 0 281 635 Balance as of 31.12. 365 580 615 184 Market capitalisation The group considers the relationship between its market capitalisation and its book value, among other factors, when reviewing indicators of impairment. As of 31 December 2022, the market capitalisation of the group was approximately 4 times above the book value of equity, indicating no impairment of goodwill and impairment of the assets. In 2021 the market capitalisation was 5 times above the book value of equity. Key assumptions The calculations of value in use are sensitive to several assumptions, the following are assessed key assumptions in the measured value: • Revenue growth and gross margin • EBITDA margins • Discount rate / Weighted average cost of capital (WACC) Forecast period For each CGU, a recoverable amount has been measured. The impairment test has been based on the business and strategy plans approved by the Board of Directors and management’s best estimate of cash flows. The recoverable amount is based on a discounted cash flow model determined value in use, which are based on the following: i) the future expectations reflected in the current budget and strategy over the next 5-year period (forecast period); and ii) a declining growth rate for the subsequent five years as Nel assesses that 2027 is not a steady state of the hydrogen industry and not for Nel, specifically. Nel has applied declining growth rates starting from 2027, declining yearly down to 2.5%. The 2.5% growth rate is applied from year 2028, 2029 and 2031 for the divisions Fueling, Electrolyser US and Electrolyser Norway, respectively. Nel ASA I Annual report 2022 89 Discount rate Discount rates represent the current market assessment of the risks, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the group and its operating segments and is derived from its weighted average cost of capital (WACC). The WACC considers the cost of debt and equity. The cost of equity is derived from the expected return on investment by the group’s investors. The cost of debt is based on the interest- bearing borrowings the group is obliged to service. Segment specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available market data. Adjustments to the discount rate are made to factor in the specific amount and timing of the future cash flows to reflect a pre-tax nominal discount rate. Pre-tax nominal discount rate is in the range of 14.0 % to 15.0 %. ANNUAL IMPAIRMENT TEST – RESULTS AND SENSITIVITY The impairment test has been prepared in accordance with IAS 36 impairment of non-financial assets following the discounted cash flow methodology for value in use within the standard. The cash flows projections relate to the cash-generating unit in the current condition which means future investments not commenced has not been included in the valuation. In addition, the standard encourages a conservative valuation to ensure that assets are not carried at more than their recoverable amount. (Amounts in NOK thousands) ELECTROLYSER US ELECTROLYSER NORWAY FUELING Goodwill 304 216 61 364 0 Other intangible assets 342 003 141 492 83 582 Other invested capital 128 857 485 655 195 592 Carrying value 775 076 688 511 279 174 Recoverable amount 1 057 410 1 640 296 279 174 Headroom 282 334 951 785 0 Pre-tax nominal discount rate 15.0 % 14.8 % 14.0 % Terminal growth rate 2.5 % 2.5 % 2.5 % ELECTROLYSER US Electrolyser US is the Group’ segment for the PEM electrolyser technology. The CGU covers the production and manufacturing of PEM electrolyser equipment in Wallingford, Connecticut, US. The operations consist of both assembly of electrolyser, marketing activities and product development. The table below show the sensitivity analysis for the range of +/-2 percentage points in WACC and +/-4 percentage points in EBITDA margin. Sensitivity in headroom (amounts in NOK million) PERCENTAGE POINT CHANGE IN EBITDA MARGIN CHANGES IN WACC -4.0% -2.0% 0.0% 2.0% 4.0% -2.0% -89 454 997 1 537 2 073 -1.0% -355 120 596 1 068 1 537 0.0% -562 -140 281 700 1 115 1.0% -726 -348 29 404 775 2.0% -858 -517 -176 163 498 * Represents headroom in impairment calculation for the CGU. Negative numbers in the table indicate impairment. 90 Notes to the consolidated financial statements 2022 ELECTROLYSER NORWAY Electrolyser Norway is the Group’ segment for the Alkaline electrolyser technology. The CGU covers the production, manufacturing and development of both atmospheric alkaline and pressurised alkaline electrolyser equipment in Herøya and Notodden, Norway. New plant at Herøya, Norway started operations in 2021 and will scale the production. The operations consist of both assembly of electrolyser, marketing activities and product development. The table below show the sensitivity analysis for the range of +/-2 percentage points in WACC and +/-4 percentage points in EBITDA margin. Sensitivity in headroom (amounts in NOK million) PERCENTAGE POINT CHANGE IN EBITDA MARGIN CHANGES IN WACC -4.0% -2.0% 0.0% 2.0% 4.0% -2.0% 377 1 078 1 779 2 480 3 181 -1.0% 92 703 1 315 1 926 2 537 0.0% -130 411 952 1 493 2 034 1.0% -306 178 662 1 146 1 630 2.0% -448 -11 426 863 1 300 * Represents headroom in impairment calculation for the CGU. Negative numbers in the table indicate impairment. FUELING Fueling is the Group’ segment for the Hydrogen fueling technology. The CGU covers the production and manufacturing of hydrogen refueling stations in Herning, Denmark. The operations consist of both assembly of hydrogen refueling stations, marketing activities and product development. The Fueling segment offers H2Station® for fast fueling of fuel cell electric vehicles as well as services in relation to the supply of these stations. The objective to the segment is to deliver world class fueling stations offering a complete solution from sourcing and storage of hydrogen to fueling of vehicles. The table below show the sensitivity analysis for the range of +/-2 percentage points in WACC and +/-4 percentage points in EBITDA margin. Sensitivity in headroom (amounts in NOK million) PERCENTAGE POINT CHANGE IN EBITDA MARGIN CHANGES IN WACC -4.0% -2.0% 0.0% 2.0% 4.0% -2.0% -232 55 343 631 918 -1.0% -350 -101 149 398 648 0.0% -439 -220 0 220 439 1.0% -508 -312 -117 79 275 2.0% -562 -386 -210 -33 143 * Represents headroom in impairment calculation for the CGU. Negative numbers in the table indicate impairment. Nel ASA I Annual report 2022 91 Additional sensitivities –assumptions The sensitivities in the table show the change in assumptions that results in zero headroom, at perpetuity growth 2.5%, all else being equal. Additional sensitivities for the Fueling division has not been included as headroom in the valuation is zero. The table shows the sensitivities for the WACC used, but also for WACC +/- one percentage point: KEY ASSUMPTIONS PERIODS CHANGED WACC CHANGE (PPS) ELECTROLYSER US ELECTROLYSER NO Revenue growth multiple 1) Total multiple growth in NOK from 2022 to terminal 1.0% -0.1 -3.5 0.0% -0.9 -4.2 -1.0% -1.6 -4.9 Gross margin 2) Perecentage points in terminal 1.0% -0.2% -5.0% 0.0% -1.6% -6.0% -1.0% -2.9% -7.0% Free cash flow margin 3) Perecentage points in terminal 1.0% -0.2% -3.9% 0.0% -1.7% -4.7% -1.0% -3.0% -5.4% 1) If revenue assumption in terminal is reduced with this year’s revenue multiplied with this factor, the headroom is zero. 2) If average gross margin rate assumption in the CGU is reduced with this percentage point in the terminal, the headroom is zero. 3) If free cash flow margin rate assumption in the CGU is reduced with this percentage point in the terminal, the headroom is zero. 92 Notes to the consolidated financial statements 2022 3.2 Property, plant and equipment Property, plant and equipment comprise owned and leased assets. Property, plant and equipment are measured using the cost model; thus, recognised at cost price after deduction for accumulated depreciation and any impairment. Cost prices include purchase price and costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended. The assets are depreciated using the straight-line method over the expected useful life of the asset. Costs of direct maintenance on the operating assets are expensed as incurred. Additional investments and improvements are added to the asset’s cost price and depreciated in line with the remaining useful life of the asset. (Amounts in NOK thousands) MACHINERY AND EQUIPMENT BUILDINGS ASSET UNDER CON- STRUCTION OFFICE MACHINES AND OTHER EQUIPMENT PRODUCTION EQUIPMENT BUILDINGS TECHNICAL INSTALLATIONS RIGHT-OF- USE ASSETS (NOTE 3.3) TOTAL Acquisition cost as of 01.01.2021 132 190 53 745 35 667 143 126 5 494 100 320 470 542 Additions 217 164 15 631 22 452 8 369 570 15 155 279 340 Disposals 0 -7 129 -503 -26 972 -401 0 -35 004 Reclassification -555 -1 483 400 -28 411 0 -1 256 Remeasurement 0 0 0 0 0 35 992 35 992 Currency effects 137 -645 362 -4 190 -20 275 -4 082 Acquisition cost as of 31.12.2021 348 935 60 119 58 378 120 305 6 054 151 741 745 532 Additions 86 653 32 211 41 097 405 120 35 961 196 447 Disposals 0 -1 074 -2 738 0 -492 0 -4 304 Reclassification -354 831 9 468 340 505 0 6 432 0 1 574 Remeasurement 0 0 0 0 0 43 117 43 117 Currency effects 857 6 890 3 293 4 508 26 2 013 17 587 Acquisition cost as of 31.12.2022 81 614 107 614 440 535 125 218 12 139 232 833 999 953 Accumulated depreciation as of 01.01.2021 11 827 23 012 17 211 14 172 1 894 24 374 92 490 Depreciation 0 11 592 6 498 3 571 89 16 170 37 919 Impairment 4 500 0 0 0 0 0 4 500 Reversed depreciation disposals 0 -6 920 -503 -3 622 -401 0 -11 446 Reclassification 0 -1 285 -9 -373 411 0 -1 256 Currency effects 0 -140 318 -355 -12 0 -189 Accumulated depreciation as of 31.12.2021 16 327 26 259 23 515 13 392 1 981 40 544 122 018 Depreciation 0 20 703 42 055 4 078 667 21 358 88 860 Reversed depreciation disposals 0 -1 017 -1 127 0 -306 0 -2 450 Reclassification -16 327 217 16 051 0 0 0 -58 Currency effects 0 3 400 2 162 531 1 0 6 094 Accumulated depreciation as of 31.12.2022 0 49 562 82 656 18 001 2 343 61 902 214 464 Carrying value as of 31.12.2021 332 608 33 860 34 863 106 913 4 073 111 197 623 514 Carrying value as of 31.12.2022 81 614 58 052 357 879 107 216 9 796 170 931 785 488 Nel ASA I Annual report 2022 93 USEFUL LIFE, DEPRECIATION PLAN • Office machines and other equipment has a useful life of 3-5 years • Production equipment has a useful life of 3-8 years • Buildings has a useful life of 30-40 years • Technical installations have a useful life of 15-10 years • Right of use assets has a useful life of 2-10 years Herøya expansion In 2022, Nel initiated a continued expansion at Herøya in Norway with an additional 500 MW alkaline production line, expected to be operational from April 2024. The carrying amount for the Herøya second line expansion is NOK 55 million as of 31 December 2022. Total contractual commitments beyond December 2022 for the second line are NOK 230 million, including purchase contracts for all the physical equipment needed. Impairment An assessment of impairment of property, plant and equipment is made if there is an indication of impairment. If the impairment test reveals that an asset’s carrying amount is higher than the recoverable amount, an impairment loss will be recognised. Property, plant and equipment is included in ‘other invested capital’ allocated to the respective CGU’s for the annual impairment test where goodwill is allocated. See note 3.1 for impairment considerations for other invested capital. 3.3 Leases At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16. AS A LESSEE At commencement date or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component based on its relative stand-alone prices. The Group has not chosen to follow the practical expedient to account for the lease and non-lease components as a single component. Non-lease components are treated separately in other standards than IFRS 16. The group recognise a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. Refer to section significant accounting judgements – estimating the incremental borrowing rate (IBR) for additional information. Lease payments included in the measurement of the lease liability comprise the following: i) fixed payments and ii) variable lease payments that depend on an index, initially measured using the index or rate as at the commencement date. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset. PROPERTY, PLANT AND EQUIPMENT GEOGRAPHICAL AREA 2022 2021 Norway 562 761 461 994 Denmark 111 225 106 262 USA 107 959 49 919 South Korea 3 543 5 339 Balance as of 31.12. 785 488 623 514 The allocation of property, plant and equipment is based on the geographical location of the assets. 94 Notes to the consolidated financial statements 2022 Payments for insurance, property tax and VAT are excluded from the lease payments amount as they are defined variable lease payments. The Group presents right-of-use assets in ‘property, plant and equipment’ and the lease liabilities within ‘lease liabilities’, divided into current and non-current portions. Short-term leases and leases of low value assets Nel have elected the practical expedient of treating short-term leases and low value assets outside the scope of IFRS 16. Significant accounting judgements - Estimating the incremental borrowing rate (IBR) The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its IBR to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions). The Group determines its incremental borrowing rate by considering various interest rates (risk free rate as 10-year government bonds, and risk premiums) and makes certain adjustments to reflect the terms of the lease, the type of the asset leased and certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating). The group has lease contracts for various items of manufacturing facilities, offices, warehouse, parking, vehicles and other equipment used in its operations. Leases of manufacturing facilities generally have lease terms between 10 and 15 years, while offices, warehouse and parking have 5 years and motor vehicles and other equipment generally have lease terms between 3 and 5 years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. ‘Manufacturing facilities’ comprise the Group’ two significant leases in the manufacturing facilities at Herøya (Norway) and Wallingford (US). Right-of-use assets (Amounts in NOK thousands) MANU- FACTURING FACILITIES OFFICE, WAREHOUSE AND PARKING MOTOR VEHICLES EQUIPMENT TOTAL As of 01.01.2021 66 969 5 554 2 862 560 75 946 Additions 0 13 657 1 380 117 15 155 Remeasurement 33 843 2 323 -174 0 35 992 Depreciation -9 030 -5 637 -1 386 -116 -16 170 Translation difference 490 -56 -120 -39 275 As of 31.12.2021 92 272 15 841 2 563 522 111 197 Additions 0 35 469 492 0 35 961 Remeasurement 42 404 1 033 -320 0 43 117 Depreciation -12 064 -7 940 -1 233 -121 -21 358 Translation difference 1 449 435 108 22 2 013 As of 31.12.2022 (note 3.2) 124 061 44 839 1 608 423 170 931 Nel ASA I Annual report 2022 95 In December 2022, the group reassessed the extension option within the lease agreement of Wallingford (US). The lease agreement expires in July 2024 with two extension options for 5-year periods exercisable in July 2024 (extending termination date to July 2029) and July 2029 (extending termination date to July 2034). The reassessment evaluated Nel’s recent plans to increase the production capacity in US, including the budget planned for capital expenditure in 2023, and economic incentives for do not reallocate skilled staff and its fixed assets. The conclusion is that Nel is reasonably certain to exercise the first extension option expiring in July 2024. As of 31 December 2022, the economic incentives for the extension due in July 2029 were considered unclear and not reasonably certain due to the uncertainties about the size of the capacity expansion, total investment and location. The reassessment resulted in an increase of the right-of-use assets and lease liabilities of NOK 42.4 million in 2022. Lease liabilities The table below show the carrying amounts of lease liabilities (both current and non-current portion) and the movements during the period: (Amounts in NOK thousands) 2022 2021 Balance as of 01.01. 133 421 91 416 Additions 35 961 15 155 Remeasurement 43 117 35 992 Accretion of interest 10 473 8 792 Lease payments -24 873 -18 357 Translation differences 2 515 423 Balance as of 31.12. 200 615 133 421 Current 30 438 19 916 Non-current 170 177 113 505 Balance as of 31.12. 200 615 133 421 The maturity analysis of undiscounted cash flow in lease liabilities is disclosed in Note 5.2. The difference between discounted cash flows and undiscounted cash flows (discount effect) is NOK 86.5 (73.8) million as of 31.12.2022. The discount effect is mainly related to manufacturing facility at Herøya with included lease term until 2035. Reconciliation of liabilities arising from financing activities in statement of cash flows, split in cash flows and non-cash changes. (Amounts in NOK thousands) 2022 2021 Balance as of 01.01. 133 421 91 416 Cash flows principal amount -14 400 -15 467 Cash flows interests -10 473 -2 890 Non-cash changes: Additions and remeasurements 79 078 51 147 Accretion of interest expense 10 473 2 890 Accretion of capitalised interests 0 5 902 Foreign currency effects 2 515 423 Balance as of 31.12. 