Itm Power (LSE:ITM) — Final results

0:01 Good afternoon, ladies and gentlemen, and welcome to the ITM POWER Final Results Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Please just simply type in your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and publish responses where it is appropriate to do so. These will be available via your Investor Meet company dashboard, and you'll be notified by email when they're ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll. And if you'd be so kind as to give that to your attention, we would be most grateful. And I'd now like to hand over to Doctor. Graham Cooley, CEO and Andy Allen, CFO from ITM POWER. Good afternoon to you both.

0:52 Good afternoon. Thanks very much, and thanks to everybody in the audience for joining this call.

0:59 So we're gonna be presenting to you the final results for the years in year ending April 2021. So just a a very short slide on positioning, first of all. As you probably all know, ITM POWER is an electrolyzer manufacturer. We manufacture PEM electrolysis equipment, and we've been developing and deploying PEM electrolyzers now for the last twenty years. We are scaling electrolyzer manufacturing and deployment. And we moved into the world's largest electrolyzer factory at the beginning of this year. And we have a strong collaboration with Linde Engineering. So ITM POWER is doing the scaling in terms of manufacturing and Linde Engineering in terms of deployment.

1:52 Why are why is our electrolyzers so interesting right now? Actually, the world is moving towards net zero, and an essential piece of equipment to achieve net zero is the electrolyzer because electrolysis equipment is used to couple to renewable power and make green hydrogen, which is the only net zero fuel, the only net zero energy gas. So incredibly important for the energy transition. And and and what we've seen is a major acceleration in the market over the last year or two. Certainly, over the last year, the the acceleration has taken the whole industry by surprise.

2:40 And you've seen industrial companies, governments, and policymakers announcing electrolyzer targets all over the world. So perhaps if I can give you a bit more color on that, we had a very important report that was announced in May of this year. It was the IEA report, and it identified that to get to net zero by 2050, the world needs three and a half thousand gigawatts of electrolysis. That that's a very, very large number. That's about three centuries of the current production in the world's largest electrolyzer factory here in Sheffield.

3:29 Three and a half thousand gigawatts at half a million pounds a megawatt is 1,750,000,000,000 pounds, a a very large and significant market, and that's over the next twenty nine years. The Aurora report also came out in May and interestingly identifies 200 gigawatts of electrolyzer projects that are already in development. In fact, 85% of them have been identified as being in Europe. And if you look at the national electrolyzer targets worldwide, these are targets for deploying electrolysis equipment over the next decade. So they are targets for deployment to 2,030 and they total a 144 gigawatts.

4:21 And there are many more hydrogen strategies, national strategies being announced all of the time. We also, in June, have the US DOE's Earthshot, which is the five major projects that The US is gonna enter into to get them to net zero by 2050. And the first announced Earthshot was green hydrogen. And, actually, the green hydrogen shot summit was last week, was chaired by John Kerry and actually attended by Bill Gates. And you can see a great emphasis now on green hydrogen also in The US.

5:10 So an increasing emphasis on the need for green hydrogen to achieve net zero. Some achievements from ITM POWER then. We reported this morning a a record backlog at 310 megawatts, a record tender pipeline of 1,011 megawatts, which is just above a gigawatt. We have now moved into the Gigafactory in Sheffield, which is fully operational. We delivered the 10 megawatts at the Rhineland refinery and was really pleased to get the announcement from Shell that they're expanding by a 100 megawatts, and we'll be doing that with ITM and Linda.

6:01 And we also completed the FEED study in Humberside for a 100 megawatts. And what we increasingly see now is interest in the class of electrolyzers around a 100 megawatts in size. And I'm gonna show you more about that dynamic when we look at the tender pipeline. So first of all, then the results. The results, we're looking at three levels, work in progress, contracts backlog, and tender pipeline. And and at each level, we're gonna drill into more detail about some unpacking those numbers. The work in progress is up a 125%, contracts backlog up 45%, and the tender pipeline is up 94%.

6:55 And you'll note now that all the numbers, the tender pipeline, are reporting the ITM portion of the value only. So if we begin then with the backlog, so both of these graphs, you can see five half year results and then a final bar which is related to the current position. So the penultimate bar is is h two twenty twenty one. So the the backlog is made up of under contract in the final stages of negotiation and preferred supplier.

7:43 Contracted is 43 megawatts in negotiation, 169, and preferred supplier with SNAM is 98 megawatts. So you can see that for the first time contracted plus negotiation has now gone over 200 megawatts in size. And in fact, if you look at the blue line on the right hand chart, you can see the tender pipeline. So the tender pipeline is the number of quotations we've made against commercial tenders over the last twelve months, and it has increased radically since June. Back in June, it was 600 megawatts. It's now a thousand megawatts.

