Itm Power (LSE:ITM) — Preliminary Results Presentation

0:01 Good morning, ladies and gentlemen, and welcome to the ITM POWER PLC Preliminary Results Investor Presentation. Go

0:18 Thank Thank Thank call we'll publish those responses on the Investor Meet company platform where it's appropriate to do so. Thank Before we begin, I would like to submit the following poll. If you could give that your kind attention, I'm sure the company would be most grateful. I'd now like to hand over to the CEO, Dennis Schultz. Good morning. Good morning. Thank you, and welcome, everyone, to our market update. Good morning. Good morning. We are pleased to share with you the vast progress we've been making over the last six months towards rapid deployment and volume manufacturing. And as the headline suggests, we have been gaining traction. We will start with a quick market update.

1:06 I will then hand over to Andy Allen to present our financial year results '23 and guidance for the year '24. Doctor Simon Born and I will then report on our twelve months plan implementation before we come to the most exciting part, which is our new product release, and we will then close our presentation with the outlook.

1:34 The market has broadly developed as predicted in our January update. Climate decarbonization and energy independence imperatives have continued to fuel the projected hydrogen demand. The now observed synchronized attempt to build up a worldwide hydrogen economy is underway at quite ambitious speed. I think more ambitious and more speedy than we have seen any other industry ever growing in the world. This is opening vast demand opportunities for companies like ITM. Though we have to say that the electrolyzer market itself is still quite immature. There are only very few technologies credited for commercial deployment today, and many companies have not yet been tested in the market.

2:20 ITM now has the industry experience and capabilities to identify and execute what we would consider the real projects in the market. We are confident that we can also conquer this market through robust and commercially proven products, reference plans that give customers the confidence to invest into large scale projects, and credibility to manufacture at the necessary scale, quality, and, very importantly, also on time, which will require not only professional processes and controls from us, but also semi automation or automation, strong execution partners, like we have it with Linde, and very close collaboration with leading suppliers as we have recently announced one or the other collaboration.

3:10 We have been working very hard on these three areas with laser sharp focus over the last six months and have made tremendous progress, which we wanna share with you today. Today, ITM is the only permelectal laser company in the world and trusted to deliver several commercial 100 megabit plants. And when I say plants, I don't talk about just mere announcements, but real physical plants being built. We are supplying into projects for industry leaders such as Linde, RWE, Shell, Yara, Infineon, and others who all have very ambitious plans for the future. Due to recent development in energy prices, as we all know, and inflation coupled with slow funding decisions by some governments, some customers have delayed their final investment decisions.

4:01 As such, the big demand spike is yet to come, and ITM will be ready for that. We'll now hand over to Andy for our full year results. Thank you, Dennis. And so I'm gonna talk about the year end results, also spotlight on revenue recognition for ITM POWER and the guidance and particularly the EBITDA guidance for FY '24.

4:40 So my first slide shows a typical ITM POWER execution contract. This contract will, in terms of duration, will depend on exactly what the complexity, what product is being offered, but may typically last for twelve months. And we structure a contract so that cash inflows, which is the top bar, happen incrementally with various milestones that are met, throughout the execution. Revenue, however, is only recognized when we have fulfilled all of our obligations. So that second line shows we hit revenue much later than we we get cash inflows. And the revenue will either happen at factory acceptance test, FAT, or at site acceptance test. And for the products that we are delivering right now, it is predominantly at site acceptance test.

5:31 That can mean that we have received up to 95% of the cash and zero of the revenue in any given product. So the revenue therefore tracks behind the progress that we have in the factory. It also means that when we are recognizing revenue, we have fulfilled all of our obligations, and we've got operating plans out and with customers and accepted by customers having completed all of our obligations. This is really important in in understanding the financials for ITM, not just the year that we've just seen, but also the guidance, and we'll come back to that later in the presentation. So in terms of summary financials, you can see that the revenue was £5,200,000, with which 4.1 of that was product revenue. And that's against the guidance that we had in January of £2,000,000.

6:31 I think this is actually a really good result. It shows that we did more than we had expected to do in that short space of time whilst also going through a reorganization and a restructure at the same time.

6:48 In terms of cash, we had 283,000,000 at year end against guidance of 245 to 270,000,000. So this was again ahead of expectations that we set in January. It was very much to do with a series of one off exercises, but also increasing our our our capital discipline throughout the company. One of those was about improving how we organize our deliveries from suppliers so that we face them to a closer to a just in time approach. But some of that was also about cash collection from customers. So a really decent result there. In terms of EBITDA, the EBITDA was in line with the guidance that we set both in January and June at a loss of 94,200,000.