200 615 133 421 96 Notes to the consolidated financial statements 2022 Amounts recognised in profit or loss (Amounts in NOK thousands) 2022 2021 Depreciation expense of right-of-use assets -21 358 -14 518 Interest expense on lease liabilities -10 473 -3 611 Income from subleasing right-of-use assets 2 205 2 379 Expense relating to leases of low-value assets -208 -203 Expense relating to short-term leases, excluding short-term leases of low-value assets -32 -131 Variable lease payments 0 0 TOTAL amount recognised in profit or loss -29,866 -16,084 Other information Total cash outflow for leases as a lessee 25 113 14 860 Weighted incremental borrowing rate used as discount rate for the measuring of lease liabilities 6.9 % 9.6 % Extension and termination options The Group has several lease contracts that include extension and termination options. These options are negotiated by management to provide flexibility in managing the leased-asset portfolio and align with the Group’s business needs. Significant accounting judgements - Determining the lease term of contracts with renewal and termination options - Group as a lessee. The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has several lease contracts that include extension and termination options. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate. In general, the renewal periods for leases of manufacturing facilities, offices, warehouse and parking with longer non- cancellable periods (i.e. 6-10 years) are not included as part of the lease term as these are not reasonably certain to be exercised. In addition, the renewal options for leases of motor vehicles are not included as part of the lease term because the Group typically leases motor vehicles for not more than three years and, hence is not exercising any renewal options. The periods covered by termination options are included as part of the lease term only when they are reasonably certain not to be exercised. Nel ASA I Annual report 2022 97 Set out below are the material undiscounted potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term. 2023 2024 2025-2027 2027< Extension options not reasonably certain to exercise 0 0 0 43 321 Termination options expected to be exercised 0 0 0 0 TOTAL 0 0 0 43 321 AS A LESSOR The group have no leases as lessor except for sub-lease. All sub-leases are office space that has been presented as right- of-use assets as part of the property, plant and equipment. When considering the lease term of the sub-lease and the head lease a major part of the economic life of the asset is retained by the Group. All sub-leases have been classified as operating leases and the lease payments received is recognised on a straight-line basis over the lease term as part of ‘other operating income’. 98 Notes to the consolidated financial statements 2022 3.4 Investments in associated companies and joint ventures An associate is an entity where the group has significant influence, but not control or joint control. A joint venture is an entity where the group has joint control contractually together with one or several other parties, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. The group’s investments in its associates and joint ventures are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. The statement of profit or loss reflects the group’s share of the profit or loss in equity-accounted investees. Any change in OCI of those investees are presented as part of the group’s OCI. No dividends have been received during 2022 or 2021. The group is not committed to financing the losses and has not provided any guarantee of equity-accounted investees’ obligations. This means that if equity in any of the equity- accounted investees are negative, Nel recognise book value of shares as NOK 0 at the end of the year, without any provisions for liabilities. (Amounts in NOK thousands) ACQUISITION COST CARRYING VALUES COUNTRY SEGMENT OWNERSHIP TYPE 2022 2021 2022 2021 Sagim SAS France Electrolyser 37.0% Associate 100 100 100 100 Hyon AS Norway Fueling 17.6%/28.7% Shares/ Associate 0 572 0 572 Glomfjord Hydrogen AS Norway Electrolyser 23.2% Associate 2 786 1 626 2 786 1 626 SUM associated companies 2 886 2 298 2 886 2 298 Íslenska Vetnisfélagið Iceland Fueling 10.0% Joint venture 2 346 2 346 0 0 SUM joint ventures 2 346 2 346 0 0 TOTAL associated companies and joint ventures 5 232 4 645 2 886 2 298 Hyon AS (17.6%/28.7%): On 21 January 2022, Hyon AS, completed a private placement at a price of NOK 2.34 per share and subsequently a successful admission to Euronext Growth Oslo. The shares were therefore reclassified from shares in associate (28.7% shareholding) to shares in current investments (17.6% shareholding), refer to note 4.3 for additional information. Nel ASA I Annual report 2022 99 3.5 Non-current financial assets (Amounts in NOK thousands) 2022 2021 Investment in Hydrogen Energy Network (HyNet) 39 110 31 902 Long-term investments 208 066 56 280 Fair value of derivatives (note 6.4) 189 1 877 Prepayments 159 170 Other non-current financial assets 2 548 2 662 Balance as of 31.12. 250 072 92 889 HYDROGEN ENERGY NETWORK (HYNET) During 2022, the Group invested additional NOK 5.3 (13.1) million in Hydrogen Energy Network (HyNet). The accumulated cost of shares in HyNet is NOK 39.2 (33.9) million. The transaction and book value is in Korean Won, therefore, the shares are revalued to NOK 39.1 (31.9) million as of 31 December 2022. The group’s shareholdings constitute a 4.75 % ownership interest. HyNet is structured as a Special Purpose Company and is principally engaged in expanding the hydrogen fueling infrastructure in South Korea. The shares are unquoted and there have not been any transactions of an identical or similar instrument. The shares are stated at the cost price of the shares which is the approximate fair value at year end. Fair value information has not been disclosed for the investment in note 6.6 because the fair value cannot be measured reliably. LONG-TERM INVESTMENTS Nel occasionally enters contracts with customers with specific guarantee clauses that require Nel to purchase certain performance bonds or advance payment guarantee products from financial institutions. The products are secured by cash collateral. In addition, Nel has some lease agreements which require deposits in a restricted bank account throughout the lease term. Both cash collateral and deposits are assessed as investments (i.e. not cash or cash equivalents) as the maturity exceeds 3 months. Long-term investments include the investments that exceed 12 months. Performance and warranty bonds NOK 50.8 (24.7) million relates to outstanding irrevocable letters of credit used as assurance for bid and contract performance, these letters of credit mature between 31 December 2022 and 2 March 2024. As of 31 December 2022, the customers have drawn NOK 0.0 (0.0) million on the letters of credit. Advance payment guarantee Generally, in the contracts with customers, Nel receives advance payments. As of 31 December 2022, Nel has NOK 107.0 (10.4) as cash collateral for irrevocable letters of credit issued for advance payment guarantees with financial institutions. As of 31 December 2022, the customers have drawn NOK 0.0 (0.0) million on the letters of credit. Lease payments guarantee (deposits) and other deposits Deposits for lease payments comprise security for lease payments throughout the lease terms for cars, office premises and manufacturing facilities. In addition, collateral for bank credit lines. As of 31 December 2022, the Group has NOK 49.2 (19.6) million in such deposits. 100 Notes to the consolidated financial statements 2022 4.1 Inventories Inventories comprises purchased raw materials, work in progress and finished goods. Obsolescence is considered for inventories and write-down is performed on obsolete goods. Inventories are measured under the weighted-average cost formula. The cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items bought or produced during the period. The average is calculated on a quarterly basis. (Amounts in NOK thousands) 2022 2021 Raw material 51 478 68 431 Work in progress 120 846 92 133 Finished goods 346 434 188 269 Allowance for obscolete inventory -14 163 -20 366 Balance as of 31.12. 504 595 328 465 Inventories are measured at the lowest of cost and net realisable value less costs to sell. In both 2022 and 2021, all items of inventories are measured at cost. The amount of inventories recognised as an expense was NOK 622.2 (510.2) million during the period. 4.2 Trade receivables Trade receivables are initially recognised at their transaction price, i.e. the amount of consideration to which Nel expects to be entitled for transferring the promised goods or services to the customer. Trade receivables are subsequently accounted for at amortised cost and are reviewed for impairment on an ongoing basis. Trade receivables are generally not discounted. Trade receivables are presented net of expected credit losses. Changes in the expected credit loss are recognised within other operating expenses in statement of comprehensive income. (Amounts in NOK thousands) 2022 2021 Receivables from third-party customers 463 005 212 585 Allowance for expected credit losses -2 270 -1 177 Balance as of 31.12. 460 735 211 408 Trade receivables are non-interest bearing and are generally on terms 30 to 60 days Movements in the allowance for impairment in respect of trade receivables (Amounts in NOK thousands) 2022 2021 Balance as of 01.01. 1 177 1 046 Net remeasurement of loss allowance 1 093 131 Balance as of 31.12. 2 270 1 177 See Note 6.1 on credit risk of trade receivables, which explains how the group manages and measures expected credit loss of trade receivables that are neither past due nor impaired. Nel recognises loss allowances for ‘Expected Credit Loss’ (ECL) on: a) Financial assets measured at amortised cost; and b) Contract assets Loss allowance for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment, that includes forward-looking information. MEASUREMENT OF ECLs ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to Nel in accordance with the contract and the cash flows that Nel expects to receive). PRESENTATION OF ALLOWANCE FOR ECL IN THE STATEMENT OF FINANCIAL POSITION Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Nel ASA I Annual report 2022 101 4.3 Prepaid expenses and other current assets (Amounts in NOK thousands) 2022 2021 Equity instruments 450 296 568 191 VAT net receivable 34 040 7 900 Short-term investments 96 861 39 909 Prepayments 147 422 55 530 Other current assets 48 351 23 022 Fair value of derivatives (note 6.4) 438 8 176 Balance as of 31.12. 777 408 702 728 EQUITY INSTRUMENTS Nikola Corporation During 2018 Nel invested USD 5.0 million in Nikola Motor Company Inc (former name). The carrying value as of 31 December 2022 is NOK 0.0 (96.3) million after the sale of all the shares during 2022 for the total consideration of NOK 72.4 million. 2022 includes a finance cost from decline in value of NOK 23.9 in 2022. Nikola Corporation (Amounts in NOK thousands) SHARE HOLDING FAIR VALUE USD/ PER SHARE USD VALUE USD/NOK BOOK VALUE Carrying value as of 01.01.2021 1 106 520 15.26 16 885 8.53 144 077 Fair value adjustment 2021 0 -5.39 -5 964 0.29 -47 757 Carrying value as of 31.12.2021 1 106 520 9.87 10 921 8.82 96 320 Fair value adjustment 2022 0 -3.12 -3 450 0.87 -23 903 Sale of shares 2022 -1 106 520 6.75 -7 472 9.69 -72 417 Carrying value as of 31.12.2022 0 0 0 102 Notes to the consolidated financial statements 2022 Everfuel During 2018 and 2019 Nel invested NOK 2.2 million in Everfuel A/S. On October 21, 2020, Everfuel A/S completed a listing on Euronext Growth. Consequently, Nel’s shareholding in Everfuel A/S is based on quoted prices in an active market both per 31 December 2021 and 2022. The Everfuel shares lock-up period expired on October 29, 2021. Thus, there is no lock-up restriction with the shareholdings as of 31 December 2022. The carrying value as of 31 December 2022 is NOK 435.8 (471.9) million. The carrying value is calculated as the shareholding of 12 140 255 shares multiplied with closing price in 2022 of NOK 35.90. Everfuel A/S (Amounts in NOK thousands) SHARE HOLDING ACQUISITION COST NOK/ PER SHARE FAIR VALUE NOK/ PER SHARE BOOK VALUE Carrying value as of 01.01.2021 12 338 624 0.91 125.00 1 542 328 Private placement 20 485 125.00 2 561 Fair value adjustment 2021 -86.82 -1 073 018 Carrying value as of 31.12.2021 12 359 109 1.12 38.18 471 871 Fair value adjustment 2022 -26 215 Sale of shares 2022 -218 854 -9 820 Carrying value as of 31.12.2022 12 140 255 1.12 35.90 435 836 Hyon The carrying value as of 31 December 2022 is NOK 14.4 (0.6) million. The carrying value is calculated as the shareholding of 9 804 000 shares multiplied with closing price in 2022 of NOK 1.48. As of 24 January 2023, Nel has divested all its shares in Hyon AS for a total net consideration of about NOK 7 million. HYON AS (Amounts in NOK thousands) SHARE HOLDING ACQUISITION COST NOK/ PER SHARE FAIR VALUE NOK/ PER SHARE BOOK VALUE Carrying value as of 01.01.2021 114 000 29.39 0 Capital increase 6.14 700 Sale of shares -114 000 -35.53 -700 Purchase of shares 98 040 5.83 572 Stock split 9 705 960 -5.77 Carrying value as of 31.12.2021 9 804 000 0.06 0.06 572 Fair value adjustment 2022 1.42 13 889 Carrying value as of 31.12.2022 9 804 000 0.06 1.48 14 461 Nel ASA I Annual report 2022 103 SHORT-TERM INVESTMENTS H2NO AS Per 31 December 2022 the Group holds 44% of the shares in the company. In addition to the shares, the Group holds a put option for all the shares, and the controlling owner has a call option for all of the shares. Both options are irrevocably granted by the other party from 30 December 2020 Consequently, the combination of shares and put/call options results in the shares being sold per 31 December 2020 and consideration will be received in a future period. The forward (consideration for sale of shares) is recognised at fair value, NOK 33.7 (28.1) million per 31 December 2022. Performance and warranty bonds, advance payment guarantee and lease payments guarantee (deposits) Guarantees are included as short-term investments with NOK 61.2 (9.8) million. This is the short-term equivalent to the long-term investments, see note 3.5 for additional information. 4.4 Cash and cash equivalents Cash and cash equivalents include cash, bank deposits and all other monetary items due within three months or less. (Amounts in NOK thousands) 2022 2021 Cash and cash equivalents 3 125 757 2 714 272 Restricted bank deposits for employees' withheld taxes at 31.12 10 833 7 949 Other restricted bank accounts 1) 1 959 549 Balance as of 31.12. 3 138 550 2 722 769 1) Other restricted bank accounts comprise short-term deposits and short-term guarantee payments which are assessed equivalent to demand deposits and short-term highly liquid investments that are subject to an insignificant risk of changes in value. 2022 2021 Norwegian Kroner 2 982 974 2 607 803 US Dollars 107 413 35 783 Danish Kroner 5 266 45 871 Swedish Kroner 7 165 648 Euro 7 061 8 947 GB Pounds 3 014 2 645 Korean Won 10 452 12 574 Polish Zloty 2 411 0 Balance as of 31.12. 3 125 757 2 714 272 Cash and cash equivalents are 95% (95%) in the Norwegian Krone (NOK) at the end of 2022. Approximately NOK 2.5 billion is placed in 30-days locked interest accounts in several different banks. 104 Notes to the consolidated financial statements 2022 5.1 Share capital and shareholders SHARE CAPITAL The share capital comprises the number of shares multiplied by their par value and are classified as equity. Expenses which can be attributed directly to the issue of new shares or options (less tax) are recognised in equity as a reduction in the proceeds received. As of 31 December 2022, the group’s share capital was NOK 312.7 (292.2) million, consisting of 1 563 325 304 (1 460 799 288) shares each with a par value of NOK 0.20 (0.20). The parent company has only one share class and no special regulations relating to the shares; thus, one share represents one vote. SHAREHOLDERS AS OF 31.12.2022 COUNTRY NUMBER OF SHARES OWNERSHIP BlackRock United States 63 898 504 4.09 % Vanguard United States 51 881 623 3.32 % Folketrygdfondet Norway 21 272 689 1.36 % Nordnet Bank AB Sweden 18 808 822 1.20 % Handelsbanken Fonder Sweden 18 354 083 1.17 % Legal & General United Kingdom 17 669 394 1.13 % Storebrand Asset Management Norway 15 675 856 1.00 % Avanza Bank AB Sweden 12 875 681 0.82 % DNB Asset Management AS Norway 11 887 369 0.76 % Amundi France 11 745 134 0.75 % PIMCO United States 9 790 500 0.63 % AXA France 8 168 474 0.52 % VanEck United States 8 096 095 0.52 % Eika Kapitalforvaltning Norway 7 046 391 0.45 % Argenta Asset Management SA Luxembourg 6 817 779 0.44 % Kommunal Landspensjonskasse Norway 5 899 760 0.38 % Equinor Asset Management Norway 5 896 833 0.38 % Global X Management Company LLC United States 5 868 719 0.38 % green benefit AG Germany 5 789 841 0.37 % CPR Asset Management France 5 703 131 0.36 % Total 20 largest shareholders 313 146 678 20.03 % Total remaining shareholders 1 250 178 626 79.97 % Total number of shares 1 563 325 304 100.00 % * source: Modular Finance AB As of 31 December 2022, Nel ASA owns 418 033 treasury shares which are recognised at par value NOK 0.20 within ‘treasury shares’ as a reduction of share capital and total equity. Nel ASA I Annual report 2022 105 5.2 Long-term debt and guarantees (Amounts in NOK thousands) LONG-TERM DEBT - LENDER LEGAL ENTITY MATURITY INTEREST RATE 2022 2021 2) Nykredit - Vejlevej 5 - Ejendom Nel Hydrogen A/S 2038 0.36 % 15 995 16 426 3) Nykredit - Vejlevej 5 - Ejendom Nel Hydrogen A/S 2038 0.27 % 5 353 5 482 4) Nykredit - Vejlevej 3 Nel Hydrogen A/S 2028 0.30 % 1 083 1 283 Balance as of 31.12. 22 431 23 191 Reconciliation of liabilities arising from financing activities (Amounts in NOK thousands) 2022 2021 Balance as of 01.01. 23 191 30 284 Payment of loan -1 889 -4 464 Non-cash changes: Accretion of interest 598 598 Foreign currency effects 530 -3 227 Balance as of 31.12. 