Itm Power (LSE:ITM) — Half Year Results

0:00 Good afternoon, ladies and gentlemen, and welcome to the ITM POWER half year results investor presentation. Throughout this presentation, investors will in listen only mode. Questions are encouraged and could be submitted any time via the q and a tab situated on the right hand corner of your screen. Simply type your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your investor meet company dashboard.

0:30 I'd also like to remind you this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to doctor Graham Cooley, CEO, and Andy Allen, CFO of ITM POWER. Good afternoon.

0:44 Good afternoon, everybody, and welcome to this interim results presentation. And also welcome to Bessemer Park, the world's largest electrolyzer factory. So I'm really delighted that we're able to give this presentation from the factory. It's a marvelous moment for the company to have moved into the factory and to have started production. And in fact, we have one unit on the shop floor which is going to be delivered in the next couple of days. It's going to Australia. And then another two units over the next couple of weeks going to projects in The UK. So a marvelous moment for the company. And just one very simple thing before we start.

1:30 We're gonna talk to you about revenue numbers, about backlog and about the number of tenders we've made of over the last twelve months. But it's really what happens behind me here in this factory and with this technology center, that's the future of the company. So okay, if you could just share the slides, please. We'll carry on with the presentation. So the interim results presentation then for the period ended October 2020. And I'm going to be presenting this with Andy Allen, our Chief Financial Officer.

2:15 So first of all, a short description of our achievements over the last twelve months. So we've now achieved the record backlog announced this morning of 124,000,000. I think that the most important change in the backlog is the composition of the backlog. And we have actually moved many of the contracts that were in negotiation to under contract, and we've concentrated on that in the period. We've also reported very significant increase tender pipeline. So the tender pipeline are those quotations we've made against commercial tenders over the last twelve months.

3:03 And the last time we reported it was in October, that was $325,000,000. Today, it stands at $435,000,000. So we've increased the number of tenders we've made jointly with Linda by 100,000,000 over the last four months. We also, in October, announced the fundraise of 172,000,000. It was a very successful fundraise, was 2.5 times oversubscribed and we got a strategic investment from SNAM of 30,000,000. Of course, moving into the new factory has been a very significant activity for ITM POWER, and we've done that with the backdrop of COVID. And I think we've done that very successfully.

3:55 We made a sale announced only a few days ago to Linda of a 24 megawatt electrolyzer, and it's the world's largest PEM electrolyzer going into the heartland of German industry in Leuna. We're also working very closely with Phillips sixty six in on the 100 megawatt FEED study. And we also announced a strategic partnership with Scottish Power in Scotland, an initiative called Green Hydrogen for Scotland. So I think we've been seeing some very significant momentum in all of our key markets, particularly working closely with Linde Engineering.

4:44 So the factory then, we two points to add about the factory. The first is that we raised enough money in the funding round to be able to develop a second gigafactory. A second gigafactory that actually could be larger than this first gigafactory when we get to the point where this factory is 60% full. And we also raised money for inventory. So we have enough working capital to hold inventory so that we reduce our lead times down to less than eight months, which is very important when we're looking at tendering and converting tenders into contracts.

5:33 So what does the the move actually mean? Well, the the most significant part of the move is is the way that it unlocks scale for ITM POWER. We we have moving from Atlas Way to Bessemer Park gives us production capacity increase of tenfold.

5:54 Actually, when you look at the constraints in Atlas Way, the constraints of ATEX testing and also the power supply, the effective capacity increase is actually 30 times. We also have increased our IT capabilities and we've increased our connectivity also by a factor of 10, which means that we're looking at the ability to for twenty four hour monitoring, just in The UK, but genuinely worldwide. And we have enough space now for 320 staff and also a marketing center, which you'll see in the video at the end, which gives us the ability to do conferences and hold world class meetings.

6:51 So we're moving up in module size. We're we're moving from two megawatt modules to five megawatt modules. And we're working very closely with Linda Engineering to pre engineer 20 megawatt packages. The reason for pre engineering the balance of plant is so that you can do projects without the need for non recurring engineering costs and and and, designing the same thing over and over again. It also allows you to get efficiencies in the supply chain. And and actually, one of the rationales for our collaboration with Linda is not is the p part of the EPC.

7:39 That's engineering, procurement, and construction. And of course, Linda has very, very strong purchasing power.

7:48 So by pre engineering the balance of plant, you can get great efficiencies in procurement. So what does the full system look like? What you see in front of you is a 100 megawatt plant. It's the output of some FEED studies we've been doing. You see a full power system, control system, water system, and gas system. And and it's engine the balance of plant is engineered by Linda and all the stacks manufactured in the factory that you see behind me. When I quote you prices, this is very important because we're talking about, fully integrated systems that are turnkey.

8:39 And many of the, companies you see quoting prices in the market are only quoting prices for stacks. Ours is a full system cost.

