Itm Power (LSE:ITM) — Trading Update for the year ended 30 April 2021

0:02 Good afternoon, ladies and gentlemen, and welcome to the ITM POWER PLC Trading Update for the Year Ended 04/30/2021 Investor Presentation. Without this presentation, attendees will be in listen only mode. Questions are encouraged and can be submitted any time by the q and a tab situated in the top right hand corner of your screen. Simply click on q and a, type in your question in the bottom right, and press send. Company may not be in a position to answer every question received during the meeting itself due to the number of attendees. However, the company will review all questions submitted today and publish responses where it's appropriate to do so.

0:33 These will be available via your Investor Me company dashboard, and you'll be notified once they're ready for your review. I'd also like to remind you that 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 PLC. Good afternoon. So great. Thanks very much for the introduction, and welcome, everybody, to this trading update. And delighted to see so many attendees for this session. The world has certainly changed. So first of all, some positioning with regard to ITM POWER. As most of you know, ITM is an electrolyzer manufacturer. We're a pen electrolyzer manufacturer, and we've been developing and deploying electrolysis equipment now for the last twenty years. So we're not new to this industry.

1:29 2021 has been a very important year for ITM. And we moved into the world's largest electrolyzer factory first Monday of twenty twenty one. So that's at Bessemer Park, has a capacity of one gigawatt or a thousand megawatts per annum. The significance then of electrolysis is that electrolyzers are the device that you use to make green hydrogen. So it's a device that you use to split water into hydrogen and oxygen. And if you split the water using renewable power, then you make a net zero energy gas. And actually, green hydrogen made by electrolysis is the only net zero energy gas. It's the only fuel that's got no carbon molecule in its entire supply chain.

2:26 And we've seen market acceleration. It's been incredibly strong over the last couple of years. And Andy's going to present to you the trends associated with the backlog and the tender pipeline to just show you how rapid that adoption is becoming. And governments and industry around the world have firmed up their electrolyzer targets, there's more and more policy now being developed to incentivize the adoption of green hydrogen. So some important reports were published in in May. So only a couple of weeks ago.

3:13 Particularly important was the International Energy Agency's report called Net Zero by 2050, a roadmap for the global energy sector. And and what that report points out is that for the world to get to Net Zero by 2050, that requires the deployment of three and a half thousand gigawatts of electrolysis. It's a very, very large number. And it shows why the the all of the national targets are now in the gigawatt scale. That would constitute three hundred and and twenty two million tons of electrolytic hydrogen.

4:01 Today, there is a very significant market for hydrogen already. Actually, it's gray hydrogen used in industry, and it's 70,000,000 tons. So within twenty nine years, all of that gray hydrogen needs decarbonizing, and the volume needs to go up by a factor of five because of all the new applications like gas grid and transport as well as industry. The Aurora report was also published in May, and that report identifies 200 gigawatts of electrolysis projects that are already under development, and that 85% of those are in Europe.

4:46 And we've seen now national targets for electrolyzers announced, and those are a 144 gigawatts as the target for electrolyzer deployment in the next decade. So some very significant progress and and a realization across the whole energy industry that to get to net zero, Use of electrolysis and production of green hydrogen is key. Some global macros then. The EU announcing that it's putting net zero into law is very important, and also China declaring net zero by 2060. And, of course, The US this year rejoining the Paris Agreement.

5:35 And I was delighted to see three days ago the announcement from the US DOE. And that announcement is about five, what they're calling Earth shots. This is a a environment related moonshot. And and of those first five, the first one to be announced three days ago was green hydrogen, showing again the emphasis of government and in this case now, the US government emphasizing green hydrogen. So some key achievements over the last year. Our backlog we've achieved now is 290 megawatts with a tender pipeline of 539 megawatts.

6:20 And Andy is gonna more fully describe to you how we categorize the backlog and also tender pipeline. We moved into the world's largest electrolyzer factory, as I mentioned earlier, and made three important announcements. The first was the world's largest pen electrolyzer bought by Linda that will be deployed at NEUNA to replace the gray hydrogen with green hydrogen. Then the Rhine Namm refinery project and Shell's intention to deploy an additional 100 megawatts and also the announcement from Scottish Power that they're putting in for planning permission for 20 megawatts in The UK connected to Wightly.

7:13 And we've gone through some very rapid organization development, which I'll describe to you in more detail later on.

7:26 So in terms of the numbers then, work in progress, contracts backlog and tender pipeline. Work in progress now stands at 35,400,000, that's up 62% year on year and constitutes 43 megawatts of electrolysis. The contracts backlog stands at 154,000,000, that's up 194% year on year and that constitutes two ninety megawatts of electrolysis. And then the tender pipeline, that's the number of quotations against commercial tenders stands at 607,000,000, up a 131%. And that constitutes 593 megawatts of electrolysis 65% of that revenue is value to ITM POWER.