7:37 We did a detailed review of the business in in January, and I looked at the causes of that 94,000,000 loss. And some of these causes are on the slide. Historically, ITM had chased an aggressive expansion strategy based on technology leadership. And as such, there were processes within the business, particularly around engineering and manufacturing, that were not mature, and we see some of that reflected in the EBITDA position. I'm pleased to say that we see a number of those gaps closing very quickly as part of the twelve month priorities plan, and Dennis and Simon will be talking more about that in the second half of the presentation. I'm also pleased to say that there have been no new surprises since we did that review in January.

8:28 So a a thorough job done. Notwithstanding, the result itself is unacceptable and something that we can't repeat. The 94,000,000 had a number of one off impacts notably around stock that had to either be reworked or upgraded as part of those design reviews. But we will will talk a bit more about how that shape changes for FY '24 in a couple of slides. In terms of cash, the table on the left shows our opening balance of £366,000,000. And right at the bottom, our closing balance of 283,000,000, a a cash outflow for the year of eighty three million pounds.

9:21 If we start with our adjusted EBITDA of 94,000,000 of losses, there are a number of noncash movements in the income statement to the tune of £31,000,000. This is predominantly the movements in provisions, which was a result of that detailed review in January. So our warranty provisions went up for in field plants by naught £700,000.

9:46 The warranty for contracted but not yet delivered products is also included in those provisions and is included within the contract loss provision. So we had nearly £10,000,000, of warranty provision against contracts that we are executing right now. Now these numbers, are a cautious approach, based on best estimates of future products that have not had significant time in the field, and it's based on mapping an older variation of the product and that performance to where we would expect to be going forward. And you will see from Simon and Dennis' slides, there are incremental improvements that are really looking to mitigate what the impact of this warranty cost is. We also had an increase to the contract loss provision, and the contracts cost were essentially underestimated for deployment of the plant that we had.

10:41 There have been a number of exercises to improve forecasting of contracts and also the governance around contract execution, not just in contract signature, but also throughout. So we can see ways to mitigate that, and I can confirm that no projects will be sold without a positive contribution to market from now on, margin from now on. 2023 was also a year in which we built both to stock and to projects, and we saw an increase a net increase in inventories of £27,000,000. If you think back to that, revenue recognition slide at the start, we have seen cash inflows as part of those contracts that we are executing against, and that's the working capital improvements below.

11:29 So those two numbers need to be taken in context whilst there's a buildup of WIP. There's also cash being received against the majority of that.

11:39 We've also invested into factory automation and testing capacity to the tune of £8,600,000 and into product development to the tune of £6,600,000 in the year.

12:01 This brings me to the guidance for FY '24. On the left are the three pillars of the twelve month plan, the product portfolio and the refinements of the products that we offer, and there'll be more from Simon on that, The capital discipline and the debottlenecking. In the middle are the key activities that we are looking to execute in this financial year. First and foremost, it's about delivering against the projects that we have contracted. But it's also about continuing to invest not only in maintaining a technology advantage that we have, but also enhancing our people capability and then building in terms of investment on facilities both in Sheffield and in Germany. So our our revenue for the full year will be in the range of 10 to £18,000,000, which is a two to three times increase based on the current year.

12:56 That is quite a wide range, and that, again, is back to the revenue recognition. We where we have site acceptance as part of our obligations, we have a certain amount of deliveries, to sites and then a number of dependencies when we are there we are one of a number of subcontractors bringing the site into operation. I'll talk more about the EBITDA losses in a moment, but the the big number here is about CapEx. CapEx, we're spending between 35 and £45,000,000. About 70% of that is on the facilities in Sheffield, to a new unit, and also the upgrade of the power supply to unlock capacity and capability, not only for product validation, but also for testing products as it goes out the door.

13:51 The balance of that CapEx is again about product development, and you'll see some of that in the slides to follow. All of that leads us to cash at year end of between 175 and £200,000,000, and this will leave us with a strong balance sheet positioned for growth going forward. It looks like a similar cash outflow to the year FY '23, but the balance is far more weighted to the future and making sure that we are set up to deliver against the demand coming. So back to the EBITDA losses. We see EBITDA losses of between 45 and 55,000,000 in the year. In terms of project losses, there will be no cost, but also no contribution against project losses. We are executing against projects where we have already made provisions for the losses that we will make on those.

14:50 So I've already said that we will not sell another project that does not make a contribution. That's a very easy statement to make. Actually, we it's very easy to say we will add margin. And and the very obvious question to follow is, does that mean that we can still sell product?

15:10 And as we've been more active in the market in the last few months, actually, there is clear evidence that even pricing with a margin, ITM remains incredibly competitive, and customers like what we have in terms of experience and product. We then have some costs around manufacturing scale up, and this is essentially the cost of quality, which is not just part components, but also extra people required, etcetera, etcetera, which would be cost that are preautomation. And as we fit out the new facilities in the next twelve to twenty four months, we will see that reducing.