22 431 23 191 The reconciliation of lease liabilities arising from financing activities is disclosed in note 3.3 leases. MATURITY ANALYSIS Maturity analysis for long-term debt (undiscounted cash flows) 2022 2023 2024 2025 2026 >2026 TOTAL Nykredit 1 378 1 415 1 454 1 493 16 691 22 431 Lease liabilities (note 3.3) 31 903 28 926 31 427 30 392 164 469 287 118 Estimated interest cost 1) 504 464 430 430 2 571 4 399 TOTAL long-term debt including interest 33 785 30 805 33 310 32 316 183 731 313 947 1) Based on prevailing debt installment agreements and interest rates. 2021 2022 2023 2024 2025 >2025 TOTAL Nykredit 1 885 1 513 1 523 1 530 16 741 23 191 Lease liabilities (note 3.3) 20 917 23 562 16 557 15 022 131 166 207 225 Estimated interest cost 1) 513 479 441 408 2 443 4 284 TOTAL long-term debt including interest 23 315 25 554 18 521 16 960 150 350 234 700 1) Based on prevailing debt installment agreements and interest rates. 106 Notes to the consolidated financial statements 2022 (Amounts in NOK thousands) CARRYING AMOUNT OF ASSETS THAT ARE PLEDGED 2022 2021 Other equipment 92 230 Building 65 430 64 904 TOTAL 65 522 65 134 GUARANTEES 2022 2021 Bank guarantees 267 748 33 546 5.3 Deferred income (Amounts in NOK thousands) 2022 2021 Government grants 64,049 69,537 TOTAL deferred income 64,049 69,537 GOVERNMENT GRANTS Government grants are recognised where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grants relate to an expense item, it is normally recognised as other operating income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. rants received that relate to an acquisition or development of assets has been presented “gross” in Nel’s financial statements. A gross presentation entails that the grant received is presented separately as deferred income. The deferred income is presented as a non-current liability and is amortised over the useful life of the related asset. The amortised part of the deferred income is presented as other operating income in the statement of comprehensive income. (Amounts in NOK thousands) 2022 2021 As of 31.12.2021 69 537 63 601 Grants received 15 291 22 145 Income recognised within 'other operating income' in 2022 (note 2.2) -22 307 -14 679 Translation difference 1 527 -1 530 As of 31.12.2022 64 049 69 537 The aging schedule shows the remaining governments grants divided in the year the grants was initially received. DEFERRED INCOME AGING SCHEDULE <2019 2019 2020 2021 2022 SUM Government grants as of 31.12.2022 8 456 11 516 23 039 14 923 6 116 64 049 Government grants as of 31.12.2021 16 603 11 700 24 797 16 437 69 537 Nel ASA I Annual report 2022 107 The table below show the split of deferred income (government grant) per operating segment. OPERATING SEGMENT COUNTRY 2022 2021 Electrolyser Norway Norway 42 908 41 151 Fueling Denmark 21 141 28 386 Balance as of 31.12. 64 049 69 537 The group is not aware of any unfulfilled conditions associated with these grants. 5.4 Other liabilities OTHER CURRENT LIABILITIES (Amounts in NOK thousands) 2022 2021 Vacation allowance and other salary related accruals 41 438 43 534 Public duties payable 24 110 14 809 Other current liabilities 60 417 40 776 Fair value of derivatives (note 6.4) 7 740 4 127 Balance as of 31.12. 133 704 103 246 OTHER NON-CURRENT LIABILITIES (Amounts in NOK thousands) 2022 2021 Contingent liabilities 4 569 7 838 Other non-current liabilities 350 450 Fair value of derivatives (note 6.4) 2 182 163 Balance as of 31.12. 7 102 8 452 108 Notes to the consolidated financial statements 2022 5.5 Provisions PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS The group makes provisions when a legal or constructive obligation exists as a result of past events, it is more likely than not that a transfer of financial resources will be required to settle the obligation, and the amount of the obligation can be reliably estimated. When the group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. When the effect is significant, provisions are calculated by discounting expected cash flows at a pre-tax rate that reflects the time value of money and if appropriate the risks specific to the liability. Increase in provisions as a result of time passing, is presented as interest expense. Information regarding significant contingent liabilities is disclosed. A contingent asset is not recognised, but information is disclosed if there is a possibility that a significant advantage will accrue to the group. (Amounts in NOK thousands) ACCRUED WARRANTY EMPLOYEE BENEFITS SETTLEMENT AND CLAIMS ONEROUS CONTRACTS TOTAL As of 01.01.2021 31 661 1 257 27 739 14 078 74 735 Additions 33 933 4 0 2 718 36 655 Used during the year -7 153 94 -4 007 -8 214 -19 280 Reversal of unused provisions -2 286 -655 0 0 -2 941 Foreign currency translation -695 0 38 -406 -1 062 As of 31.12.2021 55 460 701 23 770 8 176 88 106 Additions 36 894 21 792 2 748 37 374 98 809 Used during the year -15 544 -701 -4 182 -5 458 -25 885 Reversal of unused provisions -11 426 0 -818 -211 -12 454 Foreign currency translation 3 162 0 243 1 459 4 864 As of 31.12.2022 68 546 21 792 21 762 41 340 153 440 ACCRUED WARRANTY The groups warranty to customers is limited to replacement parts and services and generally expires one year from the date of shipment or contract completion. Such warranties are limited in time, for most products not exceeding 12 months. Warranty is based on both contractual commitments and caused by liability under background law. Estimated warranty obligations are recorded in the period in which the related revenue is recognised or when a project is installed or commissioned. The group quantifies and records an estimate for warranty related costs, which is principally based on historical experience. The accounting for warranties requires the Group to make assumptions and apply judgments when estimating product failure rates and expected material and labour costs. The group adjusts accruals as warranty claim data and historical experience warrant. If actual results are not consistent with the assumptions and judgments used to calculate the warranty liability because either failure rates or repair costs differ from the groups assumptions, the group may be exposed to gains or losses that could be material. Accrued warranty provision is based on experience assumptions and provision comprises a percentage of revenue from contracts with customers, in the range of 3% to 8%. EMPLOYEE BENEFITS Nel has short-term incentive bonuses in place for all employees. The provision for bonus incurred in 2022 to be finally measured and paid in 2023 is NOK 21.8 million. In addition, the employee benefits include provision for social security on stock options for social security payable in Norway, calculated at the intrinsic value at year end. The provision fluctuates with the number of active options, timing of exercise and Nel ASA share price. See note 2.5 for further information on share option program. SETTLEMENT AND CLAIMS Settlement and claims comprise disputes, claims and fines where cash outflow is assessed probable (more likely that not to occur). At the end of 2022 the provision is mainly related to the potential fines (no: forelegg) for the Kjørbo incident received on February 16, 2021. In 2022 the provision is unchanged as the case is still open. ONEROUS CONTRACTS An onerous contract is a contract in which the unavoidable costs (i.e. the lower of the cost of fulfilling the contract and any compensation or penalties arising from failure to fulfil it) Nel ASA I Annual report 2022 109 exceed the economic benefits expected to be received under the contract. For all contracts that are onerous, the present obligation under the contract is recognised and measured as a provision. 6.1 Operational risk factors OBJECTIVES, POLICIES AND PROCESSES FOR MANAGING CAPITAL The group’s objective is to manage the capital structure to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders. The group sets the size of capital in proportion to business strategy, risk and financial market conditions. The group manages the capital structure and adjusts it in the light of changes in economic conditions, perceived risk associated with product development and risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the group may adjust the amount of new share issue or increase the debt by taking up loans. Technological change Along with the significant increase in the development of the hydrogen market comes increased competition. This also results in increased activity and pace in research and development across the hydrogen industry. Nel’s electrolyser technology consist of both Alkaline and PEM. Currently, the Alkaline technology platform presents the advantage of having the lowest cost, the highest efficiency and of being the better solution for large scale. PEM technology platform has the advantage of dynamic response and intermittent operation. It is a risk that one or both of the existing technologies in Nel becomes obsolete. In addition, Nel continuously monitors the developments and possibilities of a disruptive technology emerging. Today, Anion Exchange Membrane (AEM) and Solid Oxide (SOEL) represent possible disruptors. While all technologies can potentially co-exist, the competing technology and sharing market potential, including the required investment in new technology constitutes a material risk for Nel. In addition, we cannot know for certain whether green hydrogen emerges as the preferred technology as the world transitions into renewable energy. There are risks associated with technological change, both related to technology elements within the field of hydrogen as well as technology elements outside the field of hydrogen that potentially could make green hydrogen less relevant for the future. If any of these circumstances materialize in a negative direction, it may have a significant adverse effect on the group’s business, prospects, financial results or results of operations. A higher price for renewable power could also negatively affect the demand for green hydrogen technologies. Expansion risk The uneven pace of Nel’s anticipated expansion in facilities, staff and operations may place serious demands on the group’s managerial, technical, financial, and other resources. The organisation is currently relatively small and there is no guarantee that the group will be able to build a capable organisation at a speed that is required to meet the demands of its customers or potential customers. Nel’s failure to manage its growth effectively or to implement its strategy in a timely manner may significantly harm its ability to achieve profitability. Dependence of third parties in manufacturing The group’s electrolyser and hydrogen fueling manufacturing operations rely on external subcontractors and suppliers of services and goods to varying degrees. This operating model inherently contains a risk to the group’s goodwill and branding. If suppliers fail to meet agreed or generally accepted standards in areas such as environmental compliance, human rights, labor relations and product quality, this could have a significant adverse effect on the group’s business, prospects, financial results and results of operations. In general, the company aims at dual sourcing of critical components to limit risk. In addition, the majority of the spending is directed towards large industrial companies with full ISO compliance and smaller vendors that are in compliance with local legislation. Further, Nel conducts regular quality reviews, including production site visits for risk assessment. Nel is dependent on a limited number of third-party suppliers for key production components for its electrolyser and fueling equipment. All contract manufactured or purchased components are designed and selected in order to avoid a critical supply situation. However, in a worst case scenario, if Nel fails to develop or maintain its relationships with its suppliers or such suppliers are prevented from supplying, Nel may be delayed in manufacturing its products or its products may be available only at a higher cost which could prevent Nel from timely delivering its products to its customers and Nel may experience order cancellation, customer claims and loss of market share. To reduce the sourcing risk Nel’s supply chain strategy is to have dual supply chains on all components. Nel currently has few components with single source and is at the risk of temporary supply chain disruptions should one or more suppliers fail to deliver. Another supply chain risk is whether the suppliers can follow the expected growth of the industry. In addition to making its current supply chain more robust, Nel is working to facilitate increasing volumes from important sub-suppliers. 110 Notes to the consolidated financial statements 2022 Project risk Nel participates in large commercial projects. Large commercial projects are subject to risks of delay and cost overruns inherent in any large construction project from numerous factors, including: • unexpectedly long delivery times for, or shortages of, key equipment, parts and materials; • unforeseen design and engineering problems leading to delays; • labor disputes and work stoppages; • HSE accidents/incidents or other safety hazards; • disputes with suppliers; • last minute changes to the customer’s specifications; • adverse weather conditions or any other force majeure events; and • inability or delay in obtaining regulatory approvals or permits Failure to complete a commercial project on time may result in the delay, renegotiation or cancellation of the contract. Further, significant delays could have a negative impact on Nel’s reputation and customer relationships. Nel could also be exposed to contractual penalties for failure to complete the project and commence operations in a timely manner, all of which would aadversely affect Nel’s business, financial condition and results of operations. Key personnel The successful development and performance of the group’s business depends on the group’s ability to attract and retain skilled professionals with appropriate experience and expertise. Further, if the group loses the service of its senior management or key personnel, it may not be able to execute its business strategy. There is no assurance, however, that the group will be able to attract or retain such personnel on acceptable terms or at all. Any failure to attract or retain such personnel could have a material and adverse effect on the group’s business and operations. Customer risk Nel’s ability to grow and generate incremental revenue depends to a substantial degree on its ability to successfully acquire new customers, and to maintain and grow its relationships with existing customers. There can be no assurance that Nel will be able to secure new customers, or maintain its relationships with existing customers, in the future. Further, a number of Nel’s existing and potential customers are themselves planning substantial growth, and should these customers fail to succeed with their business plans or fail to fulfill their contracts with Nel, Nel’s sales to such customers may be adversely affected, and Nel’s revenues and results may suffer as a result. Intellectual property rights Nel seeks to protect important proprietary manufacturing processes, documentation and other written materials, and other intellectual property primarily under patent, trade secret and copyright laws. It also typically requires employees, consultants and companies that have access to its proprietary information to execute confidentiality agreements. The steps taken by Nel to protect its proprietary information may not be adequate to prevent misappropriation of its technology. In addition, Nel’s proprietary rights may not be adequately protected because: • people may not be deterred from misappropriating its technologies despite the existence of laws or contracts prohibiting misappropriation: • policing unauthorised use of Nel’s intellectual property is difficult, expensive and time-consuming, and the group may be unable to determine the extent of any unauthorised use; and • the laws and legislation of countries in which the group sells or plans to sell its products may offer little or no protection for its proprietary technologies. Unauthorised copying or other misappropriation of Nel’s proprietary technologies could enable third parties to benefit from its technologies without paying for doing so. Any inability to adequately protect its proprietary rights could harm the group’s ability to compete, to generate revenue and to grow its business. This could have a significant adverse effect on the group’s business, prospects, financial results and results of operations. Some of the group’s patents are due to expire within the next couple of years which means that the group will lose the sole right to certain technology in certain areas. Although the company believes that this will have little effect on the company’s competitive position, no assurance can be made to this point. The group may not obtain sufficient patent protection on the technology embodied in its products and production processes, which could significantly harm its competitive position. Patents may provide only limited protection for its technology and may not be sufficient to provide competitive advantages. For example, competitors could be successful in challenging any issued patents or, alternatively, could develop similar or more advantageous technologies on their own or design around the group’s patents. Also, patent protection in certain countries may not be available or may be limited in scope and any patents obtained may not be as readily enforceable as in all jurisdictions, making it difficult for the group to effectively protect its intellectual property from misuse or infringement by other companies in these Nel ASA I Annual report 2022 111 countries. Any inability to obtain and enforce intellectual property rights in some countries could have a significant adverse effect on the group’s business, prospects, financial results and results of operations. In addition, given the costs of obtaining patent protection and the sometimes limited potential for protection, the group may choose not to protect certain innovations that later turn out to be important. There is also a general risk that the group receives information subject to confidentiality agreements, regarding other parties’ know-how and trade secrets in relation to technology which may hinder the group from development of similar intellectual assets. Adverse publicity and product liability Product liability claims against the group could result in adverse publicity and potentially monetary damages. It is possible that its products could result in injury, whether by product malfunctions, defects, improper installation or other causes. The successful assertion of product liability claims against the group could result in potentially significant monetary damages, which could have a significant adverse effect on the group’s business, prospects, financial results and results of operations. As of the date of this annual report, the group is unaware of any current or pending product liability claims made against the group. 