ITM Energy Plc (OTCPK:ITMPF) This fall 2024 Earnings Convention Name August 15, 2024 4:00 AM ET
Firm Contributors
Dennis Schulz – Chief Govt OfficerSimon Bourne – Chief Expertise OfficerAndy Allen – Chief Monetary OfficerJustin Scarborough – Head of Investor Relations
Convention Name Contributors
Operator
Good morning, and welcome to the ITM Energy PLC Investor Presentation.
All through this recorded assembly, buyers will probably be in listen-only mode. Questions are inspired and could be submitted at any time by the Q&A tab located on the best hand nook of your display, simply click on Q&A, kind your query and press ship. The corporate is probably not ready to reply each query acquired throughout the assembly itself.
However the firm will probably be ready to evaluation questions submitted right now and publish responses the place acceptable to take action. Earlier than we start, we might prefer to submit the next ballot.
I would now like handy you over to the ITM Energy crew.
Dennis Schulz
Good morning. Right this moment, we wish to discuss for the monetary 12 months, which led to April, went for us as a enterprise. We’ll give an replace on how the regulatory and funding panorama has developed and which traits we see with our prospects. We’ll examine in on our strategic priorities and supply impressions of our firm’s evolution. We’ll share insights into our pipeline of gross sales alternatives, and we’ll give an replace on our reference plant state of affairs and product efficiency. Final however not least, we’ll summarize our monetary outcomes and supply steering for the monetary 12 months ’24/’25.
My first full monetary 12 months at ITM has seen the corporate make important progress. We accomplished our 12-month plan and have reworked ITM into a reputable supply group. Right this moment, now we have a targeted portfolio of merchandise, all using the identical market-leading stack expertise, which we will now deploy into initiatives of any dimension and into nearly each area of the world with out adaptation. This presents us unmatched provide chain and scale-up benefits.
We’ve achieved a vital shift in tradition. Beforehand, we spoke about slowing down and specializing in doing issues proper the primary time and placing high quality over amount. This shift in tradition has been encouraging our staff to contribute concepts for enchancment. It additionally fosters a tradition of accountability, collaboration and steady studying. The transformation now we have undertaken is obvious in our day-to-day operations.
In consequence, EBITDA losses within the monetary 12 months decreased considerably to solely one-third of the earlier 12 months, while we had been in a position to develop revenues threefold. We now have a disciplined strategy to the usage of our capital, which is mirrored in our sturdy year-end web money place. On the expertise facet, we’re on the forefront globally, and we’re deploying our electrolyzers into a few of the largest and most prestigious inexperienced hydrogen crops underneath building worldwide right now.
In June this 12 months, we inaugurated the 24-megawatt plant we constructed collectively with Linde for Yara in Porsgrunn, Norway. It’s now the largest PEM electrolyzer plant in operation in Europe. For RWE, we’re delivering 200 megawatts to Lingen. And following Shell’s remaining funding determination for the REFHYNE II mission taken only a few weeks in the past, we at the moment are additionally delivering one other 100 megawatt of our TRIDENT stacks and skids into Shell’s refinery in Wesseling, Germany. Lately, we additionally commissioned our first reference plant in Japan for Sumitomo and Tokyo Fuel.
Our rising base of reference crops and operational area knowledge helps us to persuade new prospects of our capabilities. Our lately introduced partnership with Hygen, the place we had been appointed as their most popular provider for PEM electrolyzers for hydrogen initiatives within the U.Okay. and the European Union, and extra lately, the massive 500-megawatts capability reservation by a big industrial buyer, are additional sturdy endorsements of our expertise and credibility to ship.
Clear applied sciences are basic to governments reaching their formidable local weather, financial and vitality safety targets. The widespread adoption of fresh applied sciences will speed up the vitality transition and enhance vitality resilience. Inexperienced hydrogen is ready to play a key function within the vitality mixture of the longer term.
Within the brief and medium time period, authorities incentives and assist mechanisms will stay key enablers of the hydrogen financial system. They will take away limitations to funding by offsetting price differentials between fossil-based fuels and inexperienced hydrogen. Over time, because the {industry} scales up, enterprise instances will get stronger and the {industry} and hydrogen financial system will turn out to be self-sustaining.
In line with the Worldwide Vitality Company, solely underneath 4% of electrolytic hydrogen manufacturing initiatives worldwide have reached FID to this point. In lots of instances, this is because of a mixture of coverage and regulatory uncertainty, inflation, elevated price of capital, lack of infrastructure or unsure offtake commitments. They estimate that 70 million tonnes each year of fresh hydrogen will have to be produced by 2030 to stay on observe for local weather targets. This compares to lower than 1 million tonnes produced right now.
To be strong and resilient, the whole hydrogen worth chain should develop and scale in parallel, together with manufacturing, transport, storage and end-use demand. Whereas this poses complexity, it’s broadly acknowledged right now that renewables will dominate tomorrow’s vitality methods. Inexperienced hydrogen will probably be very important to make sure uninterrupted entry to wash vitality and to decarbonize particularly energy-intensive sectors like metal manufacturing, chemical substances, long-haul transport and aviation.
There have been a number of tangible developments on the regulatory and funding facet. I would like to spotlight a specific view. Within the European Union, the Web-Zero Trade Act is a key piece of laws. Proposed by the European Fee as a part of the broader Inexperienced Deal Industrial Plan, the Council and Parliament agreed to it in February ’24. It goals to strengthen the resilience and competitiveness of key web zero applied sciences within the European Union and to create the best circumstances to draw investments.