8:55 So the Leuna plant then, a fantastic moment for ITM. We announced the Shell project at 10 megawatts. That was the world's largest PEM electrolyzer at the time. We've now announced Leuna, 24 megawatts, the next world's largest PEM electrolyzer. It's the first genuine project through ILE with

9:24 a balance of plant fully engineered by Linde, and it's a very, very important reference plant in the German chemicals industry. So in terms of cost reduction then, currently, we are quoting electrolyzers at 10 megawatts or above at EUR 800,000 a megawatt. And we have a very ambitious cost reduction curve that we're actually tracking ahead of right now. And we are targeting, in the next three to four years, 100 megawatt plant at €500,000 a megawatt.

10:09 And as I said, we're tracking ahead of that because of the work we're doing with Linde in balance of plant, the scaling of the electrolyzer modules and also the volumes that we're expecting through the factory. Already,

10:27 at €800,000 a megawatt, at the 10 megawatt level, we are cost competitive with any other form of electrolyzer technology.

10:41 So my last slide then before I hand over to Andy. Just wanted to make quick reference to the Oyster project, which we announced a couple of weeks ago. It's a follow on project with and our first project with Siemens Gamesa, and it's funded by the fuel cells and hydrogen joint undertaking of the EU. And it's about integrating electrolysis equipment with wind turbines. And wind turbines have a control system and a power system and so do electrolyzers. And so it's about the integration of those two components at the power and control level. We're also very interested in deriving our clean water from seawater, both for offshore deployments and also onshore deployments in countries where that's the best way of accessing water.

11:40 And so the project is going to integrate on three levels, on the level of the wind turbine, the electrolyzer and also the desalination unit. So perhaps now I can hand over to our finance director, Andy Allen, who will take you through the results. Thanks, Andy. Thanks, Graham. Hello, everybody. I will talk you through the six month results to the end of October and talk about the results snapshots, also show you some key metrics for us, and talk about the backlog.

12:19 Just before we go off this slide, you see a different angle of Bessemer Park, which is actually the far end of the factory to where Grain's sitting right now, which bank of CNC machines which produce components for our stacks. We've moved in over Christmas and at the start of January, done some commissioning, and these are now in production as of this week.

12:43 So in terms of the financial results, our total income was £4,400,000, which is up 16%. Now our revenue recognition rules are such that we actually recognize revenue once all of our obligations are completed on-site. And so there has been an impact from COVID pandemic, which looks at being about £3,000,000. So I would have been reporting about a 100% increase year on year had it not been for that impact. In terms of the EBITDA loss, it's 10,400,000 in the period against 8.1 last year. The main increases there is people and building in skills and capability ready for Bessemer Park, but also the fact that we've been running Bessemer Park alongside the two existing factories that we had. And now we're all under one roof, and we're in the process of closing out the leases on the old factories.

13:39 In terms of the balance sheet, we have a cash balance of 25,900,000 at the period end. Was before the fundraise where the proceeds came to us in November. So at the end of November, we had a £192,900,000. We had a cash burn in the period of 14,000,000 against 6,000,000 last year. Main difference there is being Vespa Park, 5,700,000 on the fit out, further million pounds on on the equipment within Vespa Park. And then we've also been buying inventory for standard products to speed up that lead time, as Graham said. So two key metrics for us, EBITDA and cash. And I there there are a number of factors influencing these two metrics, and they're on this slide here. So on the left hand side, you've got an EBITDA bridge, which last year was 8,100,000 loss, and in October 2020 was a 10,400,000 loss. And there's four factors there.

14:36 The first orange box is overruns associated with on-site works. We've confirmed that actually these legacy projects where there's EPC elements are are all gonna be closed out in this current financial year with the exception of refined, which will be producing its first hydrogen in q two. We've had a slight reduction in grant income of naught 300,000, and we've invested in people and capabilities at naught £800,000 difference in the period. And then the final bit is the impact of running Bessemer Park alongside the other two factories, and that's about a £500,000 impact.

15:11 In terms of cash, on the right hand side, we started the period with 39,900,000. You can see we ended it with 25.9, and there are a number of swings in the middle. So the operating cash flows were £10,400,000. We've improved our working capital position by 2,500,000 and we're getting more money in from debtors. We've invested in the JV, no point 2,000,000, and we will continue to commit alongside Linda to make that JV work. And we are committed to another 1,400,000 over the next eighteen months or so. In terms of Bessemer Park and other CapEx, we spent 6,900,000 in the period. And in h two, that's gonna be between 3.5 and £4,000,000 further CapEx to have Park fully up and running.

15:59 And then finally, we've got the development of the next generation products, which Graham showed in in an earlier slide. We spent naught 700,000 in the period on that. We've had some proceeds from sales of shares to leave us with 25,900,000 at the period end. In terms of what's next for ITM POWER, Graham's already showed you the backlog slide. 24 £124,000,000, up from 118.7 in October only three months ago. But the big movement here is that we've got 36,100,000 of contracted projects, up a 144% since October three months ago. We've also we're starting to see the impact of the partnerships that we are developing in here. So the green bar is the stamp preferred supplier contracts, and the gray and yellow bars under contracts and in negotiation include nearly £20,000,000 worth of Linde gas projects in there.

17:00 And that's reflected in in geography as well. So you can see that the slam projects are on Italy, but we have other projects in Germany, in our home market, The UK, but also where we have representatives in France and Australia. So across all applications that the company is interested in, and the other balance is the amounts for r and d and for developing our next generation products. So I'll hand back over to Graham for the tender pipeline.