6.2 Financial risk factors The key financial risks the group is exposed to are related to liquidity, currency, interest rate, and credit risk. Liquidity risk Liquidity risk is the potential loss that occurs when the group fails to fulfil its contractual obligations when they fall due. Nel is operating in a fast-growing, emerging market, with a long list of initiatives in many regions. The need to address growth opportunities ahead of actual market demand, balanced with the need to conserve cash, is a continual challenge. The timing of addressing such elements and risks is important. Moving too fast could result in an unnecessarily high cost level, with cash requirements beyond the current financing plan. However, the group has a strong liquidity position, NOK 3 138.6 million, as per 31.12.2022. The strong cash position is a good basis for the group’s growth strategy. The group monitors its risks associated with lack of capital up against the company’s planned activities. The group will, if necessary, attempt to raise capital through private placements, debt financing, partnerships, and strategic alliances or from other sources. The group may fail to raise capital on acceptable terms, or not do it at all, and this can result in a liquidation of the group. Currency risk Nel operates internationally and is subject to currency risks arising from foreign currency transactions and exposures. As the group presents its consolidated results in NOK, any change in exchange rates between NOK and its subsidiaries’ functional currencies, primarily with respect to changes in USD and DKK, affects its consolidated statement of income and consolidated statement of financial position. As the group expands its operations with projects in new markets the currency risk exposure increases. The group is on an overall level managed as a NOK company for currency risk management purposes with primary focus on NOK cash flow. The group’s gross foreign currency risk exposure is significant, with the majority of revenue and expenses denominated in foreign currency. The group mitigates the currency risk exposure by entering into forward currency contracts with financial institutions. The group has a residual net currency risk exposure considering hedging which is considered low to medium. 112 Notes to the consolidated financial statements 2022 (Amounts in thousands) PROFIT AND LOSS CHANGES IN EXCHANGE RATE NOK/FOREIGN CURRENCIES NET PROFIT IN FOREIGN CURRENCIES VALUE IN CURRENCY VALUE IN NOK -10% -5% +5% +10% DKK -316 922 -455 797 45 580 22 790 -22 790 -45 580 USD -4 272 -40 158 4 016 2 008 -2 008 -4 016 KRW 1 297 634 10 342 -1 034 -517 517 1 034 SEK -57 721 -59 025 5 903 2 951 -2 951 -5 903 GBP -65 -715 72 36 -36 -72 EUR 548 5 874 -587 -294 294 587 Effect on net income (loss) 53 948 26 974 -26 974 -53 948 STATEMENT OF FINANCIAL POSITION NET RECEIVABLES/LIABILITIES IN FOREIGN CURRENCIES DKK -22 213 -31 255 3 126 1 563 -1 563 -3 126 USD 21 315 181 871 -18 187 -9 094 9 094 18 187 KRW - - - - - - SEK -6 616 -6 903 690 345 -345 -690 GBP -53 -579 58 29 -29 -58 EUR 7 692 80 540 -8 054 -4 027 4 027 8 054 Effect on net income (loss) -22 367 -11 184 11 184 22 367 Total effect on Net income (loss) and Equity 31 581 15 790 -15 790 -31 581 The table shows the gross foreign currency exposure based on each entity in the group’ functional currency, before hedging. Nel’s hedging strategy and designated instruments are elaborated and disclosed in note 6.5. The figures exclude translation of intercompany loans in Nel ASA. Interest rate risk The group does not have a significant amount of interest bearing long-term debt. Due to the low amount of debt in the group it is assessed that a change in interest rates will not have a material effect on the financial statements. Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Nel is exposed to credit risk from its operating activities (primarily trade receivables and contract assets) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. The carrying amounts of financial assets and contract assets represent the maximum credit exposure. Expected credit loss assessment The Group uses an allowance matrix to measure the ECLs of trade receivable from individual customers, which comprise a very large number of small balances. Loss rates are calculated using a factor method based on the probability of a receivable progressing through successive stages of delinquency to write-off. Roll rates are calculated separately for exposures in different segments based on the following common credit risk characteristics - geographic region, age of customer relationship and type of products purchased. The following table provides information about the exposure to credit risk and ECLs for trade receivables from individual customers as of 31 December 2021 and 2022. Loss rates are based on actual credit loss experience over the past two years. These rates are multiplied by a factor to reflect differences between economic conditions during the period over which the historical data has been collected, current conditions and Nel’s view of economic conditions over the expected lives of the receivables. Nel ASA I Annual report 2022 113 2022 WEIGHTED-AVERAGE LOSS RATE GROSS CARRYING AMOUNT LOSS ALLOWANCE Current (not past due) 0.1 % 207 178 208 1-30 days past due 0.2 % 118 921 238 31-60 days past due 0.5 % 22 145 111 61-90 days past due 0.8 % 21 822 164 91 days to one year past due 1.1 % 86 541 910 More than one year past due 10.0 % 6 399 640 Total 463 005 2 270 0.5 % 2021 WEIGHTED-AVERAGE LOSS RATE GROSS CARRYING AMOUNT LOSS ALLOWANCE Current (not past due) 0.0 % 112 999 12 1-30 days past due 0.1 % 52 871 27 31-60 days past due 0.8 % 16 501 124 61-90 days past due 1.0 % 3 435 33 91 days to one year past due 1.7 % 20 301 337 More than one year past due 10.0 % 6 479 645 Total 212 585 1 177 0.6 % 114 Notes to the consolidated financial statements 2022 6.3 Market risk factors Market development risk Significant markets for fueling products, other hydrogen energy products or renewable energy as a major source for hydrogen production may never develop or may develop more slowly than the group anticipates. This would significantly harm Nel’s revenues and may cause Nel to be unable to recover the expenditures it has incurred and expects to incur in the development of its products. Regulatory issues The group’s operations are subject to numerous environmental requirements. Such laws and regulations govern, among other matters, air pollution emissions, wastewater discharges, solid and hazardous waste management, and the use, composition, handling, distribution and transportation of hazardous materials. Many of these laws and regulations are becoming increasingly stringent (and may contain “strict liability”), and the cost of compliance with these requirements can be expected to increase over time. The group’s electrolyser production depends on various discharge permits granted by various authorities. From time to time, breaches of the allowed emission limits set out in such permits may occur. If such limits of the relevant permits should be exceeded, this may have a significant effect on the group’s operations and result, as the group may be ordered to temporarily halt production, be subject to fines and/or be ordered to undertake corrective measures. The group cannot predict the impact of new or changed laws or regulations relating to health, safety, the environment or other concerns or changes in the ways that such laws or regulations are administered, interpreted or enforced. The requirements to be met, as well as the technology and length of time available to meet those requirements, continue to develop and change. To the extent that any of these requirements impose substantial costs or constrain the group’s ability to expand or change its processes, the group’s business, prospects, financial results and results of operations could suffer. Any breach of such requirements could in addition result in fines or other substantial costs and/or constraint the group’s ability to operate its production plant, which could have a significant adverse effect on its business, prospects, financial results and results of operations. The fuel cell and hydrogen industry are in its development phase and is not currently subject to industry specific government regulations in the European Union, Asia and the United States, as well as other jurisdictions, relating to matters such as design, storage, transportation and installation of fuel cell systems and hydrogen infrastructure products. However, given that the production of electrical energy has typically been an area of significant government regulation, the Company expects it will encounter industry specific government regulations in the future in the jurisdictions and markets in which it operates. For example, regulatory approvals or permits may be required for the design, installation and operation of Nel’s products. To the extent there are delays in gaining such regulatory approval, Nel’s development and growth may be constrained. Nel’s business will suffer if environmental policies change and no longer encourage the development and growth of clean power technologies. Nel depends substantially on government subsidies. Political developments could lead to a material deterioration of the conditions for, or a discontinuation of, the subsidies for its technology. It is also possible that government financial support for Nel’s technology will be subject to judicial review and determined to be in violation of applicable constitutional or legal requirements or be significantly reduced or discontinued for other reasons. Without government subsidies, or with reduced government subsidies, the availability of profitable investment opportunities for Nel would be significantly lower, which could have a material adverse effect on Nel’s business, financial condition, results of operations and cash flows. Competition The group competes with a large number of competitors. Many competitors are developing and are currently producing products based on technologies that may have costs similar to, or lower than, the group’s projected costs. Many of the group’s existing and potential competitors may have longer operating histories, greater name recognition, structurally better cost positions through geographical location or agreements with local authorities (including direct and indirect subsidies), better access to skilled personnel, better access to research and development partners, access to larger customer bases and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than the group. As a result, they may be able to respond more quickly than the group can to the changing customer demands or to devote greater resources to the development, promotion and sales of their products. The group’s business relies on sales of its products, and competitors with more diversified product offerings may be better positioned to withstand a decline in the demand for products of the types that the group offers. It is possible that new competitors or alliances among existing competitors could emerge and rapidly acquire a significant market share, which would harm the group’s business. If the group fails to compete successfully, it could have a significant adverse effect on the group’s business, prospects, financial results and results of operations. Nel ASA I Annual report 2022 115 6.4 Climate-related risks and opportunities Climate-related opportunities Nel is a pure play renewable hydrogen company. The climate- related opportunities are the company’s only opportunities. The assumption from climate-related opportunities in climate-related scenarios have impacted the financial statements. Specifically, the climate-related opportunities are the driver for the revenue and activity growth included in the company’s impairment tests. In addition, the climate-related opportunities also impact the assessment of probable future economic benefits from capitalised technology development. Climate-related risks The company pursue solely climate-related opportunities; therefore, the company does not have any transformation of any legacy business negatively impacted by the climate- related scenarios. Further analysis of the climate-related risks below: Regulatory risks and Geopolitics While climate change is the megatrend, the anticipated role of green hydrogen as a sustainable activity contributing to climate change mitigation could change. How geopolitics will impact and shape climate policies going forward constitutes a risk for Nel. We would not be significantly impacted by the introduction of a potential carbon tax or restrictions on the use of carbon-intensive assets. Further, we do not consume products from conflict areas and our consumption of rare materials is limited. Reputation Risk Nel recognizes the importance of maintaining a strong brand in the developing renewable hydrogen industry. Reputational risk comprises: i) any damage to brand value that will cause lost opportunities, ii) challenges in recruiting and retaining talent that in turn could halt technology developments and damage customer experience, and iii) challenges in attracting investors due to damaged reputation which could affect the going concern status of the group. Physical Risk None of our manufacturing facilities are located in environments overly exposed to physical risks. Relatedly, our facilities are not located in the areas most exposed to sustained long-term shifts in climate patterns. However, our delivered solutions require continuous access to water and electricity, a shortage of which could impact our products’ performance. 6.5 Hedge accounting DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING The Group holds derivative financial instruments to hedge its foreign currency risk exposures. Derivatives are both initially and subsequently to initial recognition measured at fair value, and changes therein are generally recognised in profit or loss. The group designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with firm commitments and highly probable forecast transactions arising from changes in foreign exchange rates. At the inception of designated hedging relationships, the Group documents the risk management objective and strategy for undertaking the hedge. The group also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other. Cash flow hedges For the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or a highly probable forecast transaction. Nel accounts for a hedge of foreign currency risk as a cash flow hedge, including also exposures to an unrecognised firm commitment. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in the hedging reserve. The effective portion of changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. The group designates the currency forward contracts on a ‘forward basis’, which includes both the spot element and the forward element. Then the full fair value of the hedging instrument is used in measuring ineffectiveness. The amount accumulated in the hedging reserve is reclassified to profit or loss in the same period or periods during which the hedged expected future cash flows affect profit or loss. If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the hedging reserve 116 Notes to the consolidated financial statements 2022 remains in equity until it is reclassified to profit or loss in the same period or periods as the hedged expected cash flows affect profit or loss. The Group is exposed to certain risk relating to its ongoing business operations. In 2022, foreign exchange forward contracts are designated as hedging instruments in cash flow hedges of firm sale commitment in U.S. dollar, Swedish krona, Euro and British pound. In addition, purchase of property, plant and equipment in Euro and highly probably forecast transactions in Euro and Swedish Krona. The foreign exchange forward contract balances vary in particular with the magnitude of firm commitment foreign currency sales and changes in foreign exchange forward rates. As of 31 December 2022, the Group held the following instruments to hedge exposures to changes in foreign currency. MATURITY/HEDGING INSTRUMENTS 2023-Q1 2023-Q2 2023-Q3 2023-Q4 MORE THAN ONE YEAR TOTAL USD USD forward contracts, net 6 915 0 441 0 0 7 356 Average NOK:USD forward contracts rate 9.60 0.00 9.07 0.00 0.00 9.57 Hedged NOK, net (nominal amount) 66 364 0 3 999 0 0 70 363 Fair value USD forward contracts -1 716 0 -295 0 0 -2 011 SEK SEK forward contracts, net -22 532 -22 532 0 0 -103 171 -148 236 Average NOK:SEK forward contracts rate 0.98 0.98 0.00 0.00 0.97 0.97 Hedged NOK, net (nominal amount) -22 085 -22 125 0 0 -99 738 -143 948 Fair value SEK forward contracts -787 -821 0 0 -2 132 -3 740 GBP GBP forward contracts, net 2 706 0 0 0 0 2 706 Average NOK:GBP forward contracts rate 11.93 0.00 0.00 0.00 0.00 11.93 Hedged NOK, net (nominal amount) 32 287 0 0 0 0 32 287 Fair value GBP forward contracts 245 0 0 0 0 245 EUR EUR forward contracts, net 13 131 7 207 11 923 5 683 21 465 59 409 Average NOK:EUR forward contracts rate 10.38 10.44 10.48 10.52 10.55 10.48 Hedged NOK, net (nominal amount) 136 319 75 248 124 917 59 791 226 525 622 800 Fair value EUR forward contracts -2 028 -774 -924 -132 138 -3 719 TOTAL hedged NOK, net (nominal amount) 212 885 53 123 128 916 59 791 126 787 581 502 TOTAL fair value, NOK -4 285 -1 595 -1 219 -132 -1 994 -9 225 The effects that hedge accounting has had on the statement of financial position, statement of profit or loss and OCI and statement of changes in equity Hedging instruments are measured at fair value and recognised in the statement of financial position as either an asset or a liability depending on the whether the instrument has a positive or negative value. The fair values recognised represents unrealised gains/losses driven by the changes in foreign exchange rates. Statement of financial position The table below show the fair value of forward exchange contracts designated as hedging instruments in the statement of financial position. Nel ASA I Annual report 2022 117 (Amounts in NOK thousands) TYPE OF HEDGE ITEMS CURRENT ASSETS NON-CURRENT ASSETS OTHER CURRENT LIABILITES NON-CURRENT LIABILITIES TOTAL Revenue 7 989 1 877 -1 400 -163 8 302 Raw materials 187 0 -2 288 0 -2 101 Property, plant and equipment 0 0 -439 0 -439 As of 31.12.2021 8 176 1 877 -4 127 -163 5 762 Revenue 438 189 -5 829 -50 -5 253 Raw materials 0 0 -1 840 -2 132 -3 972 Property plant and equipment 0 0 0 0 0 As of 31.12.2022 438 189 -7 669 -2 182 -9 225 Profit or loss and OCI The table below includes the reconciliation of movements in hedging reserve, cash flow hedges, in OCI during the year. (Amounts in NOK thousands) REVENUE RAW MATERIALS FINANCE COSTS PROPERTY, PLANT AND EQUIPMENT TOTAL As of 01.01.2021 14 800 -832 0 -2 524 11 444 Effective portion of changes in fair value 2 989 -2 332 -1 481 -2 263 -3 086 Reclassified to profit or loss -4 663 0 1 481 0 -3 182 Reclassified to statement of financial positions (basis adjustment) -5 473 1 063 0 4 348 -62 As of 01.01.2022 7 654 -2 101 0 -439 5 114 Effective portion of changes in fair value -7 876 -31 153 854 -6 900 Reclassified to profit or loss -2 930 0 -153 0 -3 084 Reclassified to statement of financial positions (basis adjustment) -3 349 0 0 -415 -3 764 As of 31.12.2022 -6 502 -2 132 0 0 -8 634 During the year, a hedging gain of NOK 2.9 (4.7) million has been realised and reclassified to profit or loss within ‘Revenue from contracts with customers’. The timeline below illustrates when the unrealised changes in fair value of the foreign currency forward contracts may be reclassified to profit or loss and statement of financial position. (Amounts in NOK thousands) 2022 2023 2024 2025 TOTAL Revenue 5 940 1 713 0 0 7 654 Raw materials -2 101 0 0 0 -2 101 Property, plant and equipment -439 0 0 0 -439 As of 31.12.2021 5 114 Revenue -6 640 138 0 -6 502 Raw materials 0 -2 132 0 -2 132 As of 31.12.2022 -8 634 118 Notes to the consolidated financial statements 2022 Economic relationship and effectiveness The hedged item creates an exposure to buy a foreign currency and sell the functional currency. The forward contract is to sell foreign currency and buy the functional currency. As the hedged exposure is exactly matched by the currency leg of the forward contract (i.e. they are the same amount of currency with the same payment date), there is a clear economic relationship between the hedging instrument and the hedged item. Hedging less than 100 % is considered when natural hedge positions could occur during the hedging period, or to limit the risk of over-hedging given the inherent uncertainties in any estimated cash flow. If there’s no change in the hedge item cash magnitude (e.g. contract termination or amendment) the hedge would be effective as long as the timing of the hedge instrument and hedge item are aligned. No ineffectiveness has been recognised in the income statement in 2022 or 2021. The Group does not have any fair value hedge or net investment hedge. 6.6 Financial instruments Nel uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: Inputs are quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2: The fair value of financial instruments that are not quoted in an active market is determined using valuation techniques which maximise the use of observable market price and rely as little as possible on entity-specific estimates. Level 3: Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. FINANCIAL INSTRUMENTS AND FAIR VALUES 2022 CARRYING AMOUNT FAIR VALUE FAIR VALUE - HEDGING INSTRUMENTS MANDATORILY AT FVTPL - OTHERS FINANCIAL ASSETS AND LIABILTIES AT AMORTISED COST TOTAL LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Assets Financial assets measured at fair value Forward exchange contracts used for hedging 626 626 626 626 Financial asset - equity instruments 489 406 489 406 450 296 39 110 489 406 SUM 626 489 406 490 033 450 296 626 39 110 490 033 Liabilities Financial liabilities measured at fair value Forward exchange contracts used for hedging -9 851 -9 851 -9 851 -9 851 SUM -9 851 -9 851 -9 851 -9 851 Financial liabilities not measured at fair value Long-term debt 22 431 22 431 22 431 22 431 SUM 22 431 22 431 22 431 22 431 Nel ASA I Annual report 2022 119 2021 CARRYING AMOUNT FAIR VALUE FAIR VALUE - HEDGING INSTRUMENTS MANDATORILY AT FVTPL - OTHERS FINANCIAL ASSETS AND LIABILTIES AT AMORTISED COST TOTAL LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Assets Financial assets measured at fair value Forward exchange contracts used for hedging 10 053 10 053 10 053 10 053 Financial asset - equity instruments 600 092 600 092 568 191 31 902 600 092 SUM 10 053 600 092 610 145 568 191 10 053 31 902 610 145 Liabilities Financial liabilities measured at fair value Forward exchange contracts used for hedging -4 290 -4 290 -4 290 -4 290 SUM -4 290 -4 290 -4 290 -4 290 Financial liabilities not measured at fair value Long-term debt 23 191 23 191 23 191 23 191 SUM 23 191 23 191 23 191 23 191 The management assessed that cash and short-term deposits, trade receivables, other current assets, trade payables and other current liabilities’ carrying amounts is a reasonable approximation of their fair value largely due to the short-term maturities of these instruments. Nel enters into forward exchange contracts with financial institutions, where the fair value of such instruments is based on valuation techniques including market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models using net present value calculations. The models used incorporate various inputs, including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves. The valuation is performed by banks or external valuation providers. For recurring fair value measurements using significant unobservable inputs (Level 3), the effect of the measurements on profit or loss for the period has been 0.0 (0.0) million. 6.7 Contractual commitments and commitments for future investments Nel is committed to future investments for Herøya expansion in Norway, see note 3.2 for additional information. 120 Notes to the consolidated financial statements 2022 7.1 Composition of the group The following subsidiaries are included in the consolidated financial statements: COMPANY LOCATION MAIN OPERATIONS CONSOLIDATED FROM: OWNERSHIP/ VOTES 2022 OWNERSHIP/ VOTES 2021 Nel Hydrogen Electrolyser AS Notodden, Norway Alkaline electrolysers 01.10.2015 100 % 100 % Nel Hydrogen A/S Herning, Denmark Hydrogen fueling stations 01.07.2015 100 % 100 % Nel Fuel AS Oslo, Norway Investment/holding 01.07.2015 100 % 100 % Proton Energy Systems Inc Wallingford, Connecticut, USA PEM electrolysers 01.07.2017 100 % 100 % Nel Korea Co. Ltd Seoul, South Korea Service of H2Station® 01.07.2018 100 % 100 % Nel Hydrogen Inc San Leandro, California USA Service of H2Station® 01.01.2019 100 % 100 % Nel Hydrogen Electrolyser Germany GmbH Munich, Germany Electrolysers sales office 24.10.2022 100 % 100 % Nel Hydrogen Electrolyser Belgium BV Brussels, Belgium Electrolyser sales office 27.09.2021 100 % 100 % Nel Austria GmbH Wien, Austria Fueling sales office 30.03.2022 100 % 100 % All subsidiaries are 100 % owned. There is no uncertainty about control and no restrictions on the ability to access or use assets and settle liabilities in the group. 7.2 Executive management remuneration Nel Executive Management Compensation and number of shares owned 2022 (Amounts in NOK thousands) REMUNERATION OF MANAGEMENT 2022 SALARY BONUS PENSION EXPENSE OTHER REMUNERATION 1) TOTAL REMUNERATION NUMBER OF SHARES Håkon Volldal, CEO 2) 2 156 589 96 0 2 842 0 Jon André Løkke, CEO 3) 2 297 1 563 68 1 500 5 428 550 000 Kjell Christian Bjørnsen, CFO 2 837 71 191 0 3 099 0 Anders Søreng, CTO 2 381 62 191 894 3 528 135 000 Jørn Rosenlund, CSO 4) 1 185 0 66 911 2 161 0 Esa Laukkanen, COO 5) 1 140 0 0 0 1 140 0 Robert Borin, SVP Nel Hydrogen Fueling 3 084 79 257 0 3 419 0 Filip Smeets, SVP Nel Hydrogen Electrolyser 2 173 58 0 0 2 232 0 Hans Hide, SVP Projects 2 122 52 191 872 3 236 20 000 Stein Ove Erdal, Vice President Legal and General Counsel 2 192 57 191 872 3 311 0 Caroline Duyckaerts, Chief Human Resources Officer 1 866 50 191 0 2 107 0 TOTAL 23 434 2 582 1 439 5 048 32 502 705 000 1) Other remuneration is mainly related to share option program and severance pay 2) Employed in Nel from July 2022. Has a six months notice period, plus is entitled to six months severence pay, if terminated by the company. 3) Left Nel in June 2022 4) Left Nel in April 2022 5) Employed in Nel from August 2022 Nel ASA I Annual report 2022 121 2021 (Amounts in NOK thousands) REMUNERATION OF MANAGEMENT 2021 SALARY BONUS PENSION EXPENSE OTHER REMUNERATION 1) TOTAL REMUNERATION NUMBER OF SHARES Jon André Løkke, CEO 2) 3 015 753 181 0 3 949 2 000 000 Kjell Christian Bjørnsen, CFO 2 579 0 181 0 2 760 0 Anders Søreng, CTO 2 226 0 181 596 3 003 200 000 Jørn Rosenlund, CSO 2 730 0 198 607 3 535 250 000 Robert Borin, SVP Nel Hydrogen Fueling 2 214 0 176 0 2 391 0 Filip Smeets, SVP Nel Hydrogen Electrolyser 2 462 0 0 0 2 462 0 Hans Hide, SVP Projects 1 906 0 181 581 2 668 20 000 Stein Ove Erdal, Vice President Legal and General Counsel 2 070 0 181 581 2 832 0 Caroline Duyckaerts, Chief Human Resources Officer 1 632 0 181 0 1 813 0 TOTAL 20 834 753 1 462 2 365 25 413 2 470 000 1) Other remuneration is mainly related to share option program 2) Jon André Løkke has a six months notice period, plus is entitled to six months severence pay. The Board of Directors determines the remuneration of the CEO based on a proposal from the Remuneration Committee and approves the general terms of the company’s incentive plans for Executive management and other key employees. The CEO determines the compensation to the other members of Nel’s Executive Management. Nel’s approach is to provide the CEO and other members of Nel’s executive Management as well as employees with a market competitive offer for our renewable industry. The compensation should be: • attractive to recruit and retain executives and other talents to Nel; • market competitive in the respective locations but not market leading, fitting for our renewable industry; • Support the creation of sustainable value to Nel’s shareholders Total compensation for each member of Executive Management is compared to the relevant market on a regular basis. Nel’s remuneration of the Executive Management includes the Base Salary, Bonus, Share Option Program, Pension (defined contribution plans) and other compensation elements such as car, cell phone and internet connection. 7.3 External audit remuneration FEES TO THE GROUP AUDITOR 2022 2021 Statutory auditing services 3 073 2 834 Attestation services 160 285 Non-auditing services 0 428 TOTAL 3 233 3 547 In addition to the fees included in the remuneration table above, the group incurred NOK 1.4 (1.4) million in 2022 of attestation services and non-auditing services provided by company other than EY, the group auditor. FEES TO OTHER AUDITORS ELECTED BY SUBSIDIARIES 2022 2021 Statutory auditing services 0 0 Attestation services 1 435 882 Non-auditing services 0 503 TOTAL 1 435 1 385 122 Notes to the consolidated financial statements 2022 7.4 Related parties EXECUTIVE MANAGEMENT Information on key management compensation is disclosed in note ‘7.2 executive management remuneration’. ASSOCIATED AND JOINT VENTURES Nel’s significant transactions with associated companies and joint ventures are described in note 3.4 Investments in associated companies and joint ventures. Transactions with related parties are at arm’s length principles. BOARD OF DIRECTORS Members of Nel’s Board of Directors’ remuneration and share ownership are disclosed in the tables below. 2022 BOARD OF DIRECTORS 2022 REMUNERATION NUMBER OF SHARES OWNERSHIP Ole Enger - Chair of the Board 616 149 462 0.01 % Tom Røtjer 341 0 0.00 % Beatriz Malo de Molina 341 0 0.00 % Charlotta Falvin 341 0 0.00 % Finn Jebsen 1) 341 50 620 0.00 % Hanne Blume 341 0 0.00 % Jon André Løkke 341 550 000 0.04 % TOTAL 2,659 750 082 0.05 % 1) Consisting of shares held through Fateburet AS AUDIT COMMITTEE 2022 REMUNERATION Beatriz Malo de Molina - chair of the committee 110 Charlotta Falvin 75 TOTAL 185 REMUNERATION COMMITTEE 2022 REMUNERATION Hanne Blume - chair of the committee 90 Ole Enger 60 TOTAL 150 Nel ASA I Annual report 2022 123 2021 BOARD OF DIRECTORS 2021 REMUNERATION NUMBER OF SHARES OWNERSHIP Ole Enger - Chair of the Board 589 149 462 0.01 % Tom Røtjer 319 0 0.00 % Beatriz Malo de Molina 319 0 0.00 % Charlotta Falvin 319 0 0.00 % Finn Jebsen 1) 319 310 620 0.02 % Hanne Blume 319 0 0.00 % TOTAL 2 186 460 082 0.03 % 1) Consisting of shares held through Fateburet AS AUDIT COMMITTEE 2021 REMUNERATION Finn Jebsen - chair of the audit committee 85 Beatriz Malo de Molina 50 TOTAL 135 REMUNERATION COMMITTEE 2021 REMUNERATION Hanne Blume - chair of the committee 65 Ole Enger 35 TOTAL 100 7.5 Events after the balance sheet date There have been no significant changes in the financial position of the Group since the date of the interim financial statements for twelve months ended 31 December 2022. 7.6 Going concern The financial statement is presented on the going concern assumption under International Financial Reporting Standards. As per the date of this report the group has sufficient working capital for its planned business activities over the next twelve-month period. The Board of Directors confirmed on this basis that the going concern assumption is valid, and that financial statements are prepared in accordance with this assumption. Parent company financial statements 124 7 Parent company financial statements Nel ASA I Annual report 2022 125 Statement of comprehensive income ................................................................................................................................................................ 126 Statement of financial position as of 31 December ....................................................................................................................................... 127 Statement of financial position as of 31 December ....................................................................................................................................... 128 Statement of cash flows ........................................................................................................................................................................................ 130 Statement of changes in equity .......................................................................................................................................................................... 131 Note 1 Company information ........................................................................................................................................................................... 132 Note 2 Basis for preparation and significant accounting principles ........................................................................................................ 132 Note 3 Revenue from contracts with customers .......................................................................................................................................... 135 Note 4 Personnel expenses ............................................................................................................................................................................... 135 Note 5 Property, plant and equipment .......................................................................................................................................................... 137 Note 6 Other operating expenses ................................................................................................................................................................... 