8:22 And the size of projects is is changing very, very significantly. So if you look at electrolyzers deployed in the field and years of deployment, if you go back to 2017 when we worked with Shell and Linda deploying refueling stations in The UK, we deployed at the level of a 100 kilowatts of electrolyzers on-site. 2019, so that's two years later, we were deploying one megawatt electrolysis. And move forward another two years, and we scaled up by another factor of 10, deploying this year at refined 10 megawatts of electrolysis.

9:10 So that is the scale up of a factor of 10 every two years. And then moving forwards, 2023 deployment of the 100 megawatts at Shell from refine two is a scale up of another order of magnitude. And then the target for EU deployment, which is six gigawatts over the next four years, is another order of magnitude in size taking us to deployments at the gigawatt level. So what you see is on-site deployment increasing by a factor of 10 every two years. So this is genuine logarithmic growth.

9:57 What is it we're deploying? So what we do as a company is we manufacture electrolyzer modules, and you can see those in front of you. We we deployed two megawatt modules to build the 10 megawatts of the Rhineland Refinery, and we're scanning to five megawatt modules for ease of installation and for cost reduction. And those five megawatt modules, we work with Linda pre engineer 20 megawatt packages. And we are delivering the technology on the basis of customer needs. So what what is it that customers actually want?

10:43 So any customer wants lowest cost of ownership and they want lowest levelized cost of hydrogen. And actually, the levelized cost of hydrogen relates to both the initial CapEx and it relates to the OpEx. So for an electrolyzer, the customer wants cost performance and lifetime. That gives them the lowest levelized cost of hydrogen.

11:12 And, of course, customers also want rapid delivery. They want system availability, and they want great after sales support service. And that's what we're establishing across all of our products and our relationship with our partners. And, of course, from ITM's point of view, we're now a manufacturer. So what we're doing is making the same thing over and over again and standardizing. But we're also standardizing at the level of the balance of plant.

11:43 So this is what a full system looks like. So customers buy turnkey solutions. So what you see in front of you is the output from the 100 megawatt feed study for the GigaStack project. That is the deployment of a 100 megawatts in Humber side connecting directly to Hornsey 2, which is 1.4 gigawatts of offshore wind and providing the hydrogen to the Phillips sixty six refinery, which is literally next door. And and what you see in front of you is a power system, a control system, a water system, and a gas system all integrated together into a turnkey customer offering.

12:35 And we pre engineer with Linda 20 megawatt packages. And we do that so that we're standardizing not only at the level of the module, which is a decreases the cost of the module and its manufacturability, but also standardizing at the level of the balance of plan so that we can use Linda's huge purchasing power to drive out costs. And this also leads to rapid deployment.

13:11 In terms of cost reduction then, we've been publishing now for about eighteen months our cost reduction curve. So ITM is the only electrolyzer company that publishes a cost reduction curve so that you can track our progress. In blue is the is what we've been showing the market. And and we've added the green line, which is the actual cost reduction that we made since 2018. And we've added this because you can compare for the first time the target we made for 2021 and our actuals. And our actuals are now that we bid a full system turnkey price to the customer, 10 megawatts and above at €800,000 a megawatt. And you may say, okay, Graham.

14:06 Well, you've been telling me that for some time. But I can tell you on the webinar today that Linda confirmed that we are bidding the large scale end, that's 10 megawatts and above, and no point €75,000,000 a megawatt. And and that's tracking ahead of our cost reduction already. And actually, we feel confident that we will achieve for a 100 megawatt systems by the mid twenty twenties, €500,000 a megawatt. And we achieved this by cost reduction from manufacturing volume, automation in the factory and procurement, both our own increased procurement power, but also the procurement power of Linda.

15:00 So partnerships have been very important to ITM. We develop and we build strategic partnerships rather than relying on supply customer relationships. This has held us in very good state going forwards if that's our strategy of choice. So we work very closely with Linda in the area of EPC and also engineering services and procurement.

15:29 But we work with our other partners as well, and we get benefits in terms of contracting advice and also access to markets. We we developed a relationship with Linda and with Shell that's lasted for over half a decade. Work very closely now with with SNAM and with Sumitomo, and we're developing further relationships in the oil and gas industry and also in the renewable energy industry with the likes of Scottish Power who are part of the Iberdrola Group and also Orsted. So you'll see us developing more long term strategic relationships. And in fact, Linda and SNAM consolidated those relationships by becoming an equity investor in ITM, having done significant technology and commercial due diligence in the company.