17:33 So thanks for that, Andy. Could you hand the slide controller back to me, please? So thank you. So that's great. Thanks very much. So in 10 in terms of the tender pipeline, as I mentioned before, the the tender pipeline is the number of fixed price turnkey quotations that we've made against commercial tenders over the last twelve months. And last time we reported was in October, and that was 325,000,000. It's now 435,000,000. So it's up by, a 100,000,000 in the last four months. You can see in the diagram a blue bar and an orange bar. The blue bar is the ITM portion and the orange bar is Linda's EPC portion.

18:28 And that's broadly broken down to sixty five thirty five, with 65%, of those revenues would be, to ITM POWER, just under 300,000,000.

18:42 These numbers, don't include feasibility and FEED studies, and they also don't include the wider business development activity. So these are just where there is a commercial tender and there's a competitive process and we've quoted against and in that competitive process. Where

19:08 are they and in what markets? So the biggest market is energy, nearly half of all of those tenders. There's a great activity in the area of energy applications and power to gas energy storage. Next largest is, industry, and industrial chemistry, that that would be refineries, ammonia, and methanol production. And then also there's some in mobility. Mobility, would be, potentially smaller packaged units rather than the very large projects that you get in industrial, in the industrial or the energy sectors.

19:55 The other thing you can see from this is that we are bidding in in many more territories than we had done in the past. And it's important to stress that Linda are a global company. They're embedded in industries supplying gray hydrogen all over the world. And so it gives us much more reach than we had before in terms of business development. So just a quick summary then. We're in a very rapidly growing market. This is the multi gigawatt scale. We have global leading position in technology and also manufacturing. We continue to transform the backlog in the pipeline, particularly working with our partners, particularly with Linda and with Shell and with SNAM.

20:49 And we were delighted to make the announcement of the world's largest pen electrolyzer of 24 megawatts. We have the funds in place now to accelerate ITM so that we can capture this genuinely global opportunity. So look. We we at the end of this presentation, we we we've got a film that we'd like to show you. It's a short film. It it less it lasts less than two minutes, and, the film was produced three months ago. So that was before the equipment was moved in, in November. And it was a film that was produced by ventilating heating and ventilating engineers, and it shows, much more of the factory that you can see than just this shot. So if we play the video, I I think you'll get a very, good understanding of the extent of the factory. Begins with the outside of the factory and at the in the outside, you could see the balance of plant test base and the office block.

21:57 You then go through the production floor and the test base. You'll see the four megawatt ATEX rated test facility. You'll see all of the ducting above the technology center. And the reason for the ducting and all of the extraction is that they are clean rooms. You'll also see the marketing area, which is in a blue color. You'll see, the welfare facilities. You'll see the all of the facilities for staff. You'll see the, deionized water supply, the full extraction from the factory, and air circulation so that we, comply with all of the, rules in the factory.

22:43 And and at the end, it points out that it is a genuinely world class installation. So, would you like to play the film?

24:51 That's great. Thank you. So I I think now Simon Hudson is going to be running through some of the questions. That's fantastic. Doctor. Cooley, Andy, thank you very, very much. And just before I hand over to Simon, ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated on the right hand corner of Thank Thank

25:18 you. You. Platform. Lastly, before I hand back to the ITM POWER team, I'd like to remind you that your feedback is important to the company. Immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order the company can better understand your views and expectations. I'd now like to hand you over to Simon Hudson to pose questions to the ITM POWER team where it's appropriate to do so. Simon, perhaps if I could ask you to start the pre submitted questions we've had from investors, and then may I ask you just to read out the questions where appropriate? That'd be fantastic. Thank you. Thanks, guys. The first of the preregistered questions is an obvious one. Graham, how many electrolyzers have you shipped from the new plant in Sheffield?

26:08 Yes. So the first electrolyzer is going out. As I said, I think I said it right at the beginning, but an electrolyzer is going out in the next couple of days. I think it's Monday. And then there's a couple more going out over the next couple of weeks. And then it will be continuous from then. Okay. Second question is what's the largest output that can be achieved in cubic meters of hydrogen per hour? Can more cells be combined to increase output? Yeah. I mean, the technology is entirely modular. So we make products that are naught point seven, one point four, and 2.1 megawatts in size as containerized products.

26:55 Then we have a two megawatt module, we call a cube, and a five megawatt cube that then go into larger installations with an EPC contract that that is delivered by Linda. So it's all modular. You can add them together in blocks. We tend not to use meters a cube per hour or per day measure. It's more accurate if you're using an electrolyzer to talk about the electrical load. So that's the way we specify it. But, yeah, because the technology is modular, you just build them up in building blocks. Okay. Question three is concerns the business opportunity that may exist with owners of gas fired power stations to convert them to run on hydrogen or a mix of hydrogen and gas. Is this something you think you might be pursuing?