8:30 Actually, if you go back two years, the tender pipeline was around 200 megawatts in size, which is what we now see in the backlog. So the trend in both cases is following a rapid growth. The the backlog lagging the tender pipeline by about two years. The other thing that we see in the tender pipeline is an increased weighting towards larger projects, and I'm gonna explain that a bit more now in a couple of slides.

9:08 So when we look at the projects, we're looking at the products that are deployed in projects of a given size. And and we divide the the tenders up into projects between naught and four megawatts in size, and all of these are plug and play containerized units, which are deployed by ITM. And you can see a picture of those products, the top right hand side of the slide. From four to 20 megawatts is a crossover between plug and play containerized products and those that are integrated with an EPC contract by ITM Linda electrolysis.

9:54 And from 20 to 80 megawatts, those projects are deployed using the two megawatt module. And above 80 megawatts, we deploy using five megawatt modules. And and at both those levels, those are integrated within EPC contract by Linda. So if you look at the tender pipeline then, you can see how many projects and the total number of megawatts in each of those classes of project. So projects that are between naught and four megawatts where the deployment is done by ITM, there are 87 megawatts in total across 42 projects.

10:41 If you go to the next level up to 20 megawatts in size, fewer projects, 13, but more megawatts, a 154. And as you increase down between twenty and eighty megawatts is a 190 megawatts with only five projects. And at the very largest class, deploying our giga stack five megawatt module is more than half of the tender pipeline with only three projects. So we have a very significant move and an increased weighting in the tender pipeline towards larger projects deploying the five megawatt stacks with a Linde Engineering EPC.

11:32 In terms of what where the projects are in the world, you you can see the pie chart divides up into EMEA, APAC, and The Americas. And, actually, the EMEA territory is leading, particularly Europe. And and you can see a very significant amount of the projects in in Europe. If you go to APAC then, particularly Australasia, you see a fast follow-up. And and the projects are building there, particularly very large scale projects. And then The US where we we were very pleased to announce a four megawatt electrolyzer at Niagara in the results.

12:24 The the America, after the announcement of the Earthshot, is just getting started with large scale industrial electrolysis. And we see this as a very significant growth area. And actually, we have quite a significant positioning in The US because of Linda and their deal a couple of years ago with Praxair. So, you know, we feel very encouraged not only by our first major reference plant in The US, but also Linda's presence there. So that's locations. In terms of applications and end use, you can see that the most significant application is energy.

13:11 This is power to gas energy storage working with renewable energy companies. In APAC, the most significant market is industrial. So this is looking at things like refineries, ammonia, and methanol production. And and the third and smallest category is in mobility.

13:34 So what what is it exactly that that customers are looking for? So so when we have negotiations with customers about electrolysis equipment, all customers are looking for the same thing. They're looking for the lowest levelized cost of hydrogen or the lowest total cost of ownership of the equipment.

13:56 And to achieve the lowest levelized cost of hydrogen, the most important thing is the production costs. Because when you look at the revenue model for green hydrogen, the most significant cost is the renewable power. So that relates directly to the performance of the electrolyzer. So that's key and that's the most significant. Second is the full system price to the customer. So that's the capital outlay, and it has to be full system. And then the after sales support that's looking at not only the lifetime and the performance, but sharing performance data with the customer so that they can operate the electrolyzer in an optimal fashion.

14:46 And at all three levels, we look at optimizing our electrolysis equipment, and there are sources at all three levels of competitive advantage. And we work by investing in r and d and continuous improvement on the performance of the electrolyzers. We have a very aggressive cost reduction program for the lowest full system price, and we're working closely with Linda in that area. And also, we've been developing remote monitoring and excellence in after sales support. So we feel that we have a competitive advantage at all three levels of reducing the levelized cost of green hydrogen.

15:36 And then finally, my last slide about partnerships. At ITM, we we we've spent most of the life of ITM developing long term productive partnerships. So we started deploying electrolysis equipment on Shell four courts now back well, our first announced collaboration with Shell was back in 2015.

16:03 We started deploying 100 kilowatt units back in 2017. Fast forward to this year, and we've announced 100 megawatts with Shell. That project is gonna be deployed with Linda, and and we've we've been been on the whole journey with Shell, also with Linda. So that's more than half a decade. Shell sorry. Linda and recently, SNAM became strategic investors in ITM POWER, and we've also developed a strong relationship with Scottish Power who are part of the group and also with working on the homicide project and also on the Oyster project, also collaborating with Siemens Gamesa in that project.

16:52 And then last but not least with Sumitomo, and we were delighted to announce the first large scale electrolyzer to be imported into Japan. It's the first non Japanese electrolyzer to to be imported into Japan, and it's working not only with Sumitomo but also Tokyo Gas. So So I I think think an important announcement for that territory. So going forwards then, partnering particularly with renewable energy companies and the oil and gas industry is gonna be a significant part of our strategy.