16:31 So the new factory then, delighted to have moved into the new factory. We are shipping from the new factory. It's a 134,000 square feet. It's the world's largest electrolyzer factory. And the whole company is under one roof. There is the world's largest ATEX zone for testing electrolysis equipment. We have the full technology development, r and d center, test center, and also our engineering development center at Bessemer Park. And an important element to Bessemer Park is the after sales support and the control room. So for ITM, the our offering to the customer is a a twenty four hour to twenty four seven monitoring of equipment in the field.

17:26 So all of our electrolyzers are monitored in our control room. It's monitored twenty four hours a day by two engineers who can be in contact with customers worldwide. The overall strategy then is developing our installed capacity, and we charge our customers 3% of the capital cost of the equipment per annum to look after the electrolysis equipment, to share data, to gather that data as a sales tool, but also to help our customers operate the electrolyzers and optimize their performance to get lowest cost hydrogen production.

18:08 We have developed one strategic relationship with an aftersales support partner that's Optimal in Australia, We're very well known in the Australian market for after sales support. Worldwide,

18:25 then we're looking at rolling out either direct after sales support and monitoring or some after sales support relationships. So my final slide then, organizational development. The four executive team, that is myself and Andy Rachel and Simon, have worked together now for more than a decade. And actually, we will be expanding the executive team by taking on two new members. We're looking forward to introducing to the market new operations director and also identifying a new commercial director. We've gone through some very significant expansion of focused recruitment and we've just recruited an additional 80 engineers.

19:18 We're concentrating on training and and the ITM Academy, which is established as our training organization. And we're very focused now on ESG reporting. Reporting at the level of environmental, social, and also governance metrics. And we are developing a portfolio of metrics so that the market can track our progress. And I was delighted that we were able to announce our inauguration our inaugural

19:50 ESG report this year. So I hope you enjoyed that report. And I'm now going to hand over to Andy, our Chief Financial Officer, for him to talk you through some numbers. Thanks, Graham, and good afternoon, everybody. I'm gonna talk about the financial results for the year ending April 21. We'll talk about the pipeline and also the outlook for financial year '22. On the right hand side, you can see

20:20 some containers being built within Bessemer Park, and majority of those go into motive projects as upgrades to refueling stations, but there's also products in there that's being shipped to customers as we speak. In terms of full year results, we recognize revenue of approximately £4,000,000, which is down slightly on last year of £5,400,000. Our EBITDA position is gonna be in line with expectations, and we had a healthy cash balance of 176,000,000 at year end. This was the first year first full year of working with Linda through the JV ILE. And that has led to an impact on our backlog, but not yet our revenue. And the orders that we took in the year, are £12,800,000, are gonna be recognized in financial year '22, the year coming.

21:09 So we're starting to see the impact of of that partnership through the numbers as well. In terms of that revenue number,

21:18 there were site related delays, which I think were to be expected in the last twelve months, particularly around Australian projects. Without those site delays, we would have seen revenue at a very similar level to the year before.

21:35 So Graham's already presented a slide, in fact, this slide on the on the backlog, and it's I think it's my job to say, well, how does how does a contract get in there? So the work in progress is stuff that's going through our shop floor now. That is contracted projects, which is makes a part of our backlog. The rest of the contract's backlog is stuff that's in negotiation. I we are the preferred supplier. We are a 100% sure that we've won the contract, but we've not yet signed a contract. So the difference between the two, the work in progress, we can be fairly certain about timing. The contracts backlog, we can be less certain about timing, but we know it's coming. In both of those cases, the whole value of those backlogs is due towards ITM POWER. In the tender pipeline, these are tenders that we have made in the last twelve months, We expect to be awarded within three years.

22:26 But within the tender pipeline, you have a full system electrolyzer cost, £607,000,000. Of that, 364,000,000 is the value to ITM POWER, with the balance of the value attributable to the scope that is Linda's part the scope, which is the balance of the plant. So if we look at that as a trend, it it it's going strongly upwards. And one of the challenges in presenting this slide is that the scales on these three graphs changes dramatically from left to right, but the orange bars are the same orange bars in each in each graph. So on the left hand side, we've got a backlog of 43 megawatts fully signed. In the middle, we have the gray bar, which is what is a 100% ITM, but it it is not yet signed. So these are contracts that we've won, and we are the preferred supplier.

23:19 And finally, we have on the right hand side totaling very nearly 300 megawatts, the addition of the yellow bar, and that is the preferred supplier position. That's a 100 megawatts worth of contracts that we will deliver for 2024. And for us, that represents the start of broader relationship with STAM.