27:51 Yeah. Certainly. I mean, the whole principle of power to gas energy storage is to put hydrogen into the gas grid and then use it for whatever the gas then touches. And some of most of that, actually, for The UK gas grid will be heat, but some of it would be power generation as well. If you take a gas turbine, most around the world are still in warranty up to 20% hydrogen. So and and that's true as well of end user devices in a domestic environment as well. So you can put 20% hydrogen into the gas grid and not have to change any end user devices, including gas turbines. You could take the electrolyzer to the gas turbine and put 20% indirectly.

28:42 And you would just tee into the gas supply of the turbine. Most gas turbine manufacturers are making turbines that take can take 60% hydrogen. That's actually standard product. It's called a syngas turbine. And actually, you'll probably all know that we used to have 60% hydrogen in our gas grid prior to 1969. And and that was because we used a form of syngas called Town Gas. So you can put 20% today in most gas turbines without with those turbines still being in warranty and and and no loss of performance.

29:27 If you wanna put 60% into a gas turbine, you need to change the burners because the flame speed is different or use a syngas turbine. And then many turbine manufacturers are working on 100% hydrogen turbines. And there are many projects around the world now looking at using green hydrogen in combination with turbines. So the very shortest answer is yes, we are. Okay. Thank you. Last preregistered question. When does the company expect to be cash neutral from operations? Yeah. Perhaps I can hand over to Andy to answer that one. Perhaps you can discuss what consensus looks like, Andy.

30:17 Yep. Certainly. Thank you. We're we're we're now being covered by a number of analysts, and the and the consensus there is that it's $20.24 for cash neutral. Right. First of the questions from the the meeting today. Could you give us some background, some detail on the aftersales side of the business? How big is it? And what kind of percentage are you looking at for each electrolyzer?

30:47 Yeah. I mean, we we we are developing that this part of the business very rapidly. We refer to it as as ITM POWER support. We we raised money to be able to put together a world class package. We we're extending our control room, which is gonna be manned twenty four hours a day, monitoring all of our products worldwide. We charge 3%, broadly 3% of the capital cost of the equipment as a charge per annum to look after the electrolysis equipment. So we we're doing monitoring for preventative maintenance. We're also doing a lot of work with Linda on RAMs.

31:33 So RAMs is reliability, availability, and maintainability. We work with them on building up a RAMs model of our technology and also gathering data in the field to feed into that software. So short answer to the question, 3% of the capital cost of the equipment per annum as a charge to the customer. Thank you. When Linda announces electrolyzer work, does Linda work with other electrolyzer companies? And a couple of examples quoted here from the agreement between CNOOC and Linda. Yeah. So we we have an agreement with Linde, which is ITM Linde electrolysis.

32:22 It's a fifty fifty joint venture. And Linde provide the EPC services, and we provide the electrolysis equipment. And to date, Linda have been working very closely with us. So the you have to make a distinction between Linda Gas and Linda Engineering, but we work exclusively with Linde Engineering on the EPC, and they buy from us the modules on the same basis. K. How does this Scandia decision to use battery instead of hydrogen affect ITM or your future prospects if it does? Yeah. I mean, batteries are used where batteries are felt most appropriate and hydrogen where hydrogen is felt most appropriate.

33:12 So batteries will find the market in in mobility and so will hydrogen. Batteries will find market in grid balancing and so will hydrogen. It it there there are certain applications where one has an advantage over the other. Certainly, for small vehicles, you know, plug in electric vehicles are are certainly an option and are being rolled out for heavier vehicles where traction and weight and range and refueling time are important. Most companies are now looking at hydrogen. And certainly, buses, trucks and trains are being rolled out by OEMs.

33:57 And if you look at stationary grid balancing, if you want it to if you want energy storage for half an hour or an hour, you would buy a battery. And if you want energy storage for more than an hour, certainly above three hours to multiple days or even seasons, the only way of doing it is by using green hydrogen. So, you know, it's not going to be the future will have in it supercapacitors, batteries, flow cells, electrolyzers, and hydrogen. It will have all of those technologies and and and they'll have different markets and different applications.

34:44 K. Here's a good one. In simple terms, what is ITM's main technological competitive advantage? Technological I mean, it's a range of things. It's twenty years experience, twenty years detailed r and d, testing capacity, being able to because we manufacture everything, being able to, ring all of the changes. So pull all of the levers that you need so that you can change, the cost structure, the lifetime, the performance. So twenty years of understanding how you do all of those things.

35:29 It's manufacturing capacity and having spent two years developing the world's largest, but the world's most effective manufacturing space for electrolysis. It's about having reference plan. It's about having great worldwide partnerships. It's about having a an EPC contractor who is the world leader and that Linda is the world leader in the area. And it's also about having access to capital and being listed on the London Stock Market and having great enthusiasm from the capital markets for green hydrogen. So I don't know. There's about five things there, but it's all of those things. And if you don't have them all together, if you only have one or two of them, you're not gonna make it.

36:20 Okay. A A couple of financial questions from Richard. What are your return on capital employed projections? And when is the company going to make a commercial return on its investment? Yeah. So Andy might want to dig into that. I I think we we've already talked about when we go cash flow positive. Return on investment. So I I guess what you're talking about is either the investment in a factory or investments in refueling equipment through ITM POWER PLC. But look, Andy, do you want to jump in here and talk about rates of return? Yeah. Certainly. Yeah. So in terms of electrolyzer used for motive, we've got a you you'd expect a double digit IRR from a station with a base load of large vehicles like buses.