The EU goals to provide 10 million tonnes and to import 10 million tonnes of inexperienced hydrogen by 2030. A number of funding and subsidy avenues can be found to {industry}, together with the Vital Initiatives of Widespread European Curiosity, brief IPCEI, and the European Hydrogen Financial institution, which lately accomplished its first EUR800 million pilot public sale.
Along with the provision of central EU funding, particular person member states are allowed to fund initiatives and developments straight as properly. Past incentives, the EU’s Renewable Vitality Directive, and most lately, RED III, mandated improve of renewable fuels of nonbiological origin, primarily hydrogen. It units formidable targets for the hydrogen sector, notably requiring at the very least 42% utilization by 2030 and 60% by 2035.
Additionally, the U.Okay. has seen a number of motion lately. The federal government’s ambition is to provide 10 gigawatts of fresh hydrogen by 2030 with a minimal of 6 gigawatt of it being inexperienced. The Hydrogen Allocation Rounds, brief HAR, allocate income assist for hydrogen manufacturing services to bridge the fee hole. For the primary spherical, HAR1, 11 initiatives inside whole 125 megawatts had been efficiently introduced in December final 12 months.
The mission will obtain over GBP2 billion of income assist by 15-year contracts and GBP91 million of upfront capital funding. HAR2 goals to assist as much as 875 megawatts of capability with the appliance window having simply closed in April this 12 months. A brief record of initiatives is predicted to be introduced in autumn. HAR3 and HAR4 are anticipated to focus on 1.5 gigawatts every.
The U.Okay.’s Inexperienced Industries Progress Accelerator, brief GIGA, fund of GBP960 million was introduced in autumn final 12 months to assist the growth of fresh vitality provide chains, together with hydrogen. In March this 12 months, an extra GBP120 million was added to the fund, and profitable functions are anticipated to start drawing down the funding from 2025.
Within the U.S., the Division of Vitality launched its Nationwide Clear Hydrogen Technique and Roadmap in 2023, focusing on 10 million tonnes by 2030, 20 million tonnes by 2040, and a formidable 50 million tonnes by 2050. Moreover, the Treasury Division within the IRS launched long-awaited proposed laws for the eligibility and implementation of the Part 45V hydrogen manufacturing tax credit score with as much as $3 per kilogram of hydrogen for producers.
In October final 12 months, the DOE introduced $7 billion of funding to launch seven regional and key hydrogen hubs to speed up commercial-scale deployment. In March of this 12 months, the DOE introduced $750 million in funding to cut back the price of clear hydrogen, protecting 52 initiatives throughout 24 states. Additionally, elsewhere on the earth, inexperienced hydrogen methods proceed to evolve at tempo.
Final 12 months, Japan up to date its technique with $107 billion earmarked to be invested over 15-years to realize 2 million tonnes by 2030, 12 million tonnes by 2040, and 20 million tonnes by 2050. In Could this 12 months, the Japanese Parliament handed the Hydrogen Society Promotion Act, which paves the way in which for offering 15-year subsidies for domestically produced and imported low-carbon hydrogen.
India introduced an ambition to provide 5 million tonnes of inexperienced hydrogen by 2030. Egypt’s inexperienced hydrogen technique is focusing on as much as 8% of the worldwide tradable market by 2040. Australia introduced a hydrogen manufacturing tax incentive of AUD2 per kilogram, which will probably be accessible over a 10-year interval ranging from 2027. I may go on for hours, however let’s maintain it brief.
Given the ambitions and targets of governments world wide, the inexperienced hydrogen market and electrolyzer demand are anticipated to see sturdy progress over the approaching years. We’re out of the hype part. Inexperienced hydrogen is going on, and ITM is properly positioned to play a number one function on this rising, very massive market.
There’s broad consensus that inexperienced hydrogen is the enabler of a profitable vitality transition for grid balancing and decarbonizing particularly hard-to-abate industries, that are the reason for roughly 30% of world emissions right now. As simply defined, governments everywhere in the world are creating environments conducive to funding, together with grant funding and rising carbon taxation.
On the similar time, these governments are proactively investing into infrastructure for hydrogen transport and storage, each of that are important for cross-border hydrogen financial system to take form. The EU and U.S. alone each foresee greater than EUR300 billion of investments by 2050 every. Inexperienced hydrogen is changing into a large market. The rationale hasn’t modified. Within the short-term, nonetheless, the electrolyzer market remains to be immature, with many corporations promising greater than they’re really able to delivering.
ITM Energy is standing out as one of many few exceptions right here. We’ve been finishing necessary reference crops. We’re producing increasingly area knowledge, and an rising variety of industrial prospects is investing their belief in us. Whereas the quantity and dimension of mission inquiries has continued to develop considerably, and I’ll discuss extra about this later, buyer FIDs oftentimes maintain being delayed.
Vitality value and inflation developments have not helped enterprise instances by prospects who’re ready for a authorities funding determination, in some instances for greater than a 12 months. The market potential for inexperienced hydrogen stays glorious, with sturdy progress anticipated within the coming years.
Within the short-term, the realities of business scale-up will stay incremental although. This doesn’t imply that FIDs will not come, as simply confirmed fallacious by the optimistic REFHYNE II FID, however persistence stays key. The vitality transition in inexperienced hydrogen don’t magically occur in a single day. This can be a marathon, not a dash. As such, now we have to verify to not run out of breath earlier than we attain the end line. Equally, we can’t run too sluggish as to not fall behind.
And this steadiness between exponential long-term progress however slowed down FIDs within the close to time period implies the necessity for readiness and adaptability, while managing money commitments rigorously. Our strategic priorities introduced in January this 12 months aligned with our imaginative and prescient of delivering the world’s greatest electrolyzers, scaling our operations profitably to satisfy the rising demand and rising our international footprint and attain over time. We’ve reassessed these priorities towards the noticed market developments and might verify that they continue to be totally legitimate.