17:34 So I'll hand over now to Andy, our chief financial officer, who's gonna take you through the financials. Thanks, Graham, and good afternoon all. So I'm gonna take you through the key drivers for the finances for the year ending April 21, and also take a look at the results snapshot, which you will have seen in this morning's announcement. Then I'll also be talking about the performance, revenue, EBITDA, and cash, and also some guidance for the current financial year.

18:13 So in terms of key drivers, the the obvious one that we've spoken about before is the move into Bessemer Park. Bessemer Park opened in January 2021 and was officially opened more recently by the secretary of state. And during the financial year, we fit out the factory with semi automated plants. We've got the blueprint to the machinery for further expansion and can scale to a gigawatt within six months, and we're able to respond to demand that we see coming.

18:42 In terms of partnerships, this was the first full year where we'd worked with ILE, which is the joint venture between ITM and Linden. And ILE is really the sales quoting house for large scale product, you know, the ITM would sell. And ILE is now up to 15 staff who whose mission is to fill the factory. So not only have we got the sales team within ITM, but we've also got ILE. And whilst that hasn't impacted the numbers yet, what we're starting to see is is the impact on the tender pipeline. We also had the partnership with Stan and the investment of £30,000,000, which formed part of a wider fundraise totaling a £172,000,000. We've also seen the refined commissioning where ITM POWER had a significant chunk of EPC scope as part of the project. That's coming through the numbers. That was commissioned and inaugurated in July this year, and and broadly, we're closing up that project now.

19:45 And and finally, in terms of partnerships, we have the giga stack product program developments with base where we're developing our next generation product. And you'll see from Graham's slides that we're now quoting that in in many tenders going forward.

20:00 The other thing that's been a feature the last financial year, global events, we all understand the pandemic and how that's impacted daily life. For ITM, it's been about how we get on-site and finish site works. Our revenue recognition is dependent on us completing the final milestone in our contract. And certainly for plug and play units, that that includes on-site commissioning and installation. We've also had Brexit providing an element of disruption in terms of getting to site to conclude those works. And post year end, we've got a developing disruption within the supply chain, particularly around microchips, which affect our plug and play systems. This has been quite widely reported. Actually, ITM's demand is very, very low and and only impacts one subsystem, but that is still something that could be a risk in the current year.

20:57 So a results snapshot then. We had total income of £5,100,000, down 6% year on year. But what was up was the sales revenue. Sales revenue is 4,300,000, up 30%. This is where we start to see grant income being a small part of the income mix going forward. ITM will still look to win grant income to develop the technology road map and have that subsidized and and create innovation along the way. But equally, we're seeing more and more of the a lean towards product revenue. Our Our adjusted EBITDA loss was £21,400,000, and that that's characterized by a few features. The big one, we spoke about the refined projects being commissioned. That's one of a couple of legacy projects where we've incurred gross losses mainly around the EPC bit of the scope, the on-site works,

21:51 and was a key driver for the relationship that we've generated with Linda where they would now take that work. And the other part about the the the loss was to to basically set up to capture the one gigawatt of demand we see coming per annum for Bessemer Park. In terms of balance sheet, we had a £176,000,000 of cash at year end and a cash burn of £32,700,000, of which about a third of that was on capital equipment for Bessemer Park.

22:21 So just on the revenue then, the graph on the right hand side tells us the picture about how this differs from the prior year. So the prior year was the gray bar on the left, 3,300,000 of income, and the year ended April 21 is on the right hand side, 4,300,000. You can see the first orange bar, the first dip is in product revenue, and that's because we haven't been able to complete all of the on-site works that we might have expected to. Then you have an uptick in consultancy. And and just to be very clear on what that is, that is money we've received for developing the Giga Stack product. And so it's all about technology roadmap rather than ITM becoming a consultancy company. Maintenance is starting to tick up, and we saw fuel sales also impacted by COVID to leave us with 4,300,000 of revenue.

23:13 In terms of EBITDA, you see the prior year, 18,100,000 of loss, and April 21, 21,400,000 of losses. The first orange bar, naught 700,000, was the difference between gross margins in the two years as we closed out those legacy projects. The next three orange bars represent investment. So we firstly have payroll. I've got a slide coming up about resource in ITM, but we've brought in skilled manufacturing experience and project delivery experience for the company.

23:45 We've then had naught 600,000 of losses in ILE, the joint venture, as it starts to starts to grow. And what we're expecting is we're expecting a need to support ILE until the end of calendar year 2022, at which point it ought to be self sustaining. And then finally, we spend more on r and d than we did in the year before as we develop the gig stack products and the technology surrounding that. So, really, the the middle three bars are all about setting us up for the future.

24:16 In terms of resources then, as of the end of August, we we had 305 full time equivalents. And you will have seen an RS recently which said we filled cosec and ops director vacancies, and we're now seeking a projects director as well. So we're strengthening the management team. Within the other recruits that we've had this side of year end, we've had a heavy emphasis on delivery. So 27 people within production and quality, 41 within r and d, 10 within up sales, and nine within projects. We've also added five people to the sales team,

24:49 but that doesn't include the impact of the ILE team and work we've done previously to bolster our business development exercise. And in terms of the balance sheet, we ended the year with a strong balance sheet with a 176,000,000 of cash at year end. And the bridge really for me splits into two parts. There's the operating activities, which is Specimen Park. We spent 17,200,000 on operating activities and 10.4 on CapEx.