23:44 And finally, on the right hand side, we have the blue line that is our tender pipeline. This is where we are in a competitive tender stage, and and we've been sending out fixed prices for our products. So you can see that takes us to 593 megawatts. You can see that it is tracking a very similar shape to our backlog as well. And in fact, if you looked at the backlog, including negotiated contracts, you are you have about 200 megawatts of backlog, and that was a very similar position as we were for our quoted pipeline only two years ago. And so you can see there's about a two year lag at the moment as we possibly start to see a trend emerging.

24:35 In terms of what we're gonna be doing in the year to April 22, we plan to build 50 megawatts worth of electrolyzers through Bessemer Park. It'll be our first full year in Bessemer Park, which is absolutely fantastic to say that. And we are as such, production is gonna ramp towards the second half of the year. Revenue is recognized as we either factory acceptance test our product or site acceptance test our product. So you need to be looking for updates second half of the year for the the ramp up of production. In terms of what we're doing, we're building some of it to stock, and some of it is being built to contract. So we've got 33 megawatts contracted that will be built in the year, and the balance is stuff that we expect to see contracted in in the near term from the items in negotiation.

25:27 And I'll hand back to Graham for a comment. Thanks, Andy. So just a quick summary for me. So we're in a very rapidly growing market. It's actually the gigawatts to tens of gigawatts of scale. And to 2,050, 3,500 gigawatts of electrolysis are required to get to net zero. The project size has been increasing tenfold every two years, showing logarithmic growth. And we have a globally leading technology and manufacturing position and also globally leading partnership position. And those partners are transforming our backlog and our pipeline.

26:13 We were delighted to raise GBP 172,000,000 on the London stock market in 2020, and I think that's given us a very strong position. We have now a factory blueprint having moved into Bessemer Park and actually used our manufacturing design in Anger. We have a blueprint to very rapidly increase capacity when that's needed. And I think we're in a great and globally leading position to capture this amazing market. So look, just before we go into the Q and A, we've got a film for you. Actually, it's often difficult when you see a three d image like the one in front of you to visualize what large scale installation will look like. And actually, what we produced in the GIGA STAT project was a three d simulation and fly through of a 100 megawatt electrolyzer installation.

27:18 So we're gonna run that for you now before we start the q and a. Doctor Cooley, Andy, thank you very much indeed

30:01 for your presentation. And ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated in the right hand corner of your screen. We just wanted the company to take a few minutes to review those investor questions submitted already. I'd like to remind you the recording of the presentation, along with a copy of the slides and the published Q and A, can be accessed via our investor dashboard on the Investor Meet company platform. I'd also like to remind you that your feedback is important to the company, and 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 your questions to the ITM POWER team We We ITM have in the Yeah. So in terms of technology innovations, I mean, the the first thing to say is that we're we've been developing PEM electrolysis for twenty years, and we take a continuous improvement approach.

31:08 So we work on the level of stacks and balance of plant and also now manufacturing technology, manufacturing processes, and automation. So in in all of those areas, we're doing considerable development work, whether you call it r and d or whether you call it development work. In terms of stacks, it's all about cost performance and lifetime. And and we have a very large materials and stacks testing facility, the the technology center in Bessemer Park. And cost reduction is about progress towards reducing the amount of materials that we use in the stacks.

31:56 It's about increasing efficiency and also increasing lifetime. And one of the the the points about ITM POWER and an important unique selling proposition of ITM POWERS is that we can manipulate all of the variables within the technology because we are a primary manufacturer. We're not an integrator of separate components that we buy in. We do manufacture the components inside the the the cells. So a lot of work here in in the area of stacks. In the area of balance of plant as well, there's some innovations that we're developing. And also, we we work very closely with Linde Engineering in the way that we develop the customer offering integrating stacks together into wider balance of plan.

32:54 Automation is very important. You know, as we move forwards and volumes in manufacturing increases, then we are looking at further automating the process, identifying parts of the manufacturing process that we can then focus on and increase efficiencies and increase throughput. So all of those areas really, Simon. Thanks. What are your plans for ITM POWER now that it's become a separate limited company? ITM we POWER a a a company. Important and trucks and trains.

33:46 And it it's for us now, it's all about rolling out large scale refueling stations jointly with users of hydrogen vehicles and and building those large scale refueling stations so they make a a positive return. And, you know, the the we've analyzed the business model for a whole variety of different refueling applications and refueling scales. And we've got, I think, a very good strategy for rolling out those refueling stations for industrial vehicles. They are larger scale than the ones we've rolled out in the past. We're talking about refueling stations with multi megawatt electrolysis equipment.