As a recap, to stay on the forefront of expertise, product and supply credibility, we’ll evolve our merchandise, together with the continual enchancment of our TRIDENT stack platform and NEPTUNE plug-and-play models. We’ll strategically prolong our portfolio at the moment underneath growth with a bigger capability, game-changing stack platform to widen the hole to competitors even additional. We ready for speedy scaling of stack volumes and proceed to evolve our processes and capabilities in manufacturing, engineering, procurement and area providers.
To scale our operations, while retaining flexibility and conserving money, we’ll proceed to deepen the extent of automation, which now we have been making nice progress on. We’ll develop manufacturing capability consistent with business initiatives and concentrate on credible gross sales alternatives and seize a major market share by providing one of the best merchandise, worth and credibility to our prospects.
To develop our international footprint and attain, whereas staying adaptable, we’ll guarantee an acceptable setup in all engaging offtake areas. We wish to be greatest positioned and prepared for speedy demand uptick as we’re within the European Union by way of our new entity, ITM Energy Germany. We’ve additionally only in the near past expanded our enterprise growth within the U.S. We’ll take an asset-light product and service-first strategy and proceed to increase to regional product compliance.
To reiterate, these strategic priorities stay totally legitimate. And now we have been making important progress on every one in all them already since we introduced them in January this 12 months. To start with of this 12 months, we promised to be launching a larger-capacity containerized unit.
As at all times, we stroll the discuss. In Could, in response to important buyer demand, we launched NEPTUNE V, our new 5-megawatt containerized full-scope plug-and-play electrolyzer plant. Designed towards the very best security and high quality requirements and incorporating the learnings from our operational electrolyzers world wide, NEPTUNE V makes use of our main and confirmed TRIDENT stack expertise.
NEPTUNE V is compact and versatile, offering 5 megawatts of dependable and extremely environment friendly hydrogen manufacturing capability, all contained within the smallest footprint per megawatt within the {industry} right now. It presents the widest operational vary in its class. It could actually deal with load modifications between 12.5% and 100% inside simply seconds. NEPTUNE V is competitively priced and ideally suited to midsized initiatives. Buyer curiosity has been overwhelming since its launch.
With this newest addition, we now have a whole and complete product portfolio, completely aligned with what our prospects need and want. With TRIDENT, we proceed to supply the main PEM expertise, coming in a 2-megawatt hydraulic skid resolution. While for some prospects, we will straight ship TRIDENT into succesful EPC integrators, many different prospects can’t do a lot with electrolyzer stacks alone. Due to this fact, we’re providing our TRIDENT expertise packaged in full-scope plug-and-play electrolyzer crops coming in 40-foot containers. Prospects solely require faucet water and electrical energy. Our system does the remaining.
NEPTUNE II is our 2-megawatt resolution, a well-liked alternative for mobility functions and smaller initiatives beneath 10 megawatt. NEPTUNE V, as simply defined, is our 5-megawatt containerized plant, properly suited to midsized initiatives. POSEIDON is our 20-megawatt core electrolysis module resolution for large-scale EPC initiatives, usually ranging from 60 megawatts in dimension, open-ended, or the place prospects wish to construct crops in a method which permits later modular growth. The overwhelming majority of initiatives we’re bidding POSEIDON into is method past 100-megawatt in dimension.
For initiatives which we’re realizing along with Linde Engineering as our strategic EPC accomplice, Linde is deploying their very own HYPEM module, which scope-wise is akin to our POSEIDON providing. It’s a extremely standardized and confirmed 10-megawatt resolution, integrating our TRIDENT stacks and skids into the broader steadiness of plant. Linde’s HYPEM module is the premise for the 200 megawatt we’re collectively delivering to RWE in Lingen and the 100 megawatt we at the moment are collectively deploying for Shell. HYPEM is, for sure, probably the most mature module of its kind available in the market worldwide right now.
That is how a Linde 200-megawatt HYPEM configuration with ITM stacks and skids seems to be like in an actual mission. This can be a render of the RWE Lingen 200-megawatt plant at the moment in building. When speaking about electrolyzers, folks usually underestimate how large and complicated a 200-megawatt plant actually is. This can be a huge gasoline plant, and to achieve success, it requires a really shut collaboration between the core electrolyzer expertise supplier on the one hand and a extremely expert and succesful hydrogen-experienced EPC integrator however.
Right here, one other view to offer you an impression of the dimensions and dimension. The GET H2 Nukleus 200-megawatt plant in Lingen is the most important PEM electrolyzer plant in bodily construct worldwide right now. Right here, now an instance of how a NEPTUNE II unit seems to be like in business actuality as delivered to Sumitomo for Tokyo Fuel. This photograph was taken final month in Yokohama, Japan. The unit marks the primary commercial-scale electrolyzer ever imported into the nation.
I will not go into extra particulars at this level as Simon will present a extra detailed replace on our reference crops later within the presentation. Nonetheless, within the context of serious funding packages for inexperienced hydrogen lately introduced by the Japanese authorities, having an early foot within the door on this strategically rising market is actually an necessary milestone and achievement for ITM.
We’re evolving and rising into areas during which we see related buyer demand, justifying investments into elevated buyer proximity. In addition to our assets on the bottom in France, the U.S. and Australia, our most important working hubs right now are Sheffield within the U.Okay. and Linden in Germany. Our Sheffield manufacturing unit was not solely the world’s first PEM Gigafactory. With our growth to twenty,000 sq. meters, it continues to be the world’s largest PEM Gigafactory in business operation.