25:17 And there's a working capital impact of £3,000,000. 2,000,000 of that is building inventory and and really starting to to reduce lead times for customers. And in terms of partnerships, we've invested in ILE. We've received money from the fundraiser and the stand partnership. And we've started to spend money on GigaStack as well, which we recognize on the balance sheet. So in total, we spent about £4,000,000 on GigaStack in the year.

25:46 And finally, the current year guidance. So we've added an extra metric here, which is the core stack module production. This is the the core bit of electrolysis in the middle of the products that we make, and that will be in excess of 55 megawatts this year with an ability to ramp. So So that is the core system that goes into everything. Beyond that, we have different subsystems that then are attached to it to make up a a completed product. We're expecting that production volume to between to be between thirty three and fifty megawatts this year. Revenue recognition will depend on a few things that we've already touched on, site access, in particular travel restrictions, but also some disruptions to the supply chain affecting plug and play products. And as we said before, revenue will be heavily weighted to the second half of the year, and we look forward to updating more at a later date. I'll hand back to Greg for a final slide.

26:39 Thanks, Andy. So just a quick summary from me then. So the results were very well telegraphed and predicted in the June 10 trading update. I think the announcement this morning

26:59 is important terms of achieving a record backlog of 310 megawatts, but also particularly a record tender pipeline of 1,011 megawatts, which is up very significantly since the June 10. We we are seeing very strong market and policy momentum. And I think, actually, in the run up to COP twenty six, you will see further green hydrogen announcements, further hydrogen strategies announced by national governments governments as we move into COP twenty six. So it the momentum in the whole industry is very, very strong. So thank you very much for joining the webinar, and we're happy to take questions.

27:46 Doctor. Cooley, Andy, thank you very much indeed for updating investors this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the company take a few moments to review investor questions submitted already, I'd like to remind you the recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard, and you'll be notified by e mail when it's ready for your review. I'd also like to remind you that your feedback is important to the company. And immediately after this presentation has ended, we'll redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations. I'd now like to hand over, if I may, to Simon to host the Q and A. So if I may, Simon, I'll hand over to you. With the live questions, if I could ask you to read out the questions, that would be most grateful.

28:33 Thanks very much, Mark. Let me start with a few of the pre submitted questions, all of which, by the way, have been asked from the live attendees on this webinar. Let me start with one for Graeme. What's the likelihood of reduced use of Iridium in the electrolysis units? And how are you dealing with PGM sourcing? Yes. So a question that comes up very regularly, actually. So what the the place to start with this really is the length of time we've been working in this industry. So precious group metals and the use of precious group metals in electrolysis, in PEM electrolyzers.

29:18 They're also used, by the way, in other forms of electrolysis including alkaline electrolyzers. That's a source of great competitive advantage for us now. I mean, we've been working on reducing the amount of materials that we use. We've been working on recycling, and we've been working on reuse. And I think we've made massive progress in that area. In fact, in our trading update, we we did note that we've exceeded the twenty thirty EU target two years ago.

29:58 So, yeah, a source of, I think, a strong competitive advantage for us. We we we we didn't put out in this results presentation the cost reduction curve because we've we've presented it constantly for about two years. But I can confirm that we are still tracking ahead of that cost reduction curve, and that includes the current cost of the of the materials that go go into the electrolysis equipment. So we well, the other thing to to probably say is that we've just appointed a a head of production, and we're very, very focused on strategic procurement, and we'll be doing more and more work in the supply chain. So I there's precious precious group metals and catalysts as far as we're concerned.

31:00 It is a source of competitive advantage for ITM. Thank you. A couple of questions on when you might pull the trigger on a second gigafactory, which you've said you'll do when Bessemer Park reaches 60% capacity. When is that expected to happen? And are you currently actively looking for a suitable site? I I think that the the tender pipeline and the backlog numbers are moving very quickly. Tender pipeline particularly and the amount of activity in the market is surprised, well, the whole of the industry actually. The exact date, difficult to say, but the answer to your second question is very definitely yes. We are already looking for a second factor.

31:56 Okay. Question for Andy here, think. Given the company's forward financial projections, when do you expect to move into gross profit or to become cash flow positive? Yeah. So, obviously, there there there's a number of notes out there, and and we can see the consensus for cash flow positive is somewhere between 2024 and 2025 financial years. Okay. With the expected growth of the hydrogen market, why isn't ITM pulling out all the stops and getting the second factory up as soon as possible? Would it not be beneficial to have a stock of off the shelf electrolyzers ready for when orders come flooding in rather than making them to order?