34:40 Okay. Thank you. A couple of years ago, you announced a collaboration agreement with Iwatani for the deployment of multi megawatt electrolyzer Yes. Systems in North America. We haven't heard much about it since. Is the collaboration still active? And do you think you'll see any contracts from this in the near future? Yes. I mean, the contract the collaboration is still active. I think that deployment of large scale electrolysis and refueling in The US slowed down under the last administration. As I pointed out, they've just announced an incredible new initiative from the DOE, emphasizing the use of hydrogen in all applications across energy.

35:29 So I think the landscape has literally, over the last few days, radically changed in The US. I have to say as well that Linda have a very strong presence in The US. The market leader for hydrogen in The US was was Praxair. Praxair merged with Linda, and now the Linda brand is very significant in The US. So, yes, we work closely still with ITM as do Linda Fuel Tech. Actually, Fuel Tech made an announcement about selling a significant number of refueling stations to Iwatani only recently. So I think that the landscape for the electrolyzer market in The U. S. Has just changed quite radically.

36:21 Thanks. The high cost of hydrogen from room temperature electrolysis is high and possibly holding back the development of hydrogen power. The cost can be reduced by using waste steam and heat which is likely to require more stable solid oxide fuel cells that can stand up to the high temperatures. Do you have any plans to develop and commercialize SOFCs such as those produced by Sunfire in Germany? And if not, why not? Yes. No plans whatsoever. I mean, you've got to dig down into what's said about solid oxide, but a a number of questions that our audience might want to ask. First of all, where does the steam come from? So 600 degrees c process heat, wherever that's produced in the world is always recycled by any chemical engineer would not produce excess heat that's that valuable.

37:23 Heat in an industrial process is probably raised with a boiler that uses fossil fuels. It's probably 25 to 30% efficient. And the efficiency and the carbon footprint of the steam raising is never included in the efficiency numbers when you see solid oxide electrolyzer manufacturers quoting their numbers. And I don't know of an industrial process. They either waste 600 degrees C or even 100 degrees C. Over to be processing, it needs to be over a 100 degrees c. It needs to be steamed. That is always recycled because it's a valuable resource. So you you have to find an industrial process that's got high temperature process heat that it's wasting and not recycling.

38:21 That has a low carbon footprint. In other words, it's not raised by burning fossil fuels. And also that industrial process needs to want to make the hydrogen on-site. And I don't know of an industrial process like that. So perhaps the person who asked the question could tell me which one they're thinking about. And then finally, solid oxide cells. I mean, I I started work with the CGB in 1989, and one of the first things I worked on was solid oxide. The stacks undergo differential thermal expansion when they when you put in process heat. So that's difficult. And also, if you put in steam, they will corrode.

39:08 So I'd like to see the application they're gonna be used in. I'd like to see the thermodynamics properly reported. And I'd also like to see a large one that's actually been built and actually put into use. What's the risk of ITM POWER's technology becoming obsolete? I think the risk is very low. Obsolescence of technology, you know, in our case, we we we I would say the opposite. I would say that ITM technology and PEM electrolyzer technology will make a lot of other technologies obsolete.

40:01 Where does the Shell 100 megawatt expansion project sit within the reported backlog tender pipeline? And can you explain why ITM POWER's share of the tender pipeline has declined as a percentage of the total? Andy, maybe that's one for for you too. Yeah. So the where does the Shell project sit? So that is sitting within the backlog, but not yet signed part of our our our backlog. So that's 100 of the 190 megawatts we've got there. And then we've got why is the why is the share declined? It it really is project specific, and it it depends on product mix. So the larger the project, you know, potentially, the lower the percentage for ITM to to a threshold, which might be 45 or 50% up to the smallest projects where we're a 100%. So it's all about product mix.

40:59 And I think, you know, we're we're using a somewhere between sixty and sixty five as being a sort of a a weighting for us. And I think in in these numbers, we're closer to the 60% mark. K. What will The UK hydrogen strategy mean for ITM POWER? What do you hope to see in it? And when do you hope to see it? So currently, it it looks like the strategy will be announced in July. And strategy, as stated right now, is a combination of green hydrogen and blue hydrogen. I hope to see incentives for for green hydrogen that are both contracts for different options to incentivize large scale industrial installations of electrolyzers, particularly for refineries, but also for ammonia.