37:18 So that that looks very healthy. In terms of a factory like Bessemer Park, the actual fit out and equipment, Bessemer Park will have cost about £14,000,000 in total. The next factory, we've actually put slightly more in for that. And and that can generate a a gigawatts worth of of of product per annum. So, you know, the payback looks pretty good for a factory. It's it's that there's an awful lot of work and twenty years of experience building to this point that has been invested. K. And I think in terms of breakeven or a commercial return, again, you know, the consensus is saying 2024.

38:04 Thanks, Andy. A couple of questions from Alan. What is the success ratio for tenders so far? And and a smart follow-up. If you're unsuccessful in the tender process, is there any common reason behind that? Yes. So so it's very difficult to assess what the conversion ratio is. And actually, what we find is that some projects comes straight through. So that making that assessment is very difficult. I think we'll be able to judge that better as time goes on. I think the visibility in our revenues, it is certainly increasing.

38:50 I think there's a consensus developing in the market across all of those analysts that Andy had mentioned. But there's no clear answer to that question right now. And and what about where you're unsuccessful? Are are there any common themes? I I there there are a number of of different themes. Not not something I particularly wanna discuss in a public call. Are you going to stick with sole manufacturing capabilities for your stack designs, or or will you ever look at Entertain entering into a licensing model? Yeah. We're we're we're a manufacturer.

39:37 I I mean, I I don't believe in licensing technology like electrolysis or batteries or fuel cells or any of those types of devices in the early stages. I think when you get into manufacturing, you learn a hell of a lot. There's a lot of know how that comes out of the manufacturing, and we're into a continuous development process. And you can license your technology too early. You can teach too much too early, and you can allow licensees to make improvements which then create difficulties in terms of IP for you going forwards. So to me, that doesn't seem like a good solution.

40:23 K. Given the increasing number of cyber attacks, are you positioned or is your IT supplier positioned to defend the company against such attacks? Yeah. I mean, we we we have an IT company company that that we we work work very closely with. We have a head of IT now, Lindsay, who's very, very good. We we all of the precautions that you would imagine from a company like ITM are in place. Governments get cyber attacked and and and governments have and and large international companies get cyber attacked. So I I don't think we our standards are good for the industry, and we'll continue to keep up with the standards as more technology is developed. But I don't feel that that's a risk on the business at all.

41:19 Okay. What is the current price of a 10 megawatt turnkey electrolyzer? That's a question from Mustafa. It's a bit less than €900,000 a megawatt. So it's a 10 megawatts, 8,000,000. Euros 800,000 a megawatt. Question from Mohit. Do you plan to raise more funds in 2021? Yeah. I I think we don't need more funds right now. Depends what opportunities come our way. But actually, the question, are we going to raise more funding, is the answer to a price sensitive question, which wouldn't be appropriate.

42:09 Okay. Question from Jean Baptiste. Could you give us more color about how you expect the development of your backlog versus your tender pipeline? Trying to he's trying to better understand why the backlog was sequentially. Was this because customers have been delaying orders? Yeah. I mean, they what is important to realize that Jean Baptiste, hi. What's important to realize is that orders as they come in are now big orders. So we we we made an got an order, preferred supplier order from SNAM, a 100 megawatts all in one go. So what you will see is the orders coming in in a very lumpy way. You won't see a gradual increase. There'll be a gradual underlying increase combined with significant orders in lumps.

43:10 And I think that's the way you have to think about the business developing. Okay. Factory related question. Which part of production uses the clean rooms? We we make our own and coat our own electrodes, membranes. You need a clean room for assembly, and there's a number of other processes that we go through, which are clean processes as well. Mean, we don't really discuss what our manufacturing process is. That's something that we tend to remain confidential. A question from Nathan.

43:56 Any signs of collaborations with gas distributors in The UK, such as the SGN with the H100 project? Yeah. I mean, there are a number of projects that we are collaborating with already. I think a Scotia gas networks project is is a great project. We funded centrally from from Ofgem as was High Deploy. We work, of course, with Cadence and Northern Gas Networks. But we we we're in discussion with all of the gas network operators in The UK. So that's not only Northern Gas Networks and Cadence and SGN, but also Wells and West Utilities.

44:44 So so, yeah, there's an intense amount of activity in The UK readying for the announcement from the UK government about the hydrogen strategy, which should come in at the end of Q1 or the beginning of Q2 of this year. And that will include gas grid injection. It will include contracts for different auctions. It will include comments on the RTFO and so on. So there's a whole portfolio of stuff coming. Okay. A few questions from Adam. Can you give a view on CapEx outlook post Bessemer Park but ahead of a second plant?

45:30 Can we expect some savings if you do go for when you go for a second plant? Or will it be broadly the same as this one? And where were the main COVID-nineteen bottlenecks? Was it on-site or in the supply chains? Yeah. So Oh, it's on-site. I mean, please, Andy. Yeah. The the COVID bottlenecks were really on-site. You could see that we we've been operating and we continue to operate in the production facilities, and we operate longer shifts so that we can be COVID secure both in Bessemer Park and other sites. But, really, it's getting out to client sites to complete commissioning work that is that has been really challenging in the last six months. The in terms of the CapEx profile, we've we've got another £4,000,000 in h two to spend on Bessemer Park equipment.