32:50 I think I think we're starting to do that, and and you see that in the the core module that we're building. I mean, there's there's something in that we need to work with the supply chain and the production line to to ramp up. You can't go from zero to one here, we're starting to do that. And we're building in capacity as we go. So I think Bessemer Park gives us an opportunity to start to build to inventory, and there'll be a point where we we will see, as Graham said, you know, we ought we ought to extend it to a second factory. But but Bessemer Park can give us some of that flexibility. Thank you. Graham, I guess this one's for you. Given the recently announced UK hydrogen strategy, when do you expect that strategy to impact on your order book if it hasn't already?

33:42 Yeah. So I you you would have seen the announcement of the of the hydrogen strategy in The UK. What that identified, two areas of incentive in terms of revenue, the revenue model for green hydrogen, and one in terms of CapEx. So the CapEx one is 250,000,000 grant scheme for low carbon hydrogen. And and the two revenue ones, which I have to say, by far the most important because that will incentivize the deployment and and for investment to flow into the industry.

34:27 And there's the RTFO in transport, which is in consultation at the moment, and it has been confirmed that there will be an RTFO for green hydrogen in transport, which is great news for ITM POWER PLC. And also that there will be a CFD for green hydrogen and for blue hydrogen, and it's been confirmed that there will be that CFD, and and that that has now gone into consultation. So we're looking at that being announced as a biddable scheme in 2022. And and those projects, of course, will be large projects because they are CFDs for replacing industrial gray hydrogen with green hydrogen.

35:16 So UK, there are two targets. One is a five gigawatt target, which is part of the raft of targets to 2030, but also one gigawatt target to 2024. And that's a very important one because you can't really deploy blue hydrogen in the the 2024 timescale. Actually, most of the blue hydrogen projects are looking at 2028. So that implies that that would inevitably be green green hydrogen projects. And and that's as much as I can say. I am a member of the Hydrogen Advisory Council, so there is a lot going on. But those statements I've just made are those ones that are already published.

36:07 Thank you. Two part question coming up. Graham, maybe you could start on this one and then Andy. What are the greatest challenges you have converting tender pipeline opportunities to backlog contracts? And given the sizable backlog, what's the biggest challenge you face when it comes to converting those to revenue? Yes. So challenges in all cases are that large companies have to make final investment decisions on on large pieces of equipment. I I think the tender pipeline, you know, lags the backlog, if you look at it and and this is more piece of correlation rather than direct causation, but the the the backlog lags the tender pipeline by about two years. So if you look at the backlog now under contract plus the final stages of negotiation in the in these results for the first time, it went over 200 megawatts.

37:18 And if you look back two two years ago, the tender pipeline was at 200 megawatts. So you fast forward to June at 600 megawatts, and and now this morning, the announcement at a thousand megawatts. So what what's the what's the difficulty in that? Well, it's sign off of large schemes. And and, you know, we're we're working more and more closely now with partners in the energy industry who have all sorts of targets that they need to meet. I mean, what let let me give you one example that's driving the industry forwards, which is that all refineries in Europe have to comply by the renewable energy directive.

38:04 So they all have to make 14% of their product renewably by the end of this decade. They they to deploy, they've got eight eight years, and that is a very large amount of electrolysis equipment. So worldwide at hundreds of gigawatts. So So that's one of the drivers that are driving things forwards. Okay. Andy, any comments on converting back or converting backlog to revenue? I I think I hadn't forgotten, Simon. The the there are two features here, really. So and it really depends on when the revenue recognition is. So what are the challenges of getting stuff through our factory?

38:54 There's a revenue recognition at factory acceptance testing or at the gates. There's not so much challenges, but there are opportunities for us to reduce lead times as we build the stock or build subsystems. So that will accelerate the revenue recognition, but I wouldn't necessarily characterize any of that as challenges. The the greater challenge or the bit where ITM has, particularly in the last year, had less control is the on-site works. And if revenue recognition depends on-site acceptance testing, then then there's been a lot out of our control in the last, well, eighteen months. And so as as we start to see things becoming more normal, that will also drop away. But we are all still also still reliant on working well with partners and subcontractors to an extent when we're doing the on-site stuff. So I think the challenges, particularly around the factory, are really opportunities to go faster, and there's still a little bit to unlock with the on-site work.

39:59 Thanks. A couple of questions now, definitely for Andy, I think. Can you please explain why provisions on the balance sheet have risen to $12,300,000 and whether we should expect a further increase in fiscal twenty twenty two? Yes. I I certainly can. So the the bulk of that, about 5,000,000 of that is provision on contract losses. And say exactly what that is, there's these are the legacy projects that we recognize the gross loss on in the f y twenty one, and they include the forecast cost of completion plus a certain amount of contingency in there as well.