15:52 We also have overheads not recovered, not recharged. So our gross overhead is above that figure that you see there, the 30 to £35,000,000. And what we do is we recharge overhead based on product development, project execution, and also on product build. So those overheads will be recharged to a greater extent as we gain volume in the market and and accelerate from this point on. We then have some specific costs around the twelve month plan, in the range of 5 to £7,000,000, which will be one off costs for this year, which is about transforming ITM's capability and laying the foundations for the future. So for those who are looking to think about ITM, the manufacturing scale up will reduce over the next twelve to twenty four months. Twelve month plan costs are a one off for this year, and and we see those overheads not sort of being dependent on volume of products that we deploy out in the market.

16:55 With that, I'll hand back to Dennis. Thank you very much, Andy.

17:08 Before we go into the details, a quick recap on our twelve months plan laid out in January. We are now six months into solidify our foundations and have made substantial progress in our three focus areas. First one being to concentrate on a standardized core product portfolio, which is an important basis for repeated and reliable volume manufacturing. Second, improving cabinet discipline by a stringent cost reduction program and by introducing professional processes which gear us up for the future. And last but not least, number three, the automating and scaling, both fabrication and testing, and, of course, very importantly for us, investing into incremental automation. Of course, we also need and will continue to deliver against our project commitments, thereby completing very important reference plans.

17:59 On that, I always like to keep it real and tangible. Here's some real life project impressions. On the left, you see our stacks and skids being packaged for shipment to Norway where they were installed into the cubes you see on the bottom left. And then on the right, you get an impression of how our delivery against the 100 megawatt project looks like, in this case, for Linda and RWE. Whenever I look at this picture, this is when I start to feel the heartbeat of the serial manufacturing company and and what I want to see in ITM in the future. What is very important and a tangible sign of progress, In the last six months, more products have left the ITM factory than in the previous twenty two years combined.

18:47 This is definitely a testament to our progress as a company. Now over to you, Simon, for an update on our product portfolio. Thank you, Dennis. I'm gonna talk to you about our products, which, of course, are a significant component of our twelve month plan. I'd like to start off by reminding people of the very broad range of products that we were supporting across the business. This has now been substantially narrowed, and we are laser focused on the products highlighted in green that are those necessary to support projects and execution. This rationalization has resulted in a significant positive impact on our efficiency for the teams and also myself personally.

19:39 And it's allowed me to give, much more attention to the core activities within the business. At this point, I'd like to introduce you to the Harvey balls, the blue dots on the right hand side of the screen. These are used throughout the presentation to represent progress that we're making. As we're around halfway through our twelve month plan at this point, a half filled ball represents progress that is broadly on track. A Harvey ball that is more filled represents progress in excess of our plan. And I can tell you now that there aren't any goals that are less than half filled.

20:16 So now I'd like to talk about the product portfolio and the rationale. It's a busy slide. I'll guide you through it quite quickly. On the left hand side is the stack skid, and that is our core product. That's two megawatts in size. It generates hydrogen at 30 bar pressure and is highly efficient. This is the bit where ITM adds the maximum value. This is where we want to build repetition and get slick at manufacturing as we scale the business. Moving to the middle of the slide, we have three routes to execute projects in the field. At the top, we have our plug and play container. This is a standalone unit with the stacks included, but also all of the necessary systems to allow the plant to run-in an autonomous fashion.

21:05 And we have over 20 megawatts of projects in execution right now based on that product platform. Moving down the level, we have the cube. This is essentially a package stack skid that would be supplied to an integrator where a number of these cubes can be strung together to enable mid sized projects to be addressed. And we are executing over 50 megawatts of projects based on that product platform. At the bottom, we have the module, and this is an integrated building block. The picture is an example of a 10 megawatt module that an EPC would produce, and the principle is to replicate these modules to be able to serve large scale projects efficiently. On the right hand side of the slide, I'll quickly run through the outlook for each of these projects.

21:55 The plug and play container, we're already, developing the second generation of that product based on design for manufacture. And we're engaging with potential assembly partners to bolster our manufacturing capacity to address the demand that we see coming. The Cube products will eventually be phased down in favor of the larger modular system. But of course, all of the learnings we have from real project execution and operation will be plowed back into our product development. And finally, and many of you will have seen the announcement this morning, we have defined and developed our own larger 20 megawatt module. More on that is going to be laid out later on in the presentation along with some branding, work that will make that whole product platform, gel together.