138 Note 7 Finance income and cost ..................................................................................................................................................................... 138 Note 8 Subsidiaries, associates and joint ventures ...................................................................................................................................... 139 Note 9 Income taxes ........................................................................................................................................................................................... 139 Note 10 Specification of balance sheet items ............................................................................................................................................... 141 Note 11 Other investments ............................................................................................................................................................................... 142 Note 12 Transactions with related parties ...................................................................................................................................................... 142 Note 13 Cash and cash equivalents ............................................................................................................................................................... 144 Note 14 Share capital and shareholders ........................................................................................................................................................ 144 Note 15 Lease liabilities ...................................................................................................................................................................................... 144 Note 16 Financial risk and derivatives ............................................................................................................................................................. 145 Note 17 Financial instruments........................................................................................................................................................................... 146 Note 18 Guarantees ............................................................................................................................................................................................ 147 Note 19 Subsequent events ............................................................................................................................................................................. 147 126 Parent company financial statements Statement of comprehensive income (Amounts in NOK thousands) Nel ASA NOTE 2022 2021 Revenue from contracts with customers 3 87 989 75 613 Other operating income 1 958 36 Total revenue and operating income 89 947 75 649 Personnel expenses 4 69 070 52 032 Depreciation and amortisation 5 3 463 2 645 Other operating expenses 6 57 251 42 050 Total operating expenses 129 783 96 728 Operating loss -39 837 -21 079 Finance income 7 133 857 46 853 Finance costs 7 -1 545 964 -50 195 Share of loss from associate and joint venture 8 0 -35 Net financial items -1 412 107 -3 377 Pre-tax income (loss) -1 451 943 -24 456 Tax expense 9 0 0 Net income (loss) attributable to equity holders of the company -1 451 943 -24 456 Other comprehensive income 0 0 Comprehensive income (loss) attributable to equity holders of the company -1 451 943 -24 456 Appropriation of comprehensive income (loss) and equity transfers Dividends proposed 0 0 Retained earnings -1 451 943 -24 456 Total appropriation -1 451 943 -24 456 Nel ASA I Annual report 2022 127 Statement of financial position as of 31 December (Amounts in NOK thousands) Nel ASA ASSETS NOTE 2022 2021 NON-CURRENT ASSETS Property, plant and equipment 5 14 301 9 799 Investments in subsidiaries 8 2 485 429 2 784 947 Investments in associates and joint ventures 0 572 Non-current financial assets 10, 16, 17 159 011 13 118 Long-term receivables group 12 306 779 463 095 Total non-current assets 2 965 521 3 271 530 CURRENT ASSETS Trade receivables 74 82 Other current assets 10, 11, 16, 17 80 828 108 779 Cash and cash equivalents 13 2 931 508 2 540 734 Receivables group 12 148 019 96 617 Total current assets 3 160 430 2 746 212 TOTAL ASSETS 6 125 950 6 017 742 128 Parent company financial statements Statement of financial position as of 31 December (Amounts in NOK thousands) Nel ASA EQUITY AND LIABILITIES NOTE 2022 2021 EQUITY Paid in capital Share capital 14 312 665 292 160 Treasury shares 14 -84 -81 Share premium 14 7 098 185 5 596 247 Other capital reserves 14 61 764 53 420 Accumulated deficits / Retained earnings 14 -1 431 539 20 405 Other components of equity 14 0 0 Total equity 6 040 992 5 962 150 NON-CURRENT LIABILITIES Lease liabilities 15 9 631 6 983 Long-term debt group 12 16 098 1 555 Other non-current liabilities 10, 17 2 182 163 Total non-current liabilites 27 912 8 702 CURRENT LIABILITIES Current liabilities Trade payables 13 342 10 047 Lease liabilities 15 3 574 1 958 Provisions 2 399 445 Short-term liabilities group 12 12 565 17 792 Other non-current liabilities 10, 16, 17 25 166 16 646 Total current liabilities 57 046 46 889 Total liabilities 84 958 55 591 TOTAL EQUITY AND LIABILITIES 6 125 950 6 017 742 Nel ASA I Annual report 2022 129 OSLO, 27 FEBRUARY 2023 THE BOARD OF DIRECTORS Ole Enger Beatriz Malo de Molina Charlotta Falvin Chair Board member Board member (Electronically signed) (Electronically signed) (Electronically signed) Finn Jebsen Hanne Blume Tom Røtjer Board member Board member Board member (Electronically signed) (Electronically signed) (Electronically signed) Jon André Løkke Håkon Volldal Board member CEO (Electronically signed) (Electronically signed) 130 Parent company financial statements (Amounts in NOK thousands) Nel ASA NOTE 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Loss before tax -1 451 943 -24 456 Adjustments for interest expense 7 614 543 Adjustments interests received 7, 12 -46 192 -27 118 Share of loss from associate and joint venture 8 0 35 Equity-settled share-based compensation expense 4 1 525 1 776 Depreciation 5 3 463 2 645 Impairment of financial assets 7 1 484 984 0 Change in fair value equity instruments 11 10 014 47 757 Change in provisions 1 954 -216 Change in account receivables, group receivables -51 395 -13 714 Change in trade payable and group payables -1 933 7 290 Changes in other current assets and other liabilities -32 794 -65 671 Net cash flow from operating activities -81 704 -71 127 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment 5 -841 -499 Loan given to subsidiaries 7 -917 931 -871 099 Investments in associates and joint ventures 8 0 -1 272 Investments in other financial assets 10 -206 451 -10 572 Proceeds from sales of other investments 10 78 735 39 509 Net cash flow from investing activities -1 046 487 -843 932 CASH FLOWS FROM FINANCING ACTIVITIES Interests paid 7 -614 -543 Gross cash flow from share issues 14 1 545 866 1 255 103 Transaction costs related to capital increases 14 -23 426 -15 562 Payment of lease liabilities 15 -2 861 -2 233 Net cash flow from financing activities 1 518 966 1 236 765 Net change in cash and cash equivalents 390 774 321 706 Cash balance as of 01.01 13 2 540 734 2 219 029 Cash balance as of 31.12 13 2 931 508 2 540 734 Statement of cash flows Nel ASA I Annual report 2022 131 (Amounts in NOK thousands) Nel ASA SHARE CAPITAL SHARE PREMIUM OTHER RESERVE TREASURY SHARES RETAINED EARN- INGS TOTAL EQUITY Equity as of 31.12.2020 281 559 4 367 305 43 934 -79 44 861 4 737 580 Increase of capital 2021 10 600 1 228 940 1 239 541 Options and share program 1 9 486 -1 9 486 Total comprehensive income -24 456 -24 456 Equity as of 31.12.2021 292 160 5 596 247 53 420 -81 20 405 5 962 150 Increase of capital 2022 20 505 1 501 935 1 522 440 Options and share program 3 8 344 -3 8 344 Total comprehensive income -1 451 943 -1 451 943 Equity as of 31.12.2022 312 665 7 098 185 61 764 -84 -1 431 539 6 040 992 Statement of changes in equity 132 Notes to the financial statements parent company Note 1 Company information Nel ASA (Nel) is a global, dedicated hydrogen company, delivering optimal solutions to produce, store and distribute hydrogen from renewable energy. The company is domiciled in Norway. The company specializes in electrolyser technology for production of renewable hydrogen, and hydrogen fueling equipment for road-going vehicles. Nel’s product offerings are key enablers for a renewable hydrogen economy, making it possible to decarbonize various industries such as transportation, refining, steel, and ammonia. The group has two divisions: Nel Hydrogen Electrolyser and Nel Hydrogen Fueling. Nel ASA (org. no 979 938 799) was formed in 1998 and is a Norwegian public limited company listed on the Oslo Stock Exchange. The company’s head office is in Karenslyst allé 49, N-0279 Oslo, Norway. The parent company financial statements were approved by the Board of Directors on 27 February 2023. Note 2 Basis for preparation and significant accounting principles STATEMENT OF COMPLIANCE The financial statements of Nel ASA have been prepared and presented in accordance with simplified IFRS pursuant to section 3-9 of the Norwegian Accounting Act. BASIS FOR PREPARATION These financial statements have been prepared on a historical cost basis, except for certain financial instruments, which are measured at fair value. ACCOUNTING ESTIMATES AND JUDGEMENTS In preparing the financial statements, assumptions and estimates that have had effect on the amounts and presentation of assets and liabilities, income and expenses and contingent liabilities must be made. Actual results could differ from these assumptions and estimates. FOREIGN CURRENCY TRANSLATION The functional currency and presentation currency of the company is Norwegian kroner (NOK). Transactions in foreign currency are translated at the rate applicable on the transaction date. Monetary items in a foreign currency are translated into NOK using the exchange rate applicable on the balance sheet date. Non-monetary items that are measured at their historical cost expressed in a foreign currency are translated into NOK using the exchange rate applicable on the transaction date. Non-monetary items that are measured at their fair value expressed in a foreign currency are translated at the exchange rate applicable on the balance sheet date. CHANGES IN ACCOUNTING POLICIES A few amendments to IFRS have been implemented for the first time in 2022. The amendments did not have any material impact for the parent company. In addition, several amendments to IFRS are issued up to the date of issuance of these financial statements but are not yet effective. The company has not applied the new IFRSs and the impact of applying the amendments is not expected to have a material impact on the Company’s financial statements. DEFINITION AND APPLYING OF MATERIALITY JUDGEMENTS IN PREPARATION OF THESE FINANCIAL STATEMENTS The financial statements aim to provide useful financial information which increase the understandability of Nel and its performance. To meet the information needs of its primary users, Nel apply materiality judgments which are necessary to meet this objective, and Nel has made such judgments related to recognition, measurement, presentation and disclosures. Within these financial statements information is considered material if omitting, misstating or obscuring it could reasonably be expected to influence decisions taken by primary users based on the information provided. In practice this will lead to Nel omitting certain information if 7.1 Notes to the financial statements parent company Nel ASA I Annual report 2022 133 it is assessed it will obscure the material information. The materiality judgments are reassessed at each reporting date and updated based on changed facts and Nel specific circumstances. SEGMENT INFORMATION Nel ASA operates with only one operating segments, providing management services to subsidiaries. A separate disclosure for segment information is therefore not applicable. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATION UNCERTAINTY The preparation of financial statements requires management to make judgements and estimates that influence amounts recognised in certain accounts for assets, liabilities, income and expenses. The actual results may deviate from such assumptions. Estimates and underlying assumptions are subject to continuous assessment. REVENUE FROM CONTRACTS WITH CUSTOMERS In general, revenue comprises sale of intercompany services. These are recognized when the services are delivered based on intragroup allocation of costs. PERSONNEL EXPENSES Wages, salaries, bonuses, pension and social security contributions, paid annual leave and sick leave are accrued in the period in which the associated services are rendered by employees of the company. The company has pension plans for employees that are classified as defined contribution plans. Contributions to defined contribution schemes are recognised in the statement of comprehensive income in the period in which the contribution amounts are earned by the employees. The company has an equity-settled share option program for all employees. The Company uses the Black-Scholes-Merton option pricing model at time of grant to determine the impact of stock option grants in accordance with IFRS 2 - Share- based payment. Refer to group financial statements note 2.5 for further accounting policies, including assumptions and social security provisions. For further information refer note 4 – Personnel expenses. FINANCIAL INSTRUMENTS AND FAIR VALUE Nel uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: Inputs are quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2: The fair value of financial instruments that are not quoted in an active market is determined using valuation techniques which maximise the use of observable market price and rely as little as possible on entity-specific estimates. Level 3: Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. The Company has assessed that cash and short-term deposits, trade receivables, other current assets, trade payables and other current liabilities’ carrying amounts is a reasonable approximation of their fair value largely due to the short-term maturities of these instruments. The Company enters into forward exchange contracts with financial institutions, where the fair value of such instruments is based on valuation techniques including market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models using net present value calculations. The models used incorporate various inputs, including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves. The valuation is performed by banks or external valuation providers. INTEREST INCOME AND EXPENSES Interest income and expenses are recognised in the statement of comprehensive income within ‘finance income’ and ‘finance cost’ as they are accrued, based on the effective interest method. INCOME TAX EXPENSE Income tax expense in the statement of comprehensive income for the year comprises current tax and changes in deferred tax. Income tax expense is recognised in the statement of comprehensive income. 134 Notes to the financial statements parent company Current tax is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years. Uncertain tax positions and potential tax exposures are analysed individually and the best estimate of the probable amount for liabilities to be paid (unpaid potential tax exposure amounts, including penalties) and virtually certain amounts for assets to be received (disputed tax positions for which payment has already been made) in each case are recognised within current tax or deferred tax as appropriate. Deferred tax assets and liabilities are recognised for the future tax consequences attributable to differences between financial statements and their respective tax bases, subject to the initial recognition exemption. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. For a deferred tax asset to be recognised based on future taxable profits, convincing evidence is required. SUBSIDIARIES Subsidiaries are all entities controlled by Nel ASA. Control is achieved when the company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Shares in subsidiaries are presented according to the cost method. Shares in subsidiaries are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may exceed the fair value of the investment. Indications may be operating losses or adverse market conditions. Fair value of the investment is estimated based on valuation model techniques. If it is considered probable that the fair value is below Nel’s carrying value, the investment is impaired. The impairment is reversed if the impairment situation is no longer present. INVESTMENT IN ASSOCIATED COMPANIES AND JOINT VENTURES The company’s investments in its associates and joint ventures are accounted for using the equity method. An associate is an entity where the company has significant influence. A joint venture is an entity where the company has joint control contractually together with one or several other parties. CASH AND CASH EQUIVALENTS Cash includes cash in hand and at bank. Cash equivalents are short-term liquid investments that can be immediately converted into a known amount of cash and have a maximum term to maturity of three months. EVENTS AFTER THE REPORTING PERIOD New information of the company’s financial position on the end of the reporting period which becomes known after the reporting period, is recorded in the annual accounts. Events after the reporting period that do not affect the company’s financial position on the end of the reporting period, but which will affect the company’s financial position in the future are disclosed, if significant. STATEMENT OF CASH FLOW The cash flow statement is prepared using the indirect method. Nel ASA I Annual report 2022 135 Note 3 Revenue from contracts with customers (Amounts in NOK thousands) REVENUES BY GEOGRAPHIC REGION BASED ON CUSTOMER LOCATION 2022 2021 Norway 36,849 16,166 United States 30,922 32,327 Denmark 18,498 22,653 South Korea 1,719 4,466 Total 87,989 75,613 All revenues in 2022 and 2021 are internal revenue from management services. Revenues are recognised over time based on cost-to-cost input method. Billings occur at the end of each year for all cumulative costs incurred plus recognised profit, thus, there are no contract balances at year end. Both contract assets and the billings are recognised as current assets within ‘Receivables Group’ in the statement of financial position and is an unconditional right to payment. Note 4 Personnel expenses (Amounts in NOK thousands) SALARIES AND PERSONNEL EXPENSES 2022 2021 Salaries 51,019 36,928 Social security tax * 9,423 7,729 Pension expense 4,441 3,442 Other payroll expenses ** 4,186 3,933 Total 69,070 52,032 * Social security tax includes provisions for social security related to the share option program. ** Included in this amount are expenses amounting to NOK 2.0 (1.8) million related to the share option program. The company has a share option program for all employees. For information of the company’s share option program refer to group accounts disclosure 2.5 Average number of FTEs 23 13 Pension The company has a defined contribution pension plan for its employees that meet the requirements of the Pension Acts of Norway. REMUNERATION OF MANAGEMENT 2022 SALARY BONUS PENSION EXPENSE OTHER REMUNERATION 1) TOTAL REMUNERATION Håkon Volldal, CEO 2) 2 156 589 96 0 2 842 Jon André Løkke, CEO 3) 2 297 1 563 68 1 500 5 428 Kjell Christian Bjørnsen, CFO 2 837 71 191 0 3 099 Anders Søreng, CTO 2 381 62 191 894 3 528 Hans Hide, SVP Projects 2 122 52 191 872 3 236 Stein Ove Erdal, Vice President Legal and General Counsel 2 192 57 191 872 3 311 Caroline Duyckaerts, Chief Human Resources Officer 1 866 50 191 0 2 107 Total 15 852 2 444 1 117 4 137 23 550 1) Other remuneration is mainly related to share options 2) Employed in Nel from July 2022. Has a six months notice period, plus is entitled to six months severence pay, if terminated by company. 3) Left Nel in June 2022 136 Notes to the financial statements parent company REMUNERATION OF MANAGEMENT 2021 SALARY BONUS PENSION EXPENSE OTHER REMUNERATION 1) TOTAL REMUNERATION Jon André Løkke, CEO 2) 3 015 753 181 0 3 949 Kjell Christian Bjørnsen, CFO 2 579 0 181 0 2 760 Anders Søreng, CTO 2 226 0 181 596 3 003 Hans Hide, SVP Projects 1 906 0 181 581 2 668 Stein Ove Erdal, Vice President Legal and General Counsel 2 070 0 181 581 2 832 Caroline Duyckaerts, Chief Human Resources Officer 1 632 0 181 0 1 813 Total 13 428 753 1,087 1 758 17 026 1) Other remuneration is mainly related to share options 2) Jon André Løkke has a six months notice period, plus is entitled to six months severence pay. SHARE OPTION PROGRAM To incentivize and retain key employees, Nel currently have a share-based incentive plans, a share option program. Historically, the share option program was groupwide and included all employees in the group. This program ended in 2022, thus no new share options has been issued in 2022. All options issued have only service-time based vesting conditions. Vesting requires the option holder still to be an employee in the Group. The share-based payment is equity- settled. Each option, when exercised, will give the right to acquire one share in the Group. The options are granted without consideration. Options granted July 2019: A total of 2.1 million share options were granted. Pursuant to the vesting schedule, 40% of the options will vest two years after the day of grant, and 60% of the options will vest three years after the day of grant. The exercise price is equal NOK 7.8 per share based on the average price of the Nel ASA share price the five trading days before grant date (NOK 7.22) and including an 8% premium. Gain per instrument is capped at NOK 5.00 maximum per share option. The options that have not been exercised will lapse 4 years after the date of grant. Options granted July 2020: A total of 2.2 million share options were granted. Pursuant to the vesting schedule, 40% of the options will vest two years after the day of grant, and 60% of the options will vest three years after the day of grant. The exercise price is equal NOK 21.72 per share based on the average price of the Nel ASA share price the five trading days before grant date (NOK 20.11) and including an 8% premium. Gain per instrument is capped at NOK 5.00 maximum per share option. The options that have not been exercised will lapse 4 years after the date of grant. Options granted July 2021: A total of 1.3 million share options were granted. Pursuant to the vesting schedule, 40% of the options will vest two years after the day of grant, and 60% of the options will vest three years after the day of grant. The exercise price is equal NOK 15.125 per share based on the higher of the average price of the Nel ASA share the last five trading days and the closing price of the Nel ASA share on the grant date (NOK 14.00) and including an 8% premium. Gain per instrument is capped at NOK 10.00 maximum per share option. The options that have not been exercised will lapse 4 years after the date of grant. SHARE OPTION PROGRAM OPENING BALANCE GRANTED EXER- CISED FORFEITED CLOSING BALANCE STRIKE PRICE VALUE 1) REMAINING CONTRACTUAL LIFE July 2019 2) 888 0 -592 -590 -294 7.80 5.00 0.51 July 2020 2) 1 865 0 0 -326 1 539 21.72 - 1.51 July 2021 2) 1 348 1 348 0 0 2 697 12.10 - 2.51 TOTAL 4 101 1 348 -592 -916 3 942 Nel ASA I Annual report 2022 137 NAME 2023 2024 2025 TOTAL 2024 2025 2026 EXPENSE FOR THE PERIOD 3) Kjell Christian Bjørnsen 254 93 0 476 0 321 155 250 Anders Søreng 248 93 0 465 0 310 155 277 Hans Hide 254 96 0 476 0 316 160 288 Stein Ove Erdal 274 96 0 510 0 350 160 303 Caroline Duyckaerts 62 93 0 155 0 0 155 114 Other employees 606 1,072 732 1,860 343 568 949 7,300 TOTAL 1,698 1,543 732 3,942 343 1,865 1,734 8,532 1) The value of the share options equals share price less strike price, capped at NOK 5.0 for 2019 and 2020 program, and NOK 10.0 for 2021 program. 2) All share options are granted, vested and expired at the beginning of July in a given fiscal year. 3) Cost of period does not include social security” Note 5 Property, plant and equipment Property, plant and equipment comprise owned and leased assets PROPERTY, PLANT AND EQUIPMENT COMPRISE OWNED AND LEASED ASSETS OFFICE MACHINES AND OTHER EQUIPMENT TECHNICAL INSTALLATIONS RIGHT-OF-USE ASSETS TOTAL Carrying amount as of 31.12.2021 915 85 8 799 9 799 Carrying amount as of 31.12.2022 1 393 63 12 845 14 301 Useful life 3 years 5 years 5 years Depreciation plan Straight-line Straight-line Straight-line 138 Notes to the financial statements parent company Note 6 Other operating expenses SPECIFICATION OF OTHER OPERATING EXPENSES: 2022 2021 Hardware and common cost office premises 1 637 2 474 Administrative costs 14 566 12 690 Professional fees 37 291 26 109 Travel expenses 3 756 777 Total 57 251 42 050 Auditor fees FEES TO THE AUDITOR 2022 2021 Statutory auditing services 1 610 1 587 Attestation services 75 175 Non-auditing services 0 327 Total 1 685 2 089 Amounts are exclusive VAT Note 7 Finance income and cost 2022 2021 Internal interest income 46 192 26 839 Interest income 71 442 19 735 Change in fair value equity instruments 13 889 0 Other 2 335 279 Finance income 133 857 46 853 Interest expense -57 -194 Interest expense lease liabilities -557 -349 Impairment shares in subsidiaries -1 484 984 0 Net foreign exchange gain/(loss) 58 654 -1 871 Expected credit loss receivables from subsidiaries -94 624 0 Change in fair value equity instruments -23 903 -47 757 Other -492 -24 Finance cost -1 545 964 -50 195 Net finance income (cost) -1 412 107 -3 342 The increase in book value of shares in subsidiaries are mainly debt conversions. Refer note 12 for additional information of debt conversions. In addition, there is an increase in book value from the established group share option program. Changes in fair value equity instruments is entirely from shareholding in Nikola Corporation, see note 12 for additional information. The net foreign exchange gain(loss) is mainly the unrealised currency exchange effectes related to internal loans Nel ASA I Annual report 2022 139 Note 8 Subsidiaries, associates and joint ventures COMPANY OWNERSHIP REGISTERED OFFICE FUNCTIONAL CURRENCY TOTAL EQUITY IN 2022 (FUNCTION- AL CURRENCY THOUSANDS) NET INCOME(LOSS) 2022 (FUNCTIONAL CURRENCY THOUSANDS) CARRYING VALUE 2022 (NOK THOUSANDS) CARRYING VALUE 2021 (NOK THOUSANDS) Nel Hydrogen Electrolyser AS 100 % Norway NOK 511 721 -298 708 1 301 047 799 334 Proton Energy Systems Inc 100 % USA USD 23 944 -19 645 1 147 328 895 509 Nel Hydrogen A/S 100 % Denmark DKK 79 105 -268 418 0 995 953 Nel Hydrogen Inc 100 % USA USD 2 741 -7 230 0 43 249 Nel Korea Co. Ltd 100 % South Korea KRW -10 231 791 -3 503 259 0 13 846 Nel Fuel AS 100 % Norway NOK 457 840 -25 848 37 055 37 055 Total 2 485 429 2 784 947 The increase in book value of shares in subsidiaries are mainly debt conversions. Refer note 12 for additional information of debt conversions. In addition, there is an increase in book value from the established group share option program. Note 9 Income taxes CALCULATIONS OF THE TAX BASE FOR THE YEAR 2022 2021 Income (loss) before tax -1 451 943 -24 456 Permanent differences 1 598 495 35 847 Change in temporary differences 2 519 940 Use of tax losses carried forward -149 070 -12 331 The year's taxable income 0 0 Tax rate 22 % 22 % Income (loss) before tax -1 451 943 -24 456 Tax this years loss, estimated -319 428 -5 380 Tax effect of: Permanent differences 351 669 7 886 Change in temporary differences -11 922 -10 507 Prior years adjustment 0 419 Change in not recognised deferred tax assets (tax liabilities) -20 320 7 581 Total income tax expense (income) 0 0 Income tax expense (income) comprises Income tax payable 0 0 Change in deferred tax 0 0 Total income tax expense (income) 0 0 140 Notes to the financial statements parent company CALCULATIONS OF THE TAX BASE FOR THE YEAR 2022 2021 Specification of temporary differences: Property, plant and equipment and goodwill -288 -353 Leases -360 -143 Provisions for liabilities -4 720 -2 354 Shares and other investments 0 54 189 Tax losses carry forward -374 637 -523 707 Basis for deferred tax asset -380 005 -472 368 Nominal tax rates for next year 22 % 22 % Deferred tax asset -83 601 -103 921 Deferred tax asset not recognised in Statement of financial position -83 601 -103 921 Deferred tax asset in the Statement of financial position 0 0 The majority of the deferred tax assets are related to loss carry forward. As of 31 December 2022 it is considered not likely that the tax loss carry forward will be fully utilised in the near future, therefore the deferred tax assets are not capitalised. Nel ASA I Annual report 2022 141 Note 10 Specification of balance sheet items SPECIFICATION OF OTHER CURRENT ASSETS: 2022 2021 Equity instruments 14 461 96 320 Other short-term investments 61 182 332 Prepayments 3 840 3 762 Fair value of currency contracts 438 8 349 Other current receivables 908 16 Total 80 828 108 779 SPECIFICATION OF NON-CURRENT FINANCIAL ASSETS: 2022 2021 Other non-current investments 158 823 11 242 Fair value of currency contracts 189 1 877 Total 159 011 13 118 SPECIFICATION OF OTHER CURRENT LIABILITIES: 2022 2021 Vacation allowance and other salary related accruals 8 191 8 082 VAT net payables 6 099 1 083 Fair value of currency contracts 7 740 4 127 Other current liabilities 3 136 3 355 Total 25 166 16 646 SPECIFICATION OF OTHER NON-CURRENT LIABILITIES: 2022 2021 Fair value of currency contracts 2 182 163 Total 2 182 163 142 Notes to the financial statements parent company Note 11 Other investments The fair value of Nel’s shareholding in Hyon AS per 31. December 2022 is based on quoted prices in an active market (level 1 in fair value hierarchy) after the listing of Hyon AS on Euronext Growth on January 21, 2022. Fair value of shareholding in Hyon AS per 31 December 2022 shareholding is 14.5 (0.6) million recognised within ‘other current assets. The shares are subject to a lock- up period from the IPO. This lock-up period expires on January 21, 2023. Changes in fair value recognised in profit or loss within ‘finance income’ is 13.9 (0) million in 2022. The company has sold all 1.106.520 Nikola shares during 2022 at an average share price 6.75 and USD/NOK 9.69. Total USD and NOK received equals 7.471.721 and 72.417.203, respectively. Total realized gain was NOK 30.3 million, or 72% increase since investment NOK 42.1 mill. P&L loss in 2022 equals NOK 23.9 million. Note 12 Transactions with related parties LONG TERM INTEREST BEARING RECEIVABLES GROUP 2021 LOAN ISSUE DEBT CONVERSION ACCRUED INTERESTS 2022 FX TRANSLATION EFFECTS OTHER 2022 Nel Hydrogen Electrolyser AS 120,876 390,513 -500,000 13,849 0 0 25,238 Proton Energy Systems Inc 90,598 228,384 -249,420 10,682 20,442 0 100,686 Nel Hydrogen A/S 37,388 327,236 -280,020 10,155 13,185 0 107,944 Nel Hydrogen Inc 85,062 59,113 -149,652 5,315 10,460 0 10,298 Nel Korea Co. Ltd 116,443 0 0 6,068 6,348 -94,624 34,235 Nel Fuel AS 10,895 0 0 111 0 0 11,006 Nel Hydrogen Electrolyser Belgium BV 0 1,254 0 12 8 0 1,274 Total 461,261 1,006,501 -1,179,092 46,192 50,443 -94,624 290,681 In the course of the ordinary business, intercompany financing is provided from Nel ASA to its subsidiaries. Long-term financing is interest bearing and priced at arm’s length terms using a NIBOR 3 month interest rate + 3%-point margin. LONG-TERM RECEIVABLE FINANCIAL LIABILITY FINANCIAL GUARANTEES 2022 2021 2022 2021 Nel Hydrogen Electrolyser AS 15 337 772 15 334 717 Proton Energy Systems Inc 588 1 062 591 838 Nel Hydrogen A/S 110 0 110 0 Nel Korea Co. Ltd 63 0 63 0 Total 16 098 1 834 16 098 1 555 Refer note 18 for additional information of financial guarantees. CURRENT ASSETS 2022 2021 Nel Hydrogen Electrolyser AS 78,656 29,264 Proton Energy Systems Inc 31,391 31,340 Nel Hydrogen A/S 26,190 26,517 Nel Hydrogen Inc 4,990 4,904 Nel Korea Co. Ltd 6,793 4,591 Total 148,019 96,617 Nel ASA I Annual report 2022 143 CURRENT LIABILITIES 2022 2021 Nel Hydrogen Electrolyser AS 6,463 12,905 Proton Energy Systems Inc 789 1,978 Nel Hydrogen A/S 3,705 2,910 Nel Hydrogen Electrolyser Belgium BV 1,608 0 Total 12,565 17,792 Current liabilities are mainly related to fair value of hedging instruments offered to subsidiaries. See Note 16 for additional information. All related party transactions have been carried out as part of the normal course of business and at arm’s length. Nel ASA has during 2022 charged NOK 88 (75.6) million for corporate services provided to its subsidiaries. The management services are priced with the cost plus method applying a 5 % mark-up for low value services. The management fee has been allocated to the subsidiaries based on revenue, operating expenses and capital expenditures as allocation keys. INTERNAL REVENUES 2022 2021 Nel Hydrogen Electrolyser AS 36,849 16,166 Proton Energy Systems Inc 26,395 27,731 Nel Hydrogen A/S 18,498 22,653 Nel Hydrogen Inc 4,527 4,596 Nel Korea Co. Ltd 1,719 4,466 Total 87,989 75,613 Board of Directors Remuneration of Board of Directors is disclosed in note 7.4 in the consolidated financial statements. 144 Notes to the financial statements parent company Note 13 Cash and cash equivalents 2022 2021 Cash and cash equivalents 2,929,035 2,538,485 Restricted cash (witheld employee taxes) 2,472 2,249 Total 2,931,508 2,540,734 Cash and cash equivalents are 99% in the Norwegian Krone (NOK) at the end of 2022. Approximately NOK 2.5 billion is placed in 30-days locked interest accounts in several different banks. Note 14 Share capital and shareholders For information of shareholders as of 31 December 2022, shares hold by executive management and the board of directors please refer to Note 7.2 and 7.4, respectively, in the consolidated financial statements. For information of top 20 shareholders in Nel ASA refer to note 5.1 in the consolidated financial statements. Note 15 Lease liabilities Set out below are the carrying amounts of lease liabilities (included under other long-term debt and other current liabilities) and the movements during the period: 2022 2021 1. January 8,942 786 Additions 7,243 8,996 Remeasurement -119 1,391 Accretion of interest 557 350 Lease payments -3,418 -2,582 Balance as of 31.12. 13,205 8,942 Current 3,574 1,958 Non-current 9,631 6,983 Balance as of 31.12. 13,205 8,942 Nel ASA I Annual report 2022 145 Maturity analysis for lease liabilities (undiscounted cash flows) 2023 2024 2025 2026 >2026 TOTAL Lease liabilities 3,662 3,619 3,605 3,187 262 14,335 (Amounts in NOK thousands) 2022 2021 Balance as of 01.01. 8,942 786 Cash flows principal amount -2,861 -2,231 Cash flows interests -557 -352 Non-cash changes: Additions and remeasurements 7,124 10,386 Accretion of interest expense 557 352 Balance as of 31.12. 