41:58 I'd also like to see an RTFO announced for green hydrogen for transport. That's a renewable transport fuels certificate for green hydrogen. So that's what I'm expecting to see. I think the UK government has put a great emphasis on green hydrogen. If you look at Boris' 10 plan, there are half of those bullet points relate in some way to the use of hydrogen, whether it's the 40 gigawatts of offshore wind and the need for energy storage, whether it's the explicit second bullet point of a five gigawatts of of hydrogen, or whether it's low emission buses, sustainable aviation, and marine fuel or blue hydrogen.

42:52 All of those mentioned in separate bullet points of Boris' 10 plan. So we've never seen a commitment to the rollout of hydrogen in The UK like the 10 plan. And a member of the Hydrogen Advisory Council, which is putting together the strategy, and I feel very positive about the strategy, which is about to be announced. Thank you. How does the current levelized cost of hydrogen produced from one of your electrolyzers using renewable electricity compare with that of hydrogen produced using conventional techniques? And what happens to that levelized cost if you achieve your cost reduction targets?

43:41 Yes. So the dominant cost in the production of green hydrogen is the cost of the renewable power. So it and and a combination actually, the cost of the renewable power, the levelized cost of renewable power, so also of of importance is is the load factor. So if you want to make low cost green hydrogen, then you take the electrolysis equipment to to wherever you've got low cost, high load factor renewables. And and the strategy for rolling out green hydrogen tends to be in places where that's the case. The other important factor is if you need a lot of energy storage.

44:26 So, you know, one of the reasons that The UK is a very interesting place for green hydrogen is that we have an incredible offshore wind resource. We have one of the richest wind resources in the world. And the more that you deploy renewable power, the more energy storage you need. And and and I think that the whole of the renewable energy industry has woken up to the fact that storing electrons for very long periods of time is easiest done by turning the electrons into molecules. It's very easy to store molecules. And then you can use them to make other molecules like ammonia and like methanol. And the point about ammonia and methanol is that it's transportable.

45:15 So if you have very low cost at at low renewable energy costs and very high load factors like you do, for instance, in British Columbia with hydro, then actually, you can transport the renewable power to countries like Japan that have very high renewable power costs and low interventions. So what hydrogen does for you is it makes renewable energy. Rather than renewable energy today being localized, it makes it a tradable international commodity. And it means you can import and export renewable power using molecules, exactly the same way that we do today by shipping around the world LNG.

46:05 But in this case, instead of shipping LNG, which is very carbonizing, we would be shipping renewable methanol or particularly renewable ammonia. So the cost structure is dependent on the cost of the of the renewable power. You also gotta take into account the carbon footprint, of course, but the cost of carbon is increasing and will increase. And that is not just related to hydrogen. It's related to industry in general. So you have not only a net zero energy gas, but a net zero energy gas that's rapidly reducing in costs. How much downtime is required for maintenance of your electrolyzers or is continuous operation the norm?

47:01 Yeah. A very interesting question. So continuous operation is the norm. We we build our modules. One of the reasons we sized our modules at five megawatts is you can pick them up with a forklift. You can move them around. You can put them on the back of the lorry. So that's important. We also designed our stacks so they flow on hydraulics. And because they flow on hydraulics, you can demount them, which means that you can do maintenance on them. You can also reuse components. So, actually, operations and lifetime has been built into the design and the manufacturability of our stacks. Does the date that's stated alongside the work in progress backlog and pipeline in the graph indicate that revenue will be recognized in that period?

47:56 Revenue recognition is probably wrong for you, Andy. Yeah. So revenue recognition is something that is not always easy for ITM. We've transitioned from where we were recognizing our percentage of completion, which is when we did bespoke products to something where we do standard products. And that means that we recognize the revenue upon completion of our obligations. So that means that we have to be either factory acceptance tested for a large modular plant or site acceptance testing for something we're delivering a 100% ourselves. And so what we're trying to do is say, actually, if you start to track the number of megawatts we deliver in any given period, that will give you your revenue recognition. Thanks.

48:42 What's the operating life of an electrolyzer system, the electrolyzer stack and key pieces of balance of plant? What parts would be expected to be replaced over the system life? Yes. So normally, the stacks are ten years and the balance of plant is twenty years plus. There are options for customers to replace stacks if they want to do so. And that optimizes efficiency as we make efficiency improvements. And I think in you'll have seen in the Linda webinar a Volker giving a giving an example of what that looks like. So it nominally ten years, twenty years for the balance of plan. But there are options there. I mean, we we have a model where we charge our customers 3% of the capital cost of the equipment per year, and we look after the stacks in the field.