22:50 K. So I'm now gonna focus on the stack, and we have the most advanced stack technology on the market. I recognize that that's quite a bold statement, but I'm gonna give you some reasons to underpin that claim. There are three important metrics that are important to Penn Stacks. The first is current density. The higher the current density, the more hydrogen you can make with a stack. We have the highest current density on the market, and that means we can shrink the footprint and also reduce cost. The second is efficiency. We have leading efficiency at levelized current density. Efficiency represents the amount of energy consumed to generate the hydrogen.

23:35 So clearly, reducing the energy consumption reduces operational costs for the end user. The third is precious metal loading. We have the lowest precious metal loading, reported and that of course, directly leads to a reduction in costs. I also wanna give you some numbers to further support and underpin what I've just described. The table at the bottom shows both EU targets for 2030 on those three metrics and also the performance from ITM stacks that we're producing and testing today.

24:13 Firstly, density, the target for the end of the decade is 2.5 amps per square centimeter. We are operating at 3.3, which is clearly much higher. Efficiency at two and a half ounce per square centimeter measured in kilowatt hours per kilogram. Again, the target is 50, and we are achieving that today. And finally, on precious metal loading, a target of 0.4 milligrams per watt, we're already at that level and we have been for some time, having already reduced our precious metal loading by over 80 over the last ten years.

24:49 Now ITM has developed and retained a high level of confidence in the core technology area. And in order to maintain our leading position, we're collaborating with key suppliers. We've announced some examples recently, including Gore and Bot. And in this way, we're gearing our own capability with that of leading players that have the capacity to scale with us as we grow the business. Now I hand back to Dennis. Thank you, Simon. Let's move on to capital discipline and start with an update on the restructuring and rightsizing we announced in January.

25:31 We have successfully completed the restructure of our organization and achieved a leaner and flatter hierarchy and a new structure reflecting on the nature of our business as a serial manufacturing company. We have strengthened technology and especially also engineering and product regulation focus, which was one of the weak areas I I I found when I joined ITM in December last year. We have funded our customer interface from sales to delivery into one organization, very much close closely integrated manufacturing and procurement, which is important, and we have increased oversight and governance of company processes. We had announced in January that we will reduce our headcount costs by 30%.

26:17 We have achieved 33% and around £10,000,000.

26:28 Also in our January update, we showed you this slide listing improvement potentials to mitigate future inventory losses and project cost overruns as ITM had experienced those in the first half of last financial year. Again, the Harvey boards indicate our progress six months into our twelve months plan. As you can see, there is real progress happening in our company.

26:54 Appreciate we don't have time to cover every point in detail today, but let me reiterate. All these things are solvable. Of course, they need proper working too. To pick only one for today, design was previously at the root of many of the challenges we faced. This is now fixed. We have professionalized our engineering in terms of capabilities. We have brought in a new head of engineering. We have

27:24 worked on our processes and improved them significantly. One of them was the introduction of a design freeze, which was one of the main reasons for inventory losses in the past for ITM, and we have enacted a very stringent management of change.

27:41 We've also strengthened compliance and validation with the and sign off rights to challenge the engineering status prior to formal release for procurement and fabrication and, of course, also prior to release for selling. The area we are still working on, and that's the reason why the Harvey ball is not yet full, is that we are still working on our tool landscape, process simulation tool landscape for them to improve that. As you see, there's not a single Harvey ball, which is less than half full. Two of them, three quarters, which means that we are very well on track. Let me again show you some very tangible progress now.

28:29 Spotlight on our stack production and the improvements we have made to them and the effect assessment.

28:36 When I joined, we were faced with a rate of stacks not passing factory acceptance testing, short FAT, that was far too high. So what did we do to take it at? First, we performed a very detailed design FMEA, failure mode and effects analysis

28:53 and implemented the results into our product design. We have incrementally automated or semi automated various production steps, such as the assembly now being added by laser scanning and advanced camera and sensor technology, which makes a big difference for us. You will see more on the topic automation later.

29:15 And we have also introduced a very stringent quality over quantity policy, which means that whenever we found an issue during testing of one of our stacks, which we did not understand immediately, which was not not a known failure cause, We stopped production. We analyzed took apart the stack. We analyzed the failure mode.

29:35 We did proper design changes or adjusted our manufacturing process, and then only we started manufacturing. This has led to a little bit on off in our fabrication, but you will see the effect this has had in a minute. Why is that important? Why do we need to focus on how we produce stacks, and why do we need to increase pass rates? This, in the first first place, needs leads to lower retesting costs. And as you can imagine, testing stacks at full load consumes a lot of energy. So it's one means to lower our cost. There's also debottlenecking our test facilities if we don't have to retest stacks. Certainly, also few interruptions to serial manufacturing on the one hand because on off, and on the other hand, because we can avoid stack reassembly.

30:21 It also leads to higher predictability of production and project schedules. And, certainly, we can also reduce material storage. And now let me review the substantial impact this has had on our stack outputs and rework required.