40:47 Beyond that, there are provisions for leaseholds and dilapidations, what I would call ordinary course of business as you have a large site, and that will grow in line with the the length of the lease for Bessemer Park. And finally, there's provision around share options costs, which is actually cash neutral to the company. So that's a bookkeeping piece rather than anything else. Given the outlook for the electrolyzer market worldwide and what might be needed to get to net zero, wouldn't it be in the company's interest to consider licensing its technology to some of its strategic partners alongside the buildup of owned and managed capacity around the globe?

41:41 So licensing is an interesting dilemma, really. If you if you license your technology, what you have to do is control improvements. And if you don't control improvements, then you can lose control of your intellectual property. You also don't capture all the advantages of going through the process of manufacturing and working directly with customers. So it it's not a preferred model as far as we're concerned. And I think that being a manufacturer and also particularly running after sales support model where you're also looking after electrolyzers in the field, developing an installed base and working with customers, it is the way to do it. And and I think some technology companies license their technology out too quickly.

42:41 I think they experience erosion of their IP, And it's a although it's a lower capital intensive model, I think it's one that ultimately ends up with loss of control. Okay. I think a question for both, but probably starting with you, Graham. What's your approach to pricing? Is there a gross profit figure that you have in mind? And is industry on the same page? Or are you looking ahead and offering customers value to gain market share? Yes. It's a great question. Pricing strategy is very, very important. I mean, you can have a competitive advantage in terms of technology and manufacturing, but easy to to choke off orders with price.

43:35 What what you really wanna do is actually enter the market as aggressively as you can. So cost reduction is very, very important in the early days. There comes a point then when cost reduction can lead to an increase in margin. And some of it, you can pass on to the customer to gain market share and to increase your installed base. And some of it, you need to keep as margin. We constantly review that as we go forwards. You mentioned reducing lead times. What what's the rough average lead time on a project?

44:21 Andy, perhaps you could talk us through the timetable. Yeah. Sure. So to factory acceptance testing, Graham's given you a a picture of of of different types of products. A plug and play system historically would have been about fourteen months a year ago, and we're now down somewhere between sort of nine to twelve months in terms of lead time. So so that's that's good. When you look at modular solutions, then that can be quicker still. The balance of plants is simpler, and and and we're doing something repetitious. So probably around about six to nine months for those cubes with with opportunities to improve that further. Thank you. I'm going to ask this question because there are four or five people who've asked them.

45:10 What's your win rate for tenders? Yeah. Very difficult to assess. We we we haven't got enough data to assess that. And you can't just look at the tender pipeline and and divide by a number and say, you know, that's what it looks like. We just don't have enough data and things are moving very, very quickly. So hard to assess. Okay. And again, a question that's come up more than once on the today. Who who are your competitors? And how do you track what they're up to in the marketplace? Yeah. So so there are other companies that make pen electrolyzers there, and there are companies that make alkaline electrolyzers.

46:00 And they're kind of the usual suspects. So in the area of electrolysis, there's Siemens Energy. There's Cummins who bought hydrogenics. There is Nell who bought Proton on-site, and there is Plug Power who bought Gyna. And alkaline electrolysis, the market leaders, Tiss and Crook. There are few other smaller players as well, those that are developing pressurized alkaline. And so there's a field there's a handful of of competitors. I think that it's a big market. It's moving very quickly.

46:48 There'll be new entrants. You know? No doubt about that. It's a great market to be involved in. And all of our competitors will get projects because I think it's a large enough market with lots of industrial collaborations being developed. How do we track? Sorry. The a key part of the question. How do we track our competitors? It's actually quite difficult to know what everybody is doing. Apart from there are a lot of press releases. Those are more at the level of renewable energy companies collaborating with the molecules industry, so the chemicals industry and the oil and gas industry. But, you you know, the the listed companies put out results, but we're not really we don't really dwell on what everybody else is doing. I mean, for us, the most important thing is doing what we do as well as possible.

47:48 So I I wouldn't say we're we're that concerned, really. We We get a lot of intelligence from our partners. But, know, the market's moving incredibly quickly. The pipelines are moving very, very quickly, and I'm sure all of those competitors will do well. Question for Andy. Can you make any comment on expected gross margins within the current contract backlog? And there's a supplementary about positive gross profit or positive EBITDA, but I think you've already covered that one. So any comments you can make on expected gross margins, Andy? I I think we could probably give some indications here. So the the projects that are in the in the backlog and under contract have been bid with positive margins and with a long run expectation of getting somewhere between 2030% margin. And Graham's already pointed out that we need to, you know, fill the factory and as well as continue to be at the front and have an installed base.

49:06 So that might not not happen this year. So the the the other part of that is, obviously, we're we are closing out these legacy projects with EPC work in the current financial year, and those seem to be in line with the forecast that we had at year end, which should not impact the gross margin this this year. But that that that's still an exercise we need to go through. So we are involved in quite an important value engineering exercise. We work very closely with Linda and internally in ITM on cost reduction. So when we tendered, actually, we're still pushing hard for cost reduction, which will, of course, affect margin.