13,205 8,942 Note 16 Financial risk and derivatives Financial risks in Nel and the use of derivative instruments are described in note 6.2 to the consolidated financial statement. Nel ASA offers currency derivatives to subsidiaries using such instruments for risk management. The derivatives are measured at fair value (level 2 in fair value hierarchy), using valuation techniques which maximise the use of observable market price. The contracts with financial institutions are back-to-back with subsidiaries, thus, the contract has no P&L impact for Nel ASA. At the end of 2022 and 2021, Nel is committed to the following outstanding forward foreign exchange contracts with subsidiaries: 2022 2021 Forward foreign exchange contracts (Nel Group internal), notional amount: Current assets 438 8,176 Non-current assets 189 1,877 Current liabilities -7,740 -4,127 Non-current liabilities -2,182 -163 Total -9,296 5,762 The contracts represent the subsidiaries exposure in US dollars, Euro, Swedish Krone and British pounds. The contracts mature no later than 2024. 146 Notes to the financial statements parent company Note 17 Financial instruments Financial instruments and fair values 2022 CARRYING AMOUNT FAIR VALUE FAIR VALUE - HEDGING INSTRUMENTS MANDATORILY AT FVTPL - OTHERS FINANCIAL ASSETS AND LIABILTIES AT AMORTISED COST TOTAL LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Assets Financial assets measured at fair value Forward exchange contracts 626 626 626 626 Financial asset - equity instruments 14 461 14 461 14 461 14 461 SUM 626 14 461 15 087 14 461 626 0 15 087 Liabilities Financial liabilities measured at fair value Forward exchange contracts -9 922 -9 922 -9 922 -9 922 SUM -9 922 -9 922 -9 922 -9 922 2021 CARRYING AMOUNT FAIR VALUE FAIR VALUE - HEDGING INSTRUMENTS MANDATORILY AT FVTPL - OTHERS FINANCIAL ASSETS AND LIABILTIES AT AMORTISED COST TOTAL LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Assets Financial assets measured at fair value Forward exchange contracts 10 226 10 226 10 226 10 226 Financial asset - equity instruments 96 320 96 320 96 320 96 320 SUM 10 226 96 320 106 545 96 320 10 226 0 106 545 Liabilities Financial liabilities measured at fair value Forward exchange contracts -4 290 -4 290 -4 290 -4 290 SUM -4 290 -4 290 -4 290 -4 290 Nel ASA I Annual report 2022 147 Note 18 Guarantees Nel provides guarantees arising in the ordinary course of business including stand-by letters of credit, performance bonds and various payment, financial guarantees and parent company guarantees. All commercial guarantees are on behalf of subsidiaries. Total financial guarantees recognised as financial liability is NOK 16.1 (1.6) million as of 31. December 2022. The financial liabilities will be amortised over the lifetime of the guarantees, which is in the range of 1-7 years. Note 19 Subsequent events Information about the group’s financial position that has occurred after the balance sheet date is disclosed if the information is considered to be significant for the group’s current financial statements and future position. 148 Nel ASA I Annual report 2022 149 Nel discloses alternative performance measures (APMs) in addition to those normally required by IFRS. This is based on the group’s experience that APMs are frequently used by analysts, investors and other parties as supplemental information. The purpose of APMs is to provide an enhanced insight into the operations, financing and future prospect of the group. Management also uses these measures internally to drive performance in terms of monitoring operating performance and long-term target setting. APMs are adjusted IFRS measures that are defined, calculated and used in a consistent and transparent manner over the years and across the group where relevant. Financial APMs should not be considered as a substitute for measures of performance in accordance with the IFRS. NEL’S FINANCIAL APMs EBITDA: is defined as earnings before interest, tax, depreciation, amortisation and impairment. EBITDA corresponds to operating profit/(loss) plus depreciation, amortisation and impairment. EBITDA margin: is defined as EBITDA divided by revenue and other operating income. Equity ratio: is defined as total equity divided by total assets. Order intake: is defined as firm purchase orders with agreed price, volume, timing, terms and conditions entered within a given period. The order intake includes both contracts and change orders. For service contracts and contracts with uncertain transaction price, the order intake is based on estimated revenue. The measure does not include potential change orders. Order backlog: is defined as firm purchase orders with agreed price, volume, timing, terms and conditions and where revenue is yet to be recognised. 8 Alternative Performance Measures 150 9 Auditor’s report Statsautoriserte revisorer Ernst & Young AS Dronning Eufemias gate 6a, 0191 Oslo Postboks 1156 Sentrum, 0107 Oslo Foretaksregisteret: NO 976 389 387 MVA Tlf: +47 24 00 24 00 www.ey.no Medlemmer av Den norske Revisorforening A member firm of Ernst & Young Global Limited INDEPENDENT AUDITOR'S REPORT To the Annual Shareholders' Meeting of Nel ASA Report on the audit of the financial statements Opinion We have audited the financial statements of Nel ASA (the Company) which comprise the financial statements of the Company and the consolidated financial statements of the Company and its subsidiaries (the Group). The financial statements of the Company comprise statement of financial position as at 31 December 2022 and statement of comprehensive income, statement of cash flows and statement of changes in equity for the year then ended and notes to the financial statements, including a summary of significant accounting policies. The consolidated financial statements of the Group comprise statement of financial position as at 31 December 2022, statement of comprehensive income, statement of cash flows and statement of changes in equity for the year then ended and notes to the financial statements, including a summary of significant accounting policies. In our opinion • the financial statements comply with applicable legal requirements, • the financial statements give a true and fair view of the financial position of the Company as at 31 December 2022 and its financial performance and cash flows for the year then ended in accordance with simplified application of international accounting standards according to section 3-9 of the Norwegian Accounting Act, • the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2022 and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU. Our opinion is consistent with our additional report to the audit committee. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Company and the Group in accordance with the requirements of the relevant laws and regulations in Norway and the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. To the best of our knowledge and belief, no prohibited non-audit services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided. We have been the auditor of the Company for since 2000, and in the period following the initial public offering of the Company in 2004. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for 2022. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate 2 Independent auditor's report - Nel ASA 2022 A member firm of Ernst & Young Global Limited opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements. Revenue from sale of customised products and equipment Basis for the key audit matter The Group derives a significant part of its revenues from sale of customised products and equipment. Such projects involve revenue recognition over time based on measuring the progress towards complete satisfaction of the performance obligation. The assessment of measuring progress requires subjectivity and professional judgement and is therefore subject to uncertainty and potential misstatements. The main risks include management’s use of estimates and judgments in relation to measuring progress, including determining the contract’s total revenues, expected costs to complete and estimated project margin. We consider this a key audit matter because of the significant amounts and the management judgement applied in the estimates. Our audit response We assessed the application of accounting principles and routines for monitoring the customised product and equipment sales. We discussed the status of contracts with management, finance and technical staff and tied estimated revenues and cost to budgets. For new contracts we tested the estimated revenue against agreements. We have also recalculated the measurement of progress and performed test of details e.g., vouching to invoices and hours incurred on the projects. We refer to the Groups disclosures included in note 1.5 and 2.1 in the consolidated financial statements. Assessment of impairment of goodwill Basis for the key audit matter The Group performed impairment tests to determine the recoverable amounts and recorded an impairment loss of NOK 296 million related to the goodwill in Fueling. At 31 December 2022, the carrying amount of goodwill was NOK 366 million, approx. 5 % of total assets. Estimating the recoverable amount of the goodwill requires management judgment including estimates of future sales, gross margins, operating expenses, growth rates, capital expenditures and discount rate. Management’s annual impairment assessment was a key audit matter because the assessment requires significant judgment and includes estimation uncertainties. Our audit response For each cash generating unit, we evaluated the assumptions based on the development in the market and compared the cash-flow projections in the impairment calculation to board approved budgets. We considered the accuracy of management’s prior year estimates and evaluated the level of consistency applied in the valuation methodology from previous years. Furthermore, we compared the risk premiums in the weighted average cost of capital with external data and considered management’s adjustments for company specific factors. We also tested the mathematical accuracy of the valuation model and performed sensitivity analysis of the assumptions used. We assessed the Group's disclosures included in note 1.5 and 3.1 in the consolidated financial statements about those assumptions to which the outcome of the impairment test is most sensitive. 3 Independent auditor's report - Nel ASA 2022 A member firm of Ernst & Young Global Limited Other information Other information consists of the information included in the annual report other than the financial statements and our auditor’s report thereon. Management (the board of directors and CEO) is responsible for the other information. Our opinion on the financial statements does not cover the other information, and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information, and, in doing so, consider whether the board of directors’ report, the statement on corporate governance and the statement on corporate social responsibility contain the information required by applicable legal requirements and whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information or that the information required by applicable legal requirements is not included, we are required to report that fact. We have nothing to report in this regard, and in our opinion, the board of directors’ report, the statement on corporate governance and the statement on corporate social responsibility are consistent with the financial statements and contain the information required by applicable legal requirements. Responsibilities of management for the financial statements Management is responsible for the preparation and fair presentation of the financial statements of the Company in accordance with simplified application of international accounting standards according to section 3-9 of the Norwegian Accounting Act and of the consolidated financial statements of the Group in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or the Group, or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 4 Independent auditor's report - Nel ASA 2022 A member firm of Ernst & Young Global Limited • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s and the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s and the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company and the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the board of directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the audit committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the board of directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirement Report on compliance with regulation on European Single Electronic Format (ESEF) Opinion As part of the audit of the financial statements of Nel ASA we have performed an assurance engagement to obtain reasonable assurance about whether the financial statements included in the annual report, with the file name NELASA-2022-12-31-en, has been prepared, in all material respects, in compliance with the requirements of the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) and regulation pursuant to Section 5-5 of the Norwegian Securities Trading Act, which includes requirements related to the preparation of the annual report in XHTML format and iXBRL tagging of the consolidated financial statements. In our opinion, the financial statements, included in the annual report, have been prepared, in all material respects, in compliance with the ESEF Regulation. 5 Independent auditor's report - Nel ASA 2022 A member firm of Ernst & Young Global Limited Management’s responsibilities Management is responsible for the preparation of the annual report in compliance with the ESEF Regulation. This responsibility comprises an adequate process and such internal control as management determines is necessary. Auditor’s responsibilities Our responsibility, based on audit evidence obtained, is to express an opinion on whether, in all material respects, the financial statements included in the annual report have been prepared in accordance with the ESEF Regulation. We conduct our work in accordance with the International Standard for Assurance Engagements (ISAE) 3000 – “Assurance engagements other than audits or reviews of historical financial information”. The standard requires us to plan and perform procedures to obtain reasonable assurance about whether the financial statements included in the annual report have been prepared in accordance with the ESEF Regulation. As part of our work, we perform procedures to obtain an understanding of the company’s processes for preparing the financial statements in accordance with the ESEF Regulation. We test whether the financial statements are presented in XHTML-format. We evaluate the completeness and accuracy of the iXBRL tagging of the consolidated financial statements and assess management’s use of judgement. Our procedures include reconciliation of the iXBRL tagged data with the audited financial statements in human-readable format. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Oslo, 1 March 2023 ERNST & YOUNG AS The auditor's report is signed electronically Petter Frode Larsen State Authorised Public Accountant (Norway) info@nelhydrogen.com +47 23 24 89 50 www.nelhydrogen.com Ofce address: Karenslyst all é 49, 0279 Oslo, Norway 549300G6XN5IXMRKEG372022-01-012022-12-31549300G6XN5IXMRKEG372021-01-012021-12-31549300G6XN5IXMRKEG372022-12-31549300G6XN5IXMRKEG372021-12-31549300G6XN5IXMRKEG372020-12-31549300G6XN5IXMRKEG372020-12-31ifrs-full:IssuedCapitalMember549300G6XN5IXMRKEG372021-01-012021-12-31ifrs-full:IssuedCapitalMember549300G6XN5IXMRKEG372021-12-31ifrs-full:IssuedCapitalMember549300G6XN5IXMRKEG372020-12-31ifrs-full:TreasurySharesMember549300G6XN5IXMRKEG372021-01-012021-12-31ifrs-full:TreasurySharesMember549300G6XN5IXMRKEG372021-12-31ifrs-full:TreasurySharesMember549300G6XN5IXMRKEG372020-12-31ifrs-full:SharePremiumMember549300G6XN5IXMRKEG372021-01-012021-12-31ifrs-full:SharePremiumMember549300G6XN5IXMRKEG372021-12-31ifrs-full:SharePremiumMember549300G6XN5IXMRKEG372020-12-31ifrs-full:CapitalReserveMember549300G6XN5IXMRKEG372021-01-012021-12-31ifrs-full:CapitalReserveMember549300G6XN5IXMRKEG372021-12-31ifrs-full:CapitalReserveMember549300G6XN5IXMRKEG372020-12-31ifrs-full:RetainedEarningsMember549300G6XN5IXMRKEG372021-01-012021-12-31ifrs-full:RetainedEarningsMember549300G6XN5IXMRKEG372021-12-31ifrs-full:RetainedEarningsMember549300G6XN5IXMRKEG372020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300G6XN5IXMRKEG372021-01-012021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300G6XN5IXMRKEG372021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300G6XN5IXMRKEG372020-12-31ifrs-full:ReserveOfCashFlowHedgesMember549300G6XN5IXMRKEG372021-01-012021-12-31ifrs-full:ReserveOfCashFlowHedgesMember549300G6XN5IXMRKEG372021-12-31ifrs-full:ReserveOfCashFlowHedgesMember549300G6XN5IXMRKEG372022-01-012022-12-31ifrs-full:IssuedCapitalMember549300G6XN5IXMRKEG372022-12-31ifrs-full:IssuedCapitalMember549300G6XN5IXMRKEG372022-01-012022-12-31ifrs-full:TreasurySharesMember549300G6XN5IXMRKEG372022-12-31ifrs-full:TreasurySharesMember549300G6XN5IXMRKEG372022-01-012022-12-31ifrs-full:SharePremiumMember549300G6XN5IXMRKEG372022-12-31ifrs-full:SharePremiumMember549300G6XN5IXMRKEG372022-01-012022-12-31ifrs-full:CapitalReserveMember549300G6XN5IXMRKEG372022-12-31ifrs-full:CapitalReserveMember549300G6XN5IXMRKEG372022-01-012022-12-31ifrs-full:RetainedEarningsMember549300G6XN5IXMRKEG372022-12-31ifrs-full:RetainedEarningsMember549300G6XN5IXMRKEG372022-01-012022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300G6XN5IXMRKEG372022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300G6XN5IXMRKEG372022-01-012022-12-31ifrs-full:ReserveOfCashFlowHedgesMember549300G6XN5IXMRKEG372022-12-31ifrs-full:ReserveOfCashFlowHedgesMemberiso4217:NOKiso4217:NOKxbrli:shares