30:43 Oops. Yeah. What you see here is real factory data from March this year onwards. The black line represents the stacks produced and the green, the stacks that passed factory acceptance testing. Red is the cumulative number of stacks that required rework.

31:05 You can easily recognize the effect our quality first and on off approach and the introduction of new machines had on that timeline. What a tremendous and tangible improvement, which we will further accelerate. This is what debottlenecking is all about. It's about finding bottlenecks or weaknesses, them, fixing them, and then scaling up volumes.

31:40 And once we are already on it, let's continue talking about the our operations for scaling because there's more we have to do.

31:48 First, facilities expansion. As announced, we are currently expanding our Sheffield Bessemer Park facilities, which is well underway. By that, we are, at the same time, making more space for product r and d and validation, including new science labs and more testing facilities for first of a kind products, which is very important for new generations.

32:13 It also allows us to improve our factory layout for stacks from the from a layout factory design, which has evolved over time to one that is highly optimized for serial product automation.

32:30 Also, we will gear up for higher stack volumes by that, and we will take over the new facility in November 2023 for interior fit out, and we will start production in the second half of next calendar year. And to keep it real again, this is how it looked like one month ago. We are very well on track. Likewise, we are very well on track with our German entity, which we are about to open in the city of Linden, which is very central to Germany and also Frankfurt and also very central to the European Union.

33:10 Official opening will be in October 23 already. And our new facilities will host various business functions, which are critical enablers for ITM's accelerated growth going forward. Like, for example, our new global business development function or our new global data and IoT team.

33:29 At the same time, ITM POWER Germany will act as the main after sales hub for Europe given its location. We will have facilities to score and quickly deploy spare stacks from there, and we will also feed engineers to service the plants we are currently building in Europe. And, of course, we are also gearing up for an increase of local content creation in the European Union. Next is testing and power supply. In our January update, we had announced the phased approach to increase test by capacity to satisfy project needs, which required more than a doubling in twelve months. We have now successfully increased our electricity supply already by 50% to 7.5 MVA, and we have already signed the contract and secured a further increase to 30 MVA for the second half of twenty twenty four.

34:28 So also here, well ahead of plan. Next is automation, one of the key improvement fields for ITM. Also here, we have made very good progress. As you have seen in our stack output graph, these improvements are already affecting cycle times and build quality and giving us up for serious volume growth. We are only incrementally deploying new automation and machines into our fabrication after robust product and manufacturing step regulation. We had experienced supply and delays for two equipments, but we're these were very well managed by our ITM team. Overall, we are very, very good on track, and you will see some more of that in a minute.

35:21 I would say enough words for now. Let's now come to more visible proof of the progress we have been making on automation, and let's come to our new product release. Exceeding expectations, that's what we're here for. After twenty three years of research and development and pioneering innovation, ITM POWER is offering the most advanced PEM electrolyzer technology in the market today. And now we are becoming a high volume quality manufacturer. We have implemented new processes across the business, each of which is a substantial improvement and a step closer to achieving our automated manufacturing ambitions. Some of these processes include a customized press capable of operation at 20 tons of pressure with a micron level of accuracy.

36:14 Precision laser scanning allowing us to inspect every electrode structure. A resistance welding machine developed in house to assemble stack components with highest precision. Automated catalyst ink mixing, producing consistent pastes for our catalyst coated membranes applied by a state of the art screen printing technology. Project sizes continue to scale. ITM is responding with a new product release. Meet Poseidon. Incorporating our learnings from commercial projects, Poseidon is our new cutting edge 20 megawatt core electrolysis process module. It is based on our state of the art Trident stack platform and consists of skid mounted units which can be prefabricated and pretested.

37:09 Poseidon enables efficient integration of the core electrolysis process into the balance of plant. This leads to shorter deployment times and lower project costs. Poseidon set to turn the tide on electrolyzer deployment as we dive headfirst into the race to net zero. Well, this is what I call progress, and this is definitely game changer for the industry. Let me repeat some of the key statements around Poseidon. Poseidon is our new standardized 20 megawatt core electrolysis process model with a very optimized footprint.

37:59 It is replicated for scaling up for large projects and suitable for both indoor and outdoor installation, which consists of skid mounted units, which can be prefabricated and pretested and which are ready for road transport without additional permits. By that, we can achieve reduced deployment, lead times, and lower construction costs and also derisk customer projects. Poseidon has been engineered by ITM incorporating real world lessons learned from commercial projects. Let me put it like that. If we didn't build all of these first reference plans and last projects we have been currently building, we couldn't have designed this model. The design of the module is ready for integration to the balance of the plant, which is enabling flexible execution for for large scale projects.