46:21 And then you'll see a relatively flat profile apart from business as usual CapEx until we get to the next factory. The the only difference to that is the refueling stations, whereas ITM POWER PLC make an announcement of having won a refueling station, then there will be CapEx associated with that. Okay. Do you how much of your pipeline, if any, will go through partners other than Linda? And will sub 10 megawatt products be a major contributor to your revenues? Yeah. The the sorry, Andy. You carry on. I I was just gonna say, the the the mix is gonna change over time. So we can see that ILE deploying over 10 megawatts kit is gonna form more and more importantly a part of our backlog in the future. In the next two or three years, there there's gonna be a a mix between the two types of products.

47:25 And, Graham, I'm sorry. I interrupted. No. That's alright. I was gonna say something very similar, Andy. Who are the main competitors? Who are your main competitors? And how do your prices compare with theirs? Okay. So competitors would be divided broadly into alkaline electrolyzers and PEM electrolyzers. I wouldn't want to talk specifically about particular companies. That doesn't tend to be a fair thing to do. I think that one of the things behind the question is probably how does our cost structure compare with the cost structure of alkaline electrolyzers.

48:12 Alkaline electrolyzers have been down the cost curve over the last hundred years. And over the last decade or so, the there's been a cost convergence, particularly over the last, I would say, two to three years between alkaline electrolyzers and PEM electrolyzers. And I think now what you have is all the advantages of PEM electrolyzers, but you have now cost convergence. And I think now what you'll see is as PEM electrolyzers develop in volume of production that PEM electrolyzers will actually become lower cost than alkaline electrolyzers. But today, the costs are comparable and we see that through the tendering activity that we're going through. Of course, with a PEM electrolyzer, you have rapid response.

49:06 You have you make high pressure hydrogen and it's clean. And what you have to do is compare the cost of the full system, including all of the balance of plant. K. Question from Anne. Thinking about the 24 megawatt project in Germany, will the hydrogen produced be used as a chemical reagent or as an energy source? And follow-up, are you using renewable energy at all to power the equipment at the new factory? Yeah. So we work with and actually we have a renewable energy contract with We work closely with as well as it said in the announcement when we're procuring energy for our resealing stations.

49:57 In in Germany, the supplier of the electricity hasn't yet been announced. The hydrogen is being used by Linda for a variety of applications. And actually, as those applications increase, so both industrial and transport applications, then there is potential for that electrolyzer site to expand further. Question from Colin. Do you have a broad timeline on when the new five megawatt unit might be finalized? Yeah. We are actually now bidding very large scale projects. So that means above 50 megawatts and certainly 100 megawatt scale plants are being bid with the five megawatt unit.

50:49 And we would be expecting to deliver on a five megawatt unit into a project in the eighteen month to two year timescale. Okay. What's the outlook projection for hydrogen refueling station over the next three years? Yeah. So we've formed a division called ITM POWER PLC that will be focusing all of its activities on buses and trucks and trains, so heavy transport. All of our existing refueling stations are being transferred into that division.

51:35 The new MD has been appointed. And we are working closely with the UK government on the development of the strategy for rolling out buses and trucks and also trains, but additionally, also for aviation and shipping. So there's much more will be revealed about what the UK government's plans are, and we're part of defining that end of Q1, beginning of Q2, when the UK government announces its hydrogen strategy? A question from Kurt. A Norwegian based manufacturer is saying that PEM electrolyzers are more suitable and in use for small electrolyzers of 20 megawatts and below and that alkaline electrolyzers are more suitable for big stuff.

52:34 What's your take on that? And when do you think we'll see the first 100 megawatt PEM electrolyzers? Yeah. I've heard that said. It's normally said by companies that own alkaline electrolyzer technology, and it's not said by those who own PEM electrolyzer technology. And today, you haven't seen a PEM electrolyzer manufacturer procuring either technology or a company that owns alkaline, but you have seen alkaline electrolyzer companies buying PEM electrolyzer technology. So I don't agree. How are the projects mixing hydrogen and keel in the Northeast progressing? Are they going to be extended or incorporated permanently into the energy system?

53:26 Yeah. So so the trials are ongoing at at Keele. Our electrolyzer ticks away injecting hydrogen to 20% level into the gas grid in Keele, And and all of the inhabitants of that university campus are are using the energy gas with 20% hydrogen in it without even knowing. And it's decarbonizing all of their end user devices. The next trial is in the open network that is with Cadence and Northern Gas Networks, and that's progressing. I think there was a press release recently from Northern Gas Networks about that first trial.

54:12 You will have noticed from Boris' 10 plan, also the development of a hydrogen village, town, and city. And actually, all of the boiler companies in The UK, most notably, Worcester Bosch and Baxi, are looking at developing 100 hydrogen ready boilers that can use admixtures. So starting from 0% and dialing all the way up to 100%. So there's a lot of progress in the area. But specifically answering your question over the next year are the open network trials. Okay. On the after sales support and service, do you have a specific contract length for that those contracts?