We’ve constantly deepened the extent of automation in our manufacturing unit, one thing for which it is very important get the steadiness proper. It is advisable to be completely sure what to automate earlier than you make investments, and also you want strong validation of latest manufacturing strategies and tools earlier than introduction into the business manufacturing course of. An incremental strategy to automation has confirmed to be proper.
Given important buyer demand, a key focus space in our growth in Sheffield lies in {our capability} to fabricate an rising variety of NEPTUNE models in parallel. In October final 12 months, now we have opened our new Continental European hub in Linden. ITM Energy Germany is house to our aftersales operations within the area, and we’re recruiting into capabilities corresponding to enterprise growth and IoT, all of which we want for our accelerated progress.
As native content material necessities could turn out to be stricter within the European Union, we’re ensuring that we’re prepared. Our pipeline of mission alternatives has grown strongly, particularly in areas the place corporations see constant regulation and incentive schemes regarding inexperienced hydrogen manufacturing or demand.
Right this moment, we’re engaged on greater than 100 gross sales initiatives. And over the previous 18 months, our gross sales pipeline has grown by an nearly unbelievable 25 occasions. On the similar time, with increasingly industrial buyer demand, additionally the standard of our gross sales pipeline has improved. Though this doesn’t essentially translate into FIDs in a single day, I personally have by no means seen a gross sales pipeline develop so shortly ever in my profession.
Over time, this can ultimately translate into huge orders. Europe continues to paved the way when it comes to tangible progress on inexperienced hydrogen initiatives, with main industrial and vitality corporations growing portfolios of initiatives. Along with the sturdy vitality markets of Germany and the Netherlands, the primary Hydrogen Financial institution public sale confirmed the competitiveness of the Iberian and Nordic markets for large-scale manufacturing.
Prospects are growing their initiatives at a variety of capacities with a major variety of initiatives within the sub-50-megawatt vary, the place our containerized merchandise are ideally suited. These initiatives generally goal mobility functions and particular industrial use instances corresponding to distilleries or semiconductor manufacturing.
Within the 100-megawatt-plus scale, we see sturdy momentum in relation to inexperienced ammonia manufacturing, refining and sustainable aviation gasoline. Because of the massive volumes of hydrogen produced and the dangers related to single off takers, such initiatives are sometimes contingent on rising hydrogen infrastructure like pipelines and storage. There are additionally a lot of very massive gigawatt-scale initiatives, predominantly in areas providing low-cost renewable vitality potential, usually focusing on export. We anticipate these initiatives to undertake a sensible phased strategy to handle execution, monetary and offtake dangers.
Built-in vitality oil and gasoline corporations proceed to be energetic within the growth of their inexperienced hydrogen mission portfolios. They’ve a mature strategy to technical and monetary danger administration in relation to the funding into bodily belongings at scale and the aptitude to finance off their steadiness sheet. Pure-play inexperienced hydrogen or wider renewable vitality mission builders are additionally more and more frequent and, within the absence of steadiness sheet energy, are driving the market in relation to mission financing choices.
Prospects at the moment are reacting to their very personal expertise of growing and delivering early pilot initiatives or to experiences of the expertise of others. This has elevated buyer concentrate on proof of expertise efficiency, design, integration and execution functionality throughout OEMs and EPCs and the flexibility to reveal real-world operational knowledge. As initiatives scale in dimension, prospects more and more wish to guarantee they’ll ship on their enterprise case, particularly once they receives a commission just for every kilogram of hydrogen produced like, for instance, underneath the U.Okay. market mechanism.
Moreover, prospects acknowledge that there are solely a small variety of OEMs and EPCs really succesful to ship reliably, particularly large-scale initiatives. It will turn out to be an ever extra decisive differentiator available in the market. For us, ITM, this results in capability reservations. Below which, prospects usually prepay a certain quantity of the ultimate contract value to safe manufacturing slots forward of the pending FID.
Particularly industrial prospects have began to comprehend that manufacturing capability will turn out to be scarce, given the low variety of credible OEMs together with considerably rising mission gross sales pipelines.
Let’s discuss knowledge. Our pipeline by product and 12 months of producing from 2024 to 2031 exhibits a 60% share of TRIDENT stacks and skids and a 33% share of POSEIDON module demand. Initiatives primarily based on containerized NEPTUNE models are usually deliberate much less lengthy forward by prospects, given their smaller dimension and shorter mission execution time. The additional out, the larger the common mission dimension.
If we check out the 12 months 2026 as a snapshot, once more by megawatt and the 12 months of producing, then the image seems to be very completely different although. There is a considerably larger share of demand for containerized NEPTUNE methods, predominantly NEPTUNE V for midsized initiatives. That is extremely necessary to us because the underlying knowledge provides us beneficial insights into the place to place our concentrate on capability progress and regional product compliance requirements. As I had already talked about, our present manufacturing unit growth is placing sturdy emphasis on an extra improve of our parallel container meeting capabilities.
Let’s take a view on this knowledge by area. Greater than half of our pipeline, and I’d additionally dare to say the on common extra mature initiatives, are positioned in Europe with a shortly rising demand uptick within the U.Okay. as a result of HAR funding. Australia, with its huge renewable potential, stays a really attention-grabbing, however fairly slowly growing market. And the remainder of the world is leaning sturdy in direction of U.S. initiatives.
Simon Bourne
Thanks, Dennis, and good morning, everybody. I would like to start out by constructing on the necessary theme of product efficiency knowledge that Dennis talked about earlier. I am going to define some sensible examples of latest product deployments, give an impression of what we’re studying from these experiences, and the way that is serving to our prospects construct confidence in direction of making funding selections.