38:47 And let me emphasize again, this is not just a nice render graphic. Poseidon is now commercially available, and we have started bidding into actual commercial projects with it already last week. Our products are designed to outperform. From today, this is our new product branding. Our stack and skid platform based on our leading PEM electrolyzer stack technology will be called Trident. Our two megawatt autonomous plug and play electrolyzer for small to mid sized projects will be called Neptune. And we just talked about our new cutting edge 20 megawatt audio called. Coming to the outlook, I've been at ITM for just over half a year now, joining the company at the time of challenging operational and financial performance.

39:48 Being the first company to win large scale commercial projects, ITM had also experienced growing pains first. But as our competitors are experiencing similar challenges today, we will also be the first to have fixed them. Today, ITM already looks fundamentally different from ITM six months ago. We are well on track to solidify our foundations, and we'll continue to focus on project delivery, which is very important for our customers and us alike. Of course, still getting our house in order. We are now six months into our twelve months plan as such. So this means there are remaining six months for us to implement and improve what's needed to be improved. We will keep doing so, and we will scale with existing and new commercial contracts.

40:38 Of course, we are actively bidding for ever larger commercial projects. I think there's not one credible product out in the market where ITM is not involved today. Just recently, we announced contract for the procurement of long lead items for another 100 megawatt project in Germany. We are very confident that we will further cement our position as the leading end player for real projects in Europe. And last but not least, we will unlock new territories, which is next strategic important step for us. With that, I would like to close, and thank you very much for your attention. That's great. Dennis, Andy, Simon, thank you very much indeed for updating investors, I will bring up your camera now.

41:24 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. I just while the company take a few moments to review the questions submitted already, I'd like to remind you that 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. If I may, you've received a number of questions today's presentation, so thank you to everybody for engagement. I'd like to hand over to Justin, who will now moderate the q and a. Over to you, Justin. Thank you. Thank you, Mark, and good morning all. We have a number of questions. We'll try and get through as many as we can in the in the time frame. We'll kick off with the first question. Can you add any color or information regarding Gigastack and and Phillips sixty six decision yesterday not to enter the hydrogen allocation round in The UK?

42:14 Sure. Okay. We have made the decision to focus very heavily on projects that are in execution right now. There is much potential in front of us, but the right decision for us was to make sure that we are putting our effort in the places that gave the biggest impact to projects that we're delivering and committed to today. So from an ITM perspective, we, have opportunities, for further development of our staff platform, which I've not covered today, but our focus right now is on the projects that are right in front of us, and there are a lot of them. So that feels like the right balance for me.

43:02 Thank you. Question number two. The high cost of electricity is making electrolytic hydrogen expensive, and this is holding up the market. So does ITM have any plans to produce steam electrolyzers that reduce electricity cost? No. Let's keep it short. No. We don't. Next question. What is the current monthly production quantity? And what, importantly, are the bottlenecks that are facing the company over the next six to twelve months? So we don't disclose our production quantities. And as I had said last time, our capital market update in January as well, we are scaling with our projects. We have been doing that, and we will keep doing that.

43:50 So with both of demand and with both of signed contracts, we will scale our verification accordingly. We don't see any bottlenecks at this point in time. Next question. Could you provide more color on the processes that need to happen to successfully conclude an SAT? Sure. Maybe I take that. So site acceptance testing is normally happens when a complete plant is being built and commissioned. This means that the the whole electrolyzer plant and sometimes even even broader units, sometimes a refueling station, sometimes a tank farm. So a whole electrolyzer plant can look very different, take very different form and shape.

44:37 And site acceptance testing normally includes that that the whole plant is more or ready to power the electrolyzer system so that you can check how it interlinks with other elements. So site acceptance testing is oftentimes heavily dependent on the EPC partner and the end customer being ready for site acceptance testing. This is not so much an ITM. Hence, that's why we have a dependency which we need to work on. I can tell you in future contracts, and our last contracts are now reflecting that as well, we have deemed acceptance clauses in, which basically state that after a certain period of time after clearing products ready for shipment and factory acceptance test. If site acceptance test is delayed for reasons not in scope of ITM, then we can team acceptance, recognize revenue, and start warranty period.

45:32 Regarding Poseidon, you mentioned that these would be pretested. Does that mean there will be no SAT? Please, could you explain that as well? Well, that's something else. I mean, we are also pretesting our stacks in our factory, which is factory acceptance testing, but the electrolyzer still in the the whole system still needs testing on-site for SAP and and also focus on pretesting units after they have been manufactured off-site. It's a risk mitigation so that you don't ship a product to site which hasn't been validated that it's functioning, and then you find it out on-site and have to ship it back. It's basically about risk mitigation and and speeding up the application and deployment process. Next question. Thank you. Could you update us on the EU plans to restrict the use of EFAs?