55:07 No. It's whatever the customer wants. I mean, we look after we we we in general, our equipment comes with a standard warranty of of one to two years depending on what the customer wants and then an after self support contract. Typically, they're five years but they can be out to ten years. What's the life of your stacked product and are there any end of life obligations? Yeah. I mean, we look after the stacks and we charge 3% per annum to do that. And, you know, we we've had stacks running through very, very long periods of time. That's the test data that I referred to earlier as being part of our competitive advantage.

55:55 So so when you when a customer wants to buy a piece of equipment and they're looking at a piece of energy equipment, they look at cost, performance, and lifetime. And they they they are three axes that they use to assess the total cost of ownership. And it depends how you operate the electrolyzer and what current current density you specify the electrolyzer at. But the the short answer is we look after the electrolyzer based on that 3% per annum charge. And that's how we worked out the charge to make sure that after sales support contracts make a positive contribution to the bottom line. And in terms of end of life obligations?

56:45 End of life obligations, well, that's a would be a contractual issue. But but if we have an after sales support contract that lasts five years, then at the end of five years, we we decide what we're gonna do. We might want to buy the equipment back or the customer might want to keep it. K. As you scale up production in the factory, are there any areas or components in the supply chain that could cause bottlenecks? And if there are, are there any steps you can take to mitigate these? Yeah. I don't the all of the components we view we use in different ways are used in industry already, and we don't see any supply chain risks.

57:32 Are there any what are the key operational milestones for h two for the second half of the year? Key operational milestones for h two? Oh, I'm sorry. Second half. Not hydrogen. Yeah. Look. It yeah. I'm sorry. Yeah. So for us, this is all about converting quotations to orders and and delivering on orders which are already under contract. So for us now, it's all about delivery. It's about delivery. It's about revenue recognition. And at the the key thing for ITM POWER now over the next few years is to increase volume, decrease costs, get to market share and achieve cash flow positive.

58:23 And that is we're absolutely focused on doing that. Can you tell us a little bit more about your partnership with National Express? Yeah. So the Birmingham bus refueling station, three megawatts in size. It's the the the project was developed in collaboration with Birmingham City Council. The operator of the buses is National Express. And National Express have ordered 20 buses, which they are being delivered. They they start to arrive in the middle of this year. And we have agreed a a a fuel contract with National Express, and it is our first bus refueling fuel contract.

59:17 And and you you will see much more about announcements from ITM POWER National Express jointly when the first buses arrive. Is carbon capture and storage a viable alternative to green hydrogen, or is it just a distraction? Yeah. I think it's a distraction. My my view of blue hydrogen or so called carbon capture and storage is that it is oil and gas business as usual. And that the oil and gas industry wants to continue to use their methane infrastructure. And actually, methane is 80 times as bad as greenhouse gas as CO2.

1:00:04 I would also say that when you do CCS and you store huge amounts of c o two in depleted oil fields off the coast of The UK, a very important question is who takes the liability for those? Because we have eight we have 800 terawatt hours of energy flowing through our gas grid. If you remove the c o two from all of that natural gas and store it under the sea, every year, the liability increases. And I say to many colleagues in the city, would you would you want to invest in an oil and gas company that have that kind of liability on its balance sheet?

1:00:56 So my view is that green hydrogen will be lower cost than blue hydrogen, actually, in only a few years' time. And any blue hydrogen schemes that are developed will be stranded assets. Could you give us an update on the refined project, the Shell project, please? Yes, sure. So Refine has had some slight delays due to COVID. We will be getting into first hydrogen at the end of this quarter. I'd say the key thing to say is that Shell are delighted with the project.

1:01:41 We've worked together incredibly closely over the last couple of years on the project. It is the headline project in Germany for green hydrogen. It will be the largest operational green hydrogen electrolyzer in Germany prior to us going live with the Leuner project. And we have a very, very happy customer in Shell. Question from Dawn. What kind of components have you built up in inventory? What kind of components are these? Yeah. I mean, the components we'll be building up in inventory, you can see them over, sorry, this shoulder.

1:02:30 What you see there is a 2.1 megawatt module, and those 2.1 megawatt modules will be holding as inventory so we can build them into 10 megawatt and above installations. And that means that the delivery time is far less than it used to be. In fact, than eight months. And of course, we'll be doing the same with the five megawatt modules as well. Okay. Can you shed more light, please, on the opportunities you think will arise from direct hydrogen generation in offshore wind turbines or or nearby floating platforms? Yeah. I mean, we we the Oyster project is is all about looking at marinizing the electrolyzer so it can deal with sea spray and could go offshore.

1:03:25 One of the rationales that is being looked at is using offshore existing offshore oil platforms and repurposing them for electrolysis. And one of the reasons for doing that, of course, is that they have a pipe that goes from the platform to the mainland. So you could actually run wind turbines, you could generate hydrogen offshore, and you would be able to transport the energy back without the need to buy a cable. That's longer term. Actually, nearer term, it is using the same principles of integration of the wind with the electrolyzer, but doing that onshore. And also, the integration of the desalination units as well because there are many places around the world where you might want to get your water from seawater.