As you have seen, the deployment of TRIDENT stacks continues each in containerized and non-containerized merchandise. Within the latest months, we have deployed 9 NEPTUNE II merchandise into semiconductor, gasoline synthesis and refueling functions, and every of these has been deployed into very completely different world areas.
Non-containerized TRIDENT stacks have additionally been built-in and operated in numerous course of industries, the 4-megawatt RWE plant in Lingen, the 24-megawatt Yara mission in Porsgrunn, and the 10-megawatt REFHYNE I mission with Shell in Wesseling. The REFHYNE I stacks have been upgraded to the newest technology in a phased course of that began in late 2023.
The photographs on the best are from key occasions throughout June and July this 12 months, and all of those crops have generated beneficial knowledge, which I am going to clarify in additional element. It is well-known that ITM has intensive check services from cell and stack by to full product. Any of you which have visited ITM may have seen this first-hand. These services have generated an amazing quantity of knowledge through the years.
Now the addition of expertise from in-field merchandise is admittedly beginning to drive buyer confidence. ITM has constructed and examined over 200 TRIDENT stacks. Every one goes by a full manufacturing unit acceptance program. This consists of integrity, certification and efficiency checks over the complete working vary. I’ve defined in earlier shows the efficiency of TRIDENT and so will not repeat it right here. However what I’ll say is that full-load effectivity of each stack is measured and analyzed intimately for consistency. The stacks proceed to ship industry-leading effectivity, and this knowledge could be made accessible to potential prospects. Tens of 1000’s of stack working hours have been accrued at Yara alone.
Equally, each NEPTUNE unit undergoes manufacturing unit acceptance testing and an in depth buyer witness check. That is carried out over the complete working vary with a number of check factors. Each unit examined has met all metrics outlined within the specification. Importantly, the NEPTUNE product run fee signifies in-field availability of over 98%. Whereas having such efficiency knowledge is clearly beneficial, our services for reside buyer witness testing has made a major affect. Through this facility, potential prospects successfully have the chance to strive earlier than they purchase.
By visiting ITM or taking part on-line, prospects can observe reside efficiency and get entry to a abstract of the check knowledge generated. Collectively, that is demystifying electrolyzer system capabilities and efficiency and due to this fact unlocking buyer confidence. As well as, ITM has developed speedy knowledge processing algorithms for our long-term in-house testing, and we proceed to construct our infrastructure to entry extra knowledge and course of it quicker to maximise worth for our prospects and likewise for ITM.
Now with its complement of current-generation stacks, the REFHYNE I system has additionally accrued tens of 1000’s of stack working hours. Shell is assessing efficiency commonly utilizing a managed and constant check protocol. And to-date, no measurable degradation has been noticed.
Lastly from me, and to carry us totally updated, I am delighted that Shell have made a optimistic remaining funding determination on the REFHYNE II mission. This was introduced on the twenty fifth of July and is one other necessary mission for ITM. It’ll see us provide 100 megawatts of TRIDENT stacks and skids. That is along with the ten megawatts that is already at web site in REFHYNE I.
Linde has been appointed because the EPC integrator, which means that every one our joint expertise will probably be utilized. A lot of you’ll recognize that Shell has a rigorous FID course of. Previous to reaching their determination, Shell undertook an in depth audit of ITM. This coated our expertise and likewise our operations within the manufacturing unit. This, along with the efficiency of our newest technology of stacks in REFHYNE I, performed a serious function in Shell’s confidence to proceed to FID.
So I see this as a powerful endorsement of our expertise and firm. Repeat enterprise from a number one industrial and well-informed buyer is a vital achievement and one other beneficial reference level for different potential prospects on the lookout for a dependable electrolyzer provider.
And with that, I am going to hand over to Andy.
Andy Allen
Many thanks, Simon, and good morning, everybody. Thanks for becoming a member of us. I’ll discuss by the monetary outcomes of the corporate in addition to the steering for the 12 months ending thirtieth of April ’25. Earlier than speaking in regards to the outcomes, I wish to present once more one of many options of our firm and {industry} when it comes to our typical contract construction and income recognition. The graph on the best exhibits a typical contract construction for one in all our bigger TRIDENT initiatives.
As a reminder, TRIDENT are our extremely standardized electrolyzer stacks and skids for quantity manufacturing and large-scale deployment. The blue bar exhibits money invoiced towards hitting sure milestones and a profile that’s pretty customary for ITM. These milestones usually mark the completion of sure phases of the mission or you can say worth creation factors. They’re usually represented by a rise in work in progress, or WIP, or completed merchandise within the stock.
In consequence, income will considerably lag behind worth creation, which in itself is not an issue, but it surely’s necessary to take note of when ITM’s income numbers. The pink bar is the income recognition level. For TRIDENT initiatives, that is often when the stacks meet the skids on web site on the buyer location and bear web site acceptance testing, or SAT. As such, there is a dependency on income recognition for buyer web site readiness. Due to this fact, the timing of income recognition is usually depending on circumstances past our instant management.
Massive-scale initiatives we’re collectively delivering with Linde Engineering such because the 200-megawatt RWE or the 100-megawatt Shell REFHYNE initiatives fall into this class. The income recognition profile is much less excessive for NEPTUNE merchandise in that income recognition tends to align with both manufacturing unit acceptance testing already or readiness for cargo, each of that are inside our management. With POSEIDON initiatives, these will probably be acknowledged on share of completion, as each will probably be bespoke to a selected buyer.