49:59 Thank you. Question on partnerships, Graham. Could you provide a bit more detail on the partnership with Shell and give us a sense of how the relationship has evolved? And secondly, Shell is not alone in the oil and gas space. To what extent are other oil and gas players actively looking at green hydrogen and electrolysis? So, I mean, the working relationship with Shell is extremely good. What you you saw them inaugurate the 10 megawatt electrolyzer and announce a 100 megawatt project with ITM and ILE. So I think that's a very strong and positive endorsement for ITM and also ITM's technology and its relationship with Linda.

50:50 And they know what that relationship with Linda is like because we we've been been deploying hydrogen refueling stations on for on shell forecourts going back to I think the first one was opened in 2017. So that's a half a decade ago. So we we we've been working closely with them, and it's a very, very positive relationship. I mean, we did the full EPC on the Shell project. And the the next project we do with them, which Linda will be doing that. Linda Engineering will be doing that EPC. In in terms of other oil and gas players, so we work with Phillips sixty six in the Humberside, at the 100 megawatt deployment with and Phillips sixty six to decarbonize that Humberside refinery.

51:47 We we work at. The 24 megawatt electrolyzer at will be putting green hydrogen directly into the gray hydrogen pipeline, which is used by the whole of that chemicals part. But that includes Total, so another oil and gas player. And, of course, Linda have many installations where they provide great hydrogen to the oil and gas industry and the chemicals industry. So they are really well plugged in to the whole of that industry. And and, you know, the dynamic that's going on in the oil and gas industry is moving from fossil energy gases and fossil fuels to net zero molecules.

52:39 And, actually, the dynamic in the renewable energy industry is is towards power to x or making green hydrogen for energy storage. So So what the the big macro picture is you're seeing renewable energy companies partnering with oil and gas companies, and indeed, you're seeing oil and gas companies buying renewable energy assets. So this is a very, very strong industrial dynamic right now. Okay. Andy, question for you. Will all of the 33 to 50 megawatts completed products volume for the current year be recorded as ITM revenues?

53:25 Or will some go through the Linde joint venture? If that is the case, what's the split? Yeah. Okay. So the the 33 that we have contracted, we know that we've got 24, which are modules that go through ILE. And then the balance is smaller plug and play systems, which will be going a 100% to ITM. But when we've been reporting the numbers in the RNS in here, those are all values attributable to ITM. So we're trying to remove what has historically been some confusion about what's ITM and what's Linda. All the numbers we're reporting here are values to ITM. So so that's that's the 33 that we have contracted. The other 10 we have contracted is the the refined project, which is a bit of an outlier because that is recognized on stage of completion, but it's all ITM again.

54:20 But there's only a small amount of revenue left to recognize on that. If I can add to that, as projects get larger, they have more and more additions to the balance of plant. And and and some projects that we're quoting now, the part has got ammonia plant associated with it. It's got liquefaction plant. It's got additional compression and so on. And it doesn't make any sense to quote for us to put the numbers out any other number than the pound value to ITM POWER, which is what is in our announcement today. And you saw the slide and the table of the three different levels, the work in progress, the backlog, and the tender pipeline.

55:09 And all of those stated pound values are to ITM only. Okay. Graham, I think this is probably for you again. Number of questions on the levelized cost of hydrogen. Let's start with how much more expensive is green hydrogen today compared to gray hydrogen? And when do you think you might reach parity as an industry or as a company? Yeah. So, look, the the the cost of green hydrogen is broadly the cost of the renewable power that you put through it. So to say how much is green hydrogen is a bit like saying how much is electricity. You wouldn't ask the question how much is electricity.

55:56 And the reason you wouldn't is it depends where you are, what point in the network you are. So when do you get to parity with gray hydrogen? Broadly speaking, when you're around 2p per kilowatt hour at for for power costs. At that point, you're comparable with gray hydrogen in The UK. And and getting to that cost requires you, first of all, to have direct coupling so you don't pay distribution charges. And it also we're looking at being able to use electrolyzers to balance the grid and get grid service payments as well.

56:45 So if you look at the McKinsey model, for instance, and you look at an electrolyzer of €500,000 or or $500,000 a megawatt with a load factor of around forty percent and 2¢ per kilowatt hour, you're looking at hydrogen at about $1.6 a kilogram. And at that point, you become competitive with gray hydrogen. And gray hydrogen has a market of 600 gigawatts per annum worldwide, million tons. So there are many predictions. You can look at plants. You can look at the hydrogen council. You can look at Bloomberg New Energy Finance.

57:31 But from from the the mid mid twenty twenties to 2030, about $1.6 per kilogram by 2030 going down to naught $0.9 per kilogram, making a net zero energy gas competitive with gray hydrogen. And And they and are the McKinsey numbers and the Hydrogen Council numbers, not ITM POWER numbers. Okay. You mentioned on the way through that it would take you six months to scale up to one gigawatt at the Bessemer Park. Could you just explain what you meant by that, please? Andy, do you want to talk about capacity? Yeah. Sure. So we've we've put down machines that are semi automated, and we validated a whole load of processes in the first half of this calendar year, which are new process to Bessemer Park, which wouldn't fit into our old production facility.