49:47 What competitors have you got who are snapping at your heels? And how confident are you that you will continue to secure the pipeline of work that you have? Yeah. Good question. I mean, there are a lot of people snapping at our heels, and I would say that's true. It's a rapidly growing industry. We have competitors. All of them will get projects. I mean, the the way the industry is moving, it there's a phenomenal amount of projects being developed. Two two hundred gigawatts already identified, 85% of those in Europe. There'll also be new entrants. This is all about continuous improvement. But look, the important thing to remember is that competition is a good thing.

50:36 Competition means that there are more people talking about electrolysis and deployment. Competition normally drives performance. It also drives down costs. And so, you know, we feel very confident about our positioning, and we feel very confident about the advantages of of the relationship with Linda and ITM's technology over all the other offerings out there in the market. So I welcome the question. We do have competitors. They are snapping at our heels and they will all get projects. When do you expect to start building your next factory?

51:22 And will that be more than a gigawatt scale facility? What's the ticket price of a gigawatt, two gigawatt, three gig production facility? And will the next one also be in The UK or in another country? Yeah. It's great to get to the point where we're talking about the ticket price of an electrolyzer factory. I think we we we've arrived now, haven't we, if that's what we're saying? I mean, a gigawatt of elect electrolyzer factory depends on the amount of automation you need. We allocated 24,000,000 for one and a half gigawatt electrolyzer factory. Building more factories will be demand driven and it will be partner driven. And I think that there are national schemes coming forwards where there's a a very significant demand, particularly for local production.

52:19 So that would be my answer. I mean, unless you have anything to add, Andy. I think that was a good answer, Greg. How much of the growth of backlog is due to rescoping of project sizes, if any? Rescoping of project sizes. So I think that, you know, the way that the backlog develops. I mean, it it it's worth just worth pointing out that the backlog has has got kind of two functions in it. One is smaller projects leading to an underlying growth in the backlog combined with big deals like the Shell one and the SNAM one, they're actually are lumpy deals that that move the backlog forward. So there's a there's a steady underlying growth We've we've we've added large lumps. Let's put it that way. That that doesn't sound like a very elegant explanation, but it's the best I've got, really.

53:29 Could you talk briefly, please, about the ongoing rise in commodity prices and tell us to what extent this affects you? And do you see any problems arising with sourcing raw materials? Yes. So look, we're tracking ahead of our cost reduction curve today even though there's been some volatility in the markets that you talk about. We've also made great strides in the area of reducing materials in our products. Now if you see volatility in the market for those components and those materials, then anybody who has done well in reducing the use will have a competitive advantage.

54:17 So we see it as a competitive advantage to ITM because of our ability over the years to have reduced our exposure to those markets. Have you got any plans to license your technology? Can your product scale by a factor of 10 every two years? And how does the end cost of hydrogen currently compare to the end cost of natural gas? Yes. So look, we're an electrolyzer manufacturer. Our business is not licensing out technology. I think if you license technology in the early stages of a market that's rapidly growing, then you can lose some of the advantages of being involved in the development of scale up and manufacturing.

55:16 So, you know, you can lose control of your technology and certainly, you can not be the one that makes technology advances because you've licensed too early. So I licensing is always an option in the long term. But for us, this is all about being a manufacturer of the world's lowest cost, highest performance, longest lifetime electrolyzer. And that's what we're focused on. How many megawatts of electrolyzers were delivered in fiscal twenty twenty one? Andy, over to you. Yeah. It's it's in the teens.

56:08 So in the low teens. So on-site, but recognized over a period over time was the refined project, which is 10 megawatts. We also had some projects delivered to motive. So the the revenue line doesn't necessarily affect the level of activity we achieved whilst moving from one factory to another and during the pandemic. So there there there's there's been quite a lot going on, but low teens. I mean, just to to maybe elaborate on that a little bit. It's been a year the last year, the last twelve months for ITM has been a period of very heavy lifting. You know, we we through through a pandemic, we moved into a new factory. We got the new factory operating.

56:57 We're now delivering from it. We consolidated our relationship with Linda, and we developed all of the mechanisms and models that you need to quote on an international level at the 100 megawatt scale. So it it's been a massive period of heavy lifting, and now we're able to build on what I think is an incredibly solid base. Having watched the Linda presentation this morning, how does the ITM technology and product tie in with ammonia? Well, I'm not sure I could give a better description than the one that was given, which I thought was fantastic, actually.

57:44 I mean, what the the Linda webinar, I I think, demonstrated Linda's a a massive commitment to ITM POWER and vice versa. It it demonstrated that a large international company like Linda, which is the world's largest employer of hydrogen, has got complete confidence in ITM POWER's technology and is prepared to integrate it into its wider offering. Its wider offering being not only green hydrogen, but green ammonia, green methanol, liquefaction plant, all of those different technologies. We're in a portfolio now, which is a portfolio being offered to customers worldwide.