This dynamic is impacting our monetary outcomes for the 12 months ended thirtieth of April ’24 FY ’24. We see that income is principally acknowledged from initiatives which have NEPTUNE plug-and-play merchandise at their core. This can be a results of us having gained traction with our 12-month plan, bringing management to our operations and initiatives within the manufacturing unit. The outcomes for the 12 months present a step-change within the efficiency of the enterprise in comparison with this time a 12 months in the past. The income has elevated greater than threefold to GBP16.5 million. We additionally see a rising aftersales revenue by upkeep providers, upgrades and spare components.
Gross loss has improved by a formidable 79% as we see the advantages of incremental automation with the 12 months ending with a considerably improved efficiency, in comparison with FY ’23. One of many components of this 12 months’s gross loss was an under-absorption of manufacturing prices, the place we constructed merchandise solely to contracts and to not the utmost capability of the manufacturing unit. We’ll proceed to maintain tight management of what we produce and be certain that we aren’t purely constructing merchandise to sit down on the steadiness sheet, which we will not promote to prospects.
Our adjusted EBITDA loss was GBP30.4 million, a lower of greater than two-thirds on the prior 12 months and reflecting an organization that appears and feels very completely different to the one in FY ’23. We’ve achieved this consequence too by staying far leaner and making a lot of strategic hires, while retaining the fee and effectivity advantages of the restructure we executed simply over a 12 months in the past.
The money outflow additionally improved in comparison with the prior 12 months, the whole outflow being GBP52.3 million. The opening steadiness was GBP283 million and the closing steadiness, GBP230 million. On this desk, I’ve highlighted the important thing money actions. You possibly can see that the rise in inventories of GBP11.6 million was largely offset by the variations to working capital of GBP10 million.
The rise in inventories solely tells half a narrative, too. The graphic to the best exhibits {that a} 12 months in the past, we had much less general stock and a bigger proportion was uncooked supplies. Quick ahead to FY ’24, and now we have processed 85% of all of our stock into WIP and completed items and all to buyer contracts.
We additionally noticed a discount in provisions, which included us working by the mission contracts now we have, in addition to releasing some provisions again to the revenue assertion as efficiencies had been discovered. We’ve invested the same quantity at GBP15.5 million to the prior 12 months in CapEx and growth prices. However you’ll be able to see that the weighting has shifted from an excellent cut up of product growth and manufacturing functionality to a larger emphasis within the final 12 months on manufacturing readiness.
As we glance to FY ’25, product growth will as soon as once more begin to see a elevate, amongst others, for our new CHRONOS stack platform. Lastly, we benefited within the 12 months from GBP12 million price of curiosity and an extra GBP4 million of different smaller gadgets.
My remaining slide is on the steering for the present 12 months we’re in, FY ’25. We at the moment are at some extent of executing buyer contracts, in addition to looking for to safe new buyer initiatives corresponding to REFHYNE II. In doing so, we’ll proceed to spend money on the managed and stepped scale-up of the enterprise as we go ahead.
When it comes to income, we’re guiding to a variety of between GBP18 million and GBP22 million, one other uplift on the outcomes for FY ’24. This income quantity will as soon as once more be primarily because of NEPTUNE contracts and never TRIDENT contracts, which because of buyer web site delays past our management, will now fall into future durations for income recognition. With out these delays, we might have been guiding to a variety of between GBP35 million and GBP40 million within the 12 months.
An extra key metric is our contract backlog, which means signed agency orders with prospects which haven’t but been transformed into income. Our contract backlog is now rising faster than we’re recognizing income. This can be a essential indicator because it confirms that we’re rising a sustainable enterprise. That is illustrated on the right-hand facet, the place we began FY ’25 with GBP80 million of contracts to ship and have already gained so far at GBP47 million of latest contracts, which incorporates REFHYNE II, and we’ll proceed to develop that additional.
With our steering income for the complete 12 months to deduct on the year-end, our contract backlog will sit above GBP100 million at April 2025. We’re guiding right now to an EBITDA lack of between GBP35 million and GBP40 million. That is broadly in step with FY ’24 when taking into consideration inflation. Having taken management of our overhead, the EBITDA quantity profitability is now a perform of quantity of manufacturing and gross sales orders contracted in any given 12 months to extend fixed-cost absorption.
Lastly, we anticipate web money to be within the vary of GBP160 million to GBP175 million on the finish of the 12 months with a web outflow just like FY ’24. Past the EBITDA steering, we will probably be investing into CapEx with additional manufacturing unit automation and our CHRONOS product growth program. We can even see smaller will increase in working capital as we proceed to construct to contracts, the place income can’t be acknowledged in the identical 12 months.
For me, there’s a very completely different really feel round ITM in comparison with 12 or 18 months in the past. We’ve made important strides ahead, and that’s evidenced by our constructing and delivery of merchandise to prospects. We’re additionally welcoming a number of these prospects visiting our manufacturing unit right here in Sheffield, and we’re creating actually optimistic impressions be it from first time or returning guests. It is not essentially straightforward to mirror this in phrases, so we have ready a fast digital tour of Bessemer Park in Sheffield, that includes two acquainted faces to offer everybody right here a taste of what our guests get to see.
[Video Presentation]
Dennis Schulz
Right this moment, ITM is considerably extra succesful than the corporate has ever been. Our path to profitability is now not a query of functionality, however now solely a query of quantity of buyer orders. The foundations now we have laid will allow ITM to construct long-term venue, permitting us to speculate for progress and drive engaging returns for our shareholders.
Within the meantime, our gross sales pipeline has been rising strongly, which makes me optimistic about what lies forward for ITM and our {industry}. We’re prepared. Now we want extra prospects to take FIDs.