58:28 That includes technologies for the core products, but also for managing the larger product as it goes around the factory. And really, what we're saying here is, you know, we're we're not just jumping up to a gigawatt capacity ahead of that demand coming. We have built in the flexibility within the factory that we can add machines as we need to increase the capacity to that gigawatt target. So so we, you know, we're working on on on development work. We're working on cost reduction, and we're working on understanding what the product mix will be. So we have a product mix indication now from the tender pipeline, and I presented it to you. And that, broadly speaking, looks like the sort of product mix that we will need to design into the processes for the factory going at a full one gigawatt.

59:25 We're we're also doing value engineering and and cost cost reduction to to make sure that we pin down exactly what it is we're producing. And and value engineering is gonna play out over the next few few months as is understanding our product mix. And we'll be able to gear up production in a more accurate fashion. Thank you. Okay. Another one another last question, I think, for the time being, two more. Can you explain the how the relationship between ITM POWER and ITM MOTIVE will work going forward? And and how are you going to be addressing the various mobility markets?

1:00:14 Yeah. So ITM MOTIVE's strategy is a return to base refueling of industrial vehicles. Commercial vehicles. So we're looking at buses and trucks and trains and a number of other municipal vehicles like dust lorries and sweepers and so on. And and there are a large number of OEMs now moving forwards with either hydrogen conversions of those vehicles or actual fuel cell new vehicles and new electric drivetrains. And that's our market for ITM POWER PLC. We we've been talking with operators, with local councils, and also large and also the OEMs making the vehicles.

1:01:01 Okay. The the the RTFO is is a very significant coming announcement from the UK government. The RTFO is the incentive for using green hydrogen as a fuel. It's in consultation right now. And it will as soon as that is announced, it will propel that industry forwards. And we are aligning ourselves with some very significant players in The UK to develop that part of the business. And, of course, we've we've opened the Birmingham refueling station. We work with National Express in Birmingham. And, yeah, I mean, more and more interest coming for the heavy vehicles, vehicles, not so much the infrastructure reviewers.

1:01:56 Okay. I think we're on final question before we call it time. Would you go even larger than the five megawatt stack that you're developing? And how key is that five megawatt stack and developing it quicker than two years on the accelerated timetable to your future prospects? Yeah. So look. Five megawatts is a big module. If if you if you look at if you look at the battery energy storage industry, for instance, largest cells or modules that you see there are about 50 kilowatts. So you're talking about a 100 times the size of battery installations that use modules.

1:02:49 There's there's a logistics consideration to do with size as well. You you know, you have to be able to if you manufacture a module, you need to be able to move it around. You need to be able to deliver it and transport it. And and that means to get it on to standard transport and do the logistics, you you know, you wouldn't wanna go too much larger. And And we did an exercise with Linde Engineering about how you do these deployments. And the strategy that we came up with was a five megawatt module, which is integrated into 20 megawatt packages with a standardized balance of plant so that you could also reduce the cost of the balance of plant by standardizing and modulizing the balance of plant as well.

1:03:44 The building block is modules five megawatts with an integrated 20 megawatt package to take you through installations that go up to hundreds of megawatts in size. So how important is it? Yeah. It's important. I mean, the the the waiting in the tender pipeline is definitely towards the larger scale projects and integrating five megawatt units. Doctor. Cooley, Andy, thank you very much indeed for being so generous with your time. And thank you also to all the investors that have taken time to submit questions during today's presentation. Of course, we'll make all of these questions available to the company post this presentation in case there are any other additions or answers that can be given.

1:04:32 Doctor. Curley, before I redirect investors to provide you feedback, I know that's particularly important to the company, I could ask you perhaps for a few closing comments as as I say before I redirect investors to give you their thoughts. Sure. Okay. So look. First of all, thanks very much for joining the call. It's much appreciated. I think ITM have had a pretty amazing year this year. We we moved into the world's largest electrolyzer factory in the midst of a pandemic and Brexit. We developed partnerships that have become very productive in terms of quoting equipment worldwide. Our pipeline has increased. Our backlog has increased. And we're in a position now where the the factory is, I think, performing very, very well, and the future looks very significant for green hydrogen all over the world.

1:05:29 So you'll see some, I think, interesting announcements in the run up to COP twenty six where nations all over the world begin to articulate more their hydrogen strategies, and and we certainly look forward to making some great announcements over the next year. So thanks for coming. Doctor. Cooley, Andy, thank you very much indeed for updating investors this afternoon. I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of ITM POWER, I'd like to thank you for attending today's presentation. That now concludes today's session. Good afternoon to you all.