1:04:20 So I the the potential for offshore wind and offshore development of green hydrogen, I think it's strong in the long term, but it's not the preferred model in the short term. Another question from Alan. Can you talk about the company's IP portfolio and whether you are continuing to file patents. Yeah. I mean, there's a lot of know how in ITM POWER. I mean, the fundamental principles of electrolysis and elect PEM electrolyzers and particularly older forms of electrolyzers, those patents are years out of date now. We have a portfolio of intellectual property, but you can overstate what patents do.

1:05:10 You we we I've seen companies in the past that have invested a fortune in intellectual property. It's massively increased their burn rate and actually does little for the products that are being deployed. So there's a portfolio. I think it starts with know how. It looks it's also about continuous improvement, but it's also experience in the field. It's also about speed to market and it's also about having the brand and reference plan. That's all of those things really. Question from Gunther. Are you concerned about competition from solid oxide fuel cell electrolyzers because of their 85% efficiency?

1:06:00 Yeah. 85% efficiency. I mean, anyone would know that wasn't true. So first of all, the theoretical efficiency of an electrochemical machine is 84% and the carno cycle 67. So what a an a high temperature solid oxide electrolyzer does is it uses steam at a 150 degrees c, uses process heat. So the first question you might want to ask is is the efficiency you're being quoted an electrical efficiency or an overall energy efficiency? In other words, does it include the thermal inefficiencies of raising the steam?

1:06:47 Now if you raise steam, that's a carnot cycle, which is 67% efficiency at maximum. Most steam raising plants are about 30% efficient. So question one, where do you get steam from? Number two, how do you raise that steam and what's the efficiency of it? And number three, is the efficiency that you're quoting overall energy efficiency? And I think your view would be modified when you ask those questions. Question from Thomas M. The other point let me just add one thing. I have quite a long history in fuel cells. Go it goes back more than thirty years now.

1:07:32 I did a lot of work in solid oxide fuel cells. And I can tell you that if you add steam to a steel elect a a fuel cell that you will have corrosion problems and differential thermal expansion problems. So I think there's a considerable amount of infield trials that are needed and develop the development that's needed before solid oxide high temperature electrolysis finds a market. And the problem with it is that you have to find a market that includes waste heat that's made renewably. And I think that's actually very difficult. Okay. Question from Thomas.

1:08:21 Can you give an indication of how much of your pipeline is bidding for applications in which both pen and alkaline solutions are applicable versus tenders specifically for PEM? Yeah. Some companies tend to specifically for PEM. They they do that because they want rapid response and they do it because they want rapid response and high pressure. Many just tender for all of them or both of them. And but we meet both approaches, certainly. You tend to find that renewable energy companies would go down the PEM route, but but certainly, they like to test the market by using by tendering for both types.

1:09:12 Simon, just conscious of time. Perhaps we've got time for one more question, if possible, just before we give investors a chance to feedback. Right. Let me pick one. There are quite a lot of them. Would you ever consider buying any other companies or technologies to add to what you've got? And if yes, in what field would you do so? Yeah. So I the first thing to say is we're a very focused company. We're focusing on the manufacturing of PEM electrolysis equipment right now. We're working with our EPC partner for deployment. So that's the first point to make. If we did consider doing that, it's not something that I could announce publicly. That would be a piece of price sensitive information.

1:10:07 Are we actively looking at growth by acquisition rather than organic growth? I can tell you some other companies have made announcements that they are. That is not an announcement that we have made. That's fantastic. Thank you very much, doctor Cooley, and and thank you very much, Simon, for for hosting those questions. You you have addressed a great number of the questions received today, especially due to the number of attendees and the questions that we have had come through. The company will, of course, review all the questions submitted to their published, responses we're approaching to so on the investor meet company platform. Doctor, Corey, perhaps I could just ask you for a couple of final words just before I redirect, attendees for some feedback, please. Yes. Certainly. I I can look up from the screen now because I don't need to look at the chat. But first of all, thank you very much for coming, and thank you for your interest in ITM POWER.

1:11:05 The the most important thing to say is what's going on behind me and that's why we decided to do the presentation from the factory. It's been an amazing year for ITM POWER. We moved into the world's largest electrolyzer factory. We just announced that the sale of the world's largest PEM electrolyzer. We're working with Shell, with Linda, and with SNAM. But I think most importantly, we're in an amazing market. It's a market that's growing incredibly rapidly. It's at huge scale, and we intend to be one of the most important players in the market. So thank you very much for your interest in ITM POWER. That's fantastic. Thank you again to all the ITM POWER team for updating investors today. Can I ask investors not to close the sessions?

1:11:51 You will be automatically redirected for the opportunity to provide your feedback. If you've accessed the meeting from our website, the feedback page will appear in front of you. If you've accessed it via the link I sent you in the email, if you don't mind just logging back in, it takes just a couple of seconds, and your feedback is greatly received by the company. So on behalf of ITM POWER PLC, we'd like to thank you very much for attending today's session. That concludes today's event. Thank you all very much indeed.