Preheat oven to 350 degrees.
On a baking sheet, spread the hazelnuts and bake for 10-15 minutes until the hazelnuts are toasted.
Remove nuts from oven and place on a tea towel.
Fold tea towel and rub the nuts quite roughly to remove the skins.
This can take quite a while and skins remove better when nuts are warm. (I never got all the skins off and while my nutella was not as smooth as the commercial brand, it was still good)
In a food processor, grind the hazelnuts until they are as fine as possible.
In a saucepan, whisk the milk and powdered milk together.
Then stir in honey and salt and bring to a boil.
Remove from the heat.
In a double boiler melt the chocolate squares.
Stir until smooth.
Add the melted chocolate to the ground nuts and process in food processor until smooth.
Add the warm milk to the mixture and process again until it is very smooth.
Transfer Nutella mixture to glass jars.
This made 3 jars of nutella for me.
The nutella must be stored in the fridge and can last 1-2 weeks.