58:31 So how does our how does our technology fit in? Our our technology is the only electrolyzer technology that is being integrated in this way because ITM POWER is the only electrolyzer manufacturer with a relationship like the one we have with Linda. Hydrogen is being discussed at the government level in Australia as the new clean energy. Could you expand, please, on your opportunities in Australia and our opportunities opening up within the mining industry as major miners look to renewables to displace diesel? Yeah. But the the mining market is very, very interesting, you know, on on a lot of different levels, really.

59:23 I mean, remote mining where you have to bring in fuel is if you if you look at the cost of diesel anywhere in the world, apart from diesel that's flown into a war zone, the most expense oh, and remote island systems is the other very interesting one. Then then remote industrial installations like mining installations have very high cost of fuel. And, actually, they're in places where they have very good renewable energy resources. So actually, our mining is a very interesting entry market for for fuel. And and many of the heavy operating equipment that you have in the mining industry can be used using hydrogen.

1:00:13 So it's great for the ESG credentials of the mining industry. It's also great from a cost point of view, and it's also great from a fuel security point of view because it's often difficult to get fuel into these remote locations. So I like mining a lot, and we have lots of discussions about the mining the mining industry. Thanks. We've just got time for a couple more questions and that we hit the hard stop so that Graham and Andy can move on to other meetings. Is there a use case for the oxygen that you produce as a byproduct from your electrolysis? Yeah. So oxygen is used in in a number of industrial processes.

1:01:01 I mean, probably the most notable one is in using hydrogen to decarbonize steelmaking. And actually, in steelmaking, today, you use coke to reduce the iron ore. You can use hydrogen. It's called direct reduction iron. But probably, most importantly, the industry also uses a lot of oxygen. So it's one important industry where where both the hydrogen and the oxygen utilized. And and because 8% of the world's c o two emissions are based on steelmaking. It's a very, very good application for electrolysis.

1:01:49 Refineries also use oxygen. And the 100 megawatts at the Rhineland Refinery, which is refined too, will be harvesting oxygen for for the refineries processes. And then water treatment is the other important area. It well, the important thing to understand is that if if you're gonna get the value of the oxygen, you need to be using it on-site. If you're gonna harvest the oxygen and then transport it a reasonable distance, then you lose the economics because, actually, for instance, if you wanted to use oxygen at a hospital, for instance, you you use a pressure swing equipment and you extract it from air. And actually, it's pretty low cost to do that. So the primary economics of electrolysis are based around the hydrogen and there is some advantage to harvesting oxygen, but it certainly isn't for harvesting it so it can be transported long distance.

1:02:55 Okay. Last question, I'm afraid. Has ITM considered leasing electrolyzers to customers as a means of generating future revenue and improving efficiency as technology develops by rotating, updating PEM electrolyzer stock on lease agreements? Yeah. We've we've we've modeled those sorts of commercial models in the past. I I we would still keep live modeling all business models. I I think business models tend to be customer driven. I think you need to listen to the market and respond to market needs.

1:03:42 Leasing is a more capital intensive model than than sales. But certainly, we look at the full life of an electrolyzer and we look at recycling and reuse. And so there are a number of different hybrid models that would be possible. But have we reviewed them? Yes. Do we keep those commercial models under review? Yes. We do. Thank you. Perhaps, Paul, I could hand you back and you could take over. That's wonderful. Simon, thank you very much indeed. Doctor Cooley, Andy, again, you for addressing the questions from attendees today and thank you to all those attendees who have submitted questions.

1:04:29 Of course, the company will review all questions submitted today, and we'll publish responses where appropriate to do so on the investor me company platform, and you will be notified once they're ready for your review. Doctor Cooley, perhaps I could just ask you for a few final words just to wrap up, please, before I redirect attendees to give you some feedback. Yes. So I guess to wrap up, I'd just like to thank everybody for coming. We had great attendance today, far more than we used to have in the past, reflecting actually the interest in electrolysis and green hydrogen. It it it really has been an astonishing year for us with a lot of heavy lifting a lot of news from the market. The The US Moonshot, the new report from the International Energy Agency, all the hydrogen strategies being announced.

1:05:19 I mean, we really are company with the right products at the right time. That's fantastic. Doctor Coolie, Andy, thank you again for updating investors today. Could I please ask the attendees not to close this session as you'll be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete and will be greatly valued by the company. On behalf of the management team of ITM POWER PLC, we'd like to thank you very much for attending today's presentation. That now concludes today's session. Thank you, and good afternoon. Thanks, everyone.