Query-and-Reply Session
Operator
Thanks very a lot, certainly to your presentation. [Operator Instructions] I simply need the crew take a couple of moments to evaluation these questions submitted already. I would prefer to remind you the recording of the presentation, together with a duplicate of the slides and the revealed Q&A, could be accessed by your Investor dashboard.
I would now like handy you over to Justin Scarborough, Head of Investor Relations, to host the Q&A. And Justin, as you’ll be able to see, we have acquired a lot of questions from buyers, each pre-submitted and all through right now’s presentation. If I may ask you to learn out the query the place acceptable and direct it to a member of the crew. Thanks.
Justin Scarborough
Thanks very a lot, and welcome, everyone, to the outcomes presentation right now. The primary query is in relation to what you talked about on the entrance web page of the discharge this morning and the trail to profitability. May you elaborate on what that path to profitability seems to be like from an ITM perspective?
Andy Allen
Sure. I am going to kick off and Dennis, do soar in. I feel there are two sides to this. There’s a couple of facet which is about gross sales and producing revenue. However the second half is round controlling prices and being prepared for these gross sales. As you have seen, we’re completely able to take orders, and now we have managed prices very rigorously during the last 12 months, so we’re ready the place we will take orders. Now it relies upon very a lot on the gross sales combine as to what we have to do so as to break even, but it surely’s very a lot across the TRIDENT initiatives as a result of these — that is the amount product and naturally, POSEIDON is a part of that, being a volume-execution mission.
What we see is TRIDENT mission life cycles lasting from between two and three years in execution. And the ITM bit tends in direction of the top of that as a plant must be constructed first, with stacks to reach final. So we do see a while earlier than we get all the income acknowledged. The flip facet of that’s that really, we see money milestones all through. So we see a extra optimistic money technology profile earlier than we see a breakeven within the P&L.
We — when it comes to volumes, I feel we have stated it earlier than. However the quantity stays pretty constant, which is we would want to execute 400 megawatts of TRIDENT, give or take, relying on actual parameters of the contract. If we begin to add into the combination POSEIDON and NEPTUNE, as a result of extra of the scope is with ITM, we begin to see a decrease quantity of megawatts required for a breakeven place.
Dennis Schulz
Perhaps I am additionally including in a bit of bit. Thanks for that. So I feel what’s necessary to say right here is that now we have gained management over what we will and should management as a enterprise. On a project-by-project stage, we at the moment are worthwhile. So any new gross sales contract coming in will generate profitability on a mission stage. This implies if we generate extra initiatives and if prospects take extra FIDs, over time, we’ll turn out to be not solely breakeven however a worthwhile enterprise.
What can also be necessary to say is that we’re now not — that is what ITM had executed beforehand, we’re now not pricing in any future enhancements of our product or cost-down initiatives, however we’re promoting at right now’s value with a revenue margin. This implies any enchancment, which Simon is producing on the expertise facet, any cost-down, and we’re working very laborious on reaching cost-downs, is an extra upside for us. That means that particularly, Andy talked about TRIDENT contracts being delivered all through a few years, any enchancment to the fee base of TRIDENT throughout the mission execution lifetime will additional enhance our consequence on a project-by-project foundation.
Justin Scarborough
Thanks very a lot. A query for Simon. On the time of the interim ends in January, we spoke about CHRONOS. And Andy barely talked about it in his a part of the presentation. May you give an replace on the event of CHRONOS and once we anticipate to listen to some laborious information on it?
Simon Bourne
Certain. Properly, we’re on observe. CHRONOS is, after all, our larger-capacity stack platform that is underneath growth right now. It is in that larger-scale deployments and it builds on our current strengths but additionally all of our classes realized in execution. And we’re giving explicit consideration to design for manufacture to make meeting simpler and extra easy. We’ve a really tight collaboration with Gore, who’s a membrane provider. And collectively, we’re taking steps in evaluating options at the moment for that stack platform. And we’re fairly enthusiastic about it.
I imply, one factor I maybe ought to say is that CHRONOS is not going to render TRIDENT redundant. We’ll proceed to fabricate TRIDENT, and expertise enhancements that Dennis referred to will probably be carried out in TRIDENT as we transfer ahead. So folks can — current prospects, new prospects can achieve the profit from that.
Justin Scarborough
Thanks, Simon. What do you regard as your most important USPs towards your peer group?
Dennis Schulz
Perhaps you begin on the expertise facet?
Simon Bourne
Okay. I imply from a expertise standpoint, we have defined in earlier shows why now we have the main expertise, highest present density, giving operators probably the most flexibility to how they function the tools. We have main conversion effectivity. And as now we have defined in NEPTUNE V, we’re bringing the smallest footprint containerized product. So from a core expertise standpoint, there are a lot of components. We even have, after all, a really succesful manufacturing unit. We even have confirmed execution functionality, and we’re quickly now producing knowledge within the area, which is admittedly driving buyer confidence.
Dennis Schulz
Sure, I feel you have principally coated it. Perhaps on high, I am assembly a variety of prospects in our manufacturing unit. And the recurring theme or recurring suggestions we get from prospects is that they recognize how a lot completely different the present manufacturing unit feels, how far more actual that’s over a few of our friends, particularly once they can see precise plant working knowledge from our reference crops in addition to in our check yard.
In your a part of the presentation, you defined about our testing capabilities. I feel one very distinctive function of ITM is that we will check stacks and NEPTUNE containers underneath full load, together with any security case. So if a buyer buys a product with us, for instance, NEPTUNE II or 5-megawatt container, they’ll go to us clearly whereas we’re producing that. However the principle level once they’re visiting us is to do manufacturing unit acceptance testing, what we name buyer witness testing.