46:24 K. So, personally, I think that that is unlikely and not practical. The broad definition of PFAS covers a whole range of chemicals, And the materials that are used in hemstacks are long lasting, do not leach out any chemicals that are of concern in this description. We're working with industry bodies to provide evidence of this to the EU to help provide argumentation to support use of the materials that do not present risk. Probably one for you, Andy. Could you maybe explain or elaborate on some of the mix of the revenue guidance range for FY '24?

47:17 Yeah. Sure. So so the guidance range of 10 to £18,000,000 in all of those contracts, there is a dependency on-site acceptance. And within that, there is a mix of cube products, I I e modules and continuous products predominantly going into the EU. Next question. Regarding automation initiatives, what more do you think needs to be done over the course of the next twelve to eighteen months? Yeah. So I I showed you the the road map which we had, which was progressing quite well. By implementing the road map within the twelve months plan, I would say we probably have then automated or semi automated our post tech fabrication by probably around 80%.

48:14 The last remaining piece, which will not be fully automated until then, is the actual the last assembly step of the stacks, which we are also looking forward to automate probably about eighteen months time frame. With the IRA in The US, this seems to be a long term driver for growth for electrolyzer equipment manufacturers. How is ITM specifically addressing this opportunity? So right now, the IRA does not require us to have a factory in The US. Of course, it could make sense at a certain point to to locate our fabrication there. But right now, this is not a must. We have checked that also from a media viewpoint and from a funding viewpoint.

49:00 Projects will not be disadvantaged if we deliver specs from The UK. So we do have strong partners already, like Linda, who has a very big footprint in The US. And for ITM, when I when I was talking about unlocking new territories, obviously, I was also thinking about The US. You provided three KPIs regarding ITM stack technology versus EU targets. Where do you see ITM by 2030 in this regard? Well, I'm I don't wanna give any concrete forward looking statements on the on on that. I think what I would say is that I am confident and proud of the core technology competency that we've developed in the organization.

49:48 That combined with the partnerships that we've developed means that we are in a leading position, I would say, to make continued improvements to the stack platform. Given the imminent opening of the facility in Germany, will ITM have any plans to manufacture in Germany? If we had plans like that, we would have disclosed it at this point. So, I mean, the what I what I said today in terms of our German entity is what we are currently implementing. If we decide to implement more in the European Union, we will let you know. On the very interesting slide for FAT, is it possible to comment on the percentage of production that is found within the data?

50:42 So this is the, stacks passing versus the stacks failing. I guess, Simon might answer some of this, but our our starting rate was based on low volume, and the failure rate was pretty high and certainly not sustainable for a serial manufacturer. So we were above 30%. We've seen that decline dramatically, as we have improved the processes. We've also got a very clear policy that, upon any failure, there is, a clear investigation to what's happened, and we stop and we refresh. So we're learning lessons incrementally in real time. The other point here is when that stack fails, that doesn't mean that's thrown in the bin. A significant amount of the components could be reused, rebuilt.

51:33 So that graph shows first time passes, and that's very different to things just getting scrapped. Yeah. Simon, I don't know if there's anything else. Patrick, thank you for it, Andy. Okay. Yeah. Regarding siding, could you talk about some of the advantages that customers would benefit from by adopting Poseidon into their projects? Yes. I mean, I think we like that out actually, when we when we showed the video and when I explained on the slide about the sign on. So it's about it's about proper scale up of of of modules, which you can then repeat for large scale deployments. It's about lowering cost by repetition, speeding up project timelines.

52:21 It's about derisking in terms of being all the units being prefabricated and pretested prior to arrival on-site. And as I said, it enables ITM to work closely and in a very flexible way with implementation partners. Do you have any updates on the Whiteley project? We don't comment on specific sales projects. Regarding the twelve month priorities plan, what do you believe are the key deliverables over the course of the next six months, and what are the biggest challenges you think you'll face? Should we maybe each answer our area? Okay. Do want to go first? Go on, Andy.

53:08 Yeah. So within the year, ITM implemented a new ERP system, and there is work to really get all the full benefits from that system. So we've got something that looks, like the minimum viable in January. A mouthful to say. And we've been incrementally improving that. As we improve that ERP system, we also improve the controls we have around spend going forward. So from a finance and governance perspective, a lot of what my team are looking at is how we have the systems to support the controls that we're gonna be introducing. Think in in engineering, the focus is around making sure that we have the best tools and modeling equipment to support the development activity.

53:59 So that's something that Dennis touched on earlier in the in the presentation. And also ensuring that we maintain rigor in stringent design freezes and control over product introduction. Yes. Maybe adding to that, I ITM is now transitioning from what I always called an r and d and technology mindset company to a professional delivery organization, which is trying to produce its game. And this always comes with a culture change, obviously. So it's not only about implementing new processes and controls and systems. It's also about our day to day behaviors and how people live these processes. And I think the culture change element of that, the whole change management around that is quite time intensive right now for us, But this will be our main focus for the next six months to make sure that we actually walk the talk. So whenever we have introduced new processes, everybody's sticking to them with discipline and and high focus and about getting distracted.

55:03 But I can tell you, this is this is already changing quite significantly. Thank you. Andy, you mentioned in one of your slides overheads not being absorbed. Could you elaborate more exactly what this means? Yes. Absolutely. So the moment we are charging, we have all of our personnel costs, for instance, within our overhead line. And then as we do activity, we recharge those or or or into into various areas. So I think it covered it, but essentially, we have all of our personnel costs within overheads, and then we are charging both into product product development and into project execution. So then we've either into cost of sales or into the balance sheet. And that overhead number that we were putting in the guidance was our net overhead.

55:57 It's very normal for a broken business, if I may add to that. It's very normal for growing businesses to have, let's say, overhang and overheads until volumes have crossed a certain minimum thresholds upon which then there's a positive margin contribution from producing and selling more products. Thank you. Which new territories are you referring to at the end of the presentation? As as I said, right, I mean, we are very strong right now in Europe. I think the most important markets to get the food in the door is The US for us. Of course, there could also be other attractive markets, but I would say The US is ranking quite quite highly right now. Regarding Poseidon, could you give us some idea of when ITM would be ready to produce and install the new module?

56:50 As I said, Poseidon is now commercially being bid into actual projects. So how would it work from here? Large I mean, we are talking about large scale projects. Large scale project would require that the customer is normally concluding a feat for us. So the front end engineering design, which is giving the the whole investment of the plant a engineering design process, which you can then base a cost estimate, a schedule, and and and then you can also acquire suppliers for lead times. And for for Poseidon, depending on the works that with the implementation partners, we would, for example, most likely buy the power supply units with that to our books. Some vessels.

57:35 Piping could potentially be done by an EPC partner. So we would have to define the detailed works with for that on a project by project basis. But as I said, it's now commercially mature to a point where we are bidding the module into real projects as of today. Thank you. With regard to the contract loss provisions that you took in f y twenty three, are these expected to be recognized on s 80 of projects they relate to? So the the contract loss for any given project, if it's loss making, is is recognized at the point you recognize as risk loss making. And the and that comprises of two parts. It comprises the cost to execute the delivery and then the warranty. And what you'll see is all that contract loss provision will sweep out upon SAT.

58:32 The warranty provision will then move into the warranty provision line on the balance sheet. So, yes, as we execute projects, we'll see that contract loss provision going down. Thank you, Adi. Could you please elaborate on any supply chain risks related to manufacturing ramp up? Yeah. I mean, in principle, this is what I what I said. Right? If if we scale by a factor of more than 100, which is basically what we're doing right now. Right? Something between one hundred and five hundred in terms of scale effector. This this means that every part of our supply chain needs to scale with us at exactly the same speed. This requires significant investments and risk taking by every party involved, and that is why you need to be very closely integrated and very closely collaborating with your key suppliers of critical components.

59:27 And that is why the recent announcements we have been putting out in the market for collaboration with key critical suppliers are so important for us to actually build a platform for real growth. Because as long as you don't work with and closely integrate it with the supply chain, if you don't do that, then everything else is just mere announcements. But if you want to come to real growth, then you have to work with your suppliers. And this is what we are doing. So do I see any any bottlenecks at this point? No. Because we are working very closely with our suppliers. But, of course, it depends then on on how how far we go. Right? Later in the future, they could come up with the next and we have to let see. Right now, I think we are we are very well on track working with our suppliers.

1:00:19 Thank you, Dennis. That for now is the amount of time we have for questions today. So thank you for your time. Any questions that you have outstanding, please send them through and then ask them as soon as we can. So thank you very much for your time. That's great. Justin, thank you very much indeed for moderating the Q and A. Dennis, I'll shortly redirect investors on the call to give you their thoughts and their expectations for us and feedback. But before doing so, I wondered if I may just ask you for a few closing comments, and then I'll redirect investors. Of course, thank you very much. Thank you for dialing in. I hope we were able to convey the progress we have been making over the last six months, which we found quite impressive, I have to say. And we are gearing up for serious scaling of our manufacturing operations deploying products to customers, which is what we are here for. Thank you.

1:01:12 That's great. Thank you, Dennis, Simon, and Adi, for updating investors this morning. Can I please ask investors not to close this session as we will now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations? This may take a few moments to complete, but I'm sure it be greatly valued by the company. On behalf of the management team of ITM POWER PLC, we'd like to thank you for attending today's presentation and wish you all a very pleasant morning.