After they come to us, they’ll sit with us within the management room or they’ll dial in remotely. After which they’ll see their private particular person unit performing precisely what we stated it might produce. And solely when — as soon as now we have confirmed and as soon as now we have proven that the unit is doing what it is purported to be doing, then the shopper is signing off the unit and can take management of it, after which we’re transporting it to the location.
That is one thing the place the shopper or prospects get a variety of consolation across the efficiency of the models and in regards to the functionality of ITM. And it has helped us rather a lot that we’re recurring checks in our manufacturing unit proper now, the place we will invite new potential prospects to witness additionally the testing of models of different prospects at the moment in manufacturing, in order that they’ll really see in actuality that the models are performing what they’re purported to be doing. Very completely different from a few of our friends who solely carry out on PowerPoint.
Justin Scarborough
Thanks, Simon. Thanks, Dennis. With reference to NEPTUNE, the query is are you able to give an replace on our manufacturing capability and notably in mild of the data you offered on the gross sales pipeline, which included a variety of NEPTUNE potential merchandise?
Dennis Schulz
Do you wish to reply that?
Andy Allen
Sorry, I missed it.
Justin Scarborough
With reference to NEPTUNE manufacturing capability and notably with regard to the info offered on the gross sales pipeline inside that half.
Dennis Schulz
Okay. It is a basic query for all of us. In order I had specified by my a part of the presentation, we’re seeing a major uplift in containerized demand, particularly for NEPTUNE V. This product has landed extraordinarily properly, each due to its aggressive value however particularly additionally due to its flexibility and compactness. The — for our personal capabilities of producing in NEPTUNE II and NEPTUNE V, they’re exchangeable. They’ve the identical container dimension, 40-foot for the principle container. So in the identical house the place we might often construct a NEPTUNE II, we will additionally construct a NEPTUNE V so that they’re interchangeable.
When it comes to capability, now we have put a variety of concentrate on rising the quantity of NEPTUNE models we will do in parallel and we proceed to take action. We’re at the moment not at some extent the place we’re operating out of producing capabilities and house. However over the following, I’d say, 12 to 24 months, we see a variety of demand. And you have seen the snapshot for ’26, ’25 seems to be very related when it comes to NEPTUNE demand. We’re seeing a variety of initiatives being tendered for, which if all of them materialize on the similar time may result in, I’d say, a limitation of the numbers we will produce towards these contracts.
That is why now we have began to pre-produce a few of the NEPTUNE II models, and we’re additionally beginning to pre-produce one NEPTUNE V unit now in anticipation of the large demand, which we’re at the moment being — which we’re at the moment tendering for.
I don’t foresee a bottleneck there general as a result of if we flatten the manufacturing of the containers throughout the following two years, we will positively ship what our prospects need. Some prospects, and I stated that in my a part of the presentation, have very particular supply home windows for his or her NEPTUNE models, which they should adhere to. And that’s the reason they’re coming to us with capability reservations to dam explicit manufacturing slots.
Now the capability reservation matter is an attention-grabbing one. And possibly should you enable me, I’d simply remark shortly on that one. As a result of capability reservations in itself are a very good factor, proper? It implies that the shopper has principally chosen us as a provider, not simply as one in all many, however because the provider of the mission. After which they’re usually prepaying a certain quantity of the contract value, which is then later discounted towards the precise contract award.
You could have seen that with Shell REFHYNE, proper? Shell gave us a capability reservation, which was paid, and this quantity is now discounted towards the precise Shell REFHYNE II contract. And you continue to have to be very cautious who you give these capability reservations, too. There’s a variety of corporations and amongst them are a variety of mission builders, who’ve a really excessive — a really low chance of mission realization, both as a result of they’re depending on funding, which is typically troublesome to realize. They’ve excellent constructing allow points. A few of them don’t but have an offtaker for the hydrogen molecules.
In all of those instances, it’s worthwhile to watch out who you commit manufacturing capability to as a result of while you do get a prepayment of the contract value and while you’ll be able to maintain it if it’s not getting used and never materialized as a contract, you should still find yourself with a manufacturing slot which isn’t utilized, which might result in a fixed-cost under-absorption in your manufacturing unit. That is why we’re very selective in who we signal capability reservations with, which suggests they should fulfill some essential standards.
Amongst them, they should have a confirmed offtaker. The corporate must have an industrial background. They should have the financing in place or the steadiness sheet energy to tug off the mission. And they should have, I’d say, related expertise in deploying related initiatives. So for us, the credibility of the shopper is extraordinarily necessary in that. If the shopper can’t persuade us of that, we might not took capability reservations. However they might have principally want to attend in line for the following container to be completed.
Justin Scarborough
Thanks, Dennis. I do know you talked about a selected standards on initiatives. And in addition throughout Simon’s a part of the presentation, he spoke in regards to the intensive audit that was executed by Shell. May you present a bit extra type of shade when it comes to what that audit regarded like?
Simon Bourne
Sure. I am going to begin. Properly, Shell has a really detailed and rigorous course of. That is the very first thing to say. In terms of large-scale initiatives, it is a very intense and detailed course of, very completely different to the smaller scale of pilot initiatives. We’ve had an in depth train with Shell for an extended, very long time. We have coated all the pieces from classes realized within the execution and operation of REFHYNE I.
We have had bodily audits right here within the manufacturing unit, our manufacturing processes and the controls we use in and round our basic operations. They’ve additionally assessed our expertise, each right here within the labs, within the check yard, and likewise by having the newest technology of TRIDENT stacks deployed into REFHYNE I. So we have had very sensible hands-on expertise at that.
So I imply, usually, they have been each side of ITM and our means to ship a large-scale mission. So there’s not likely something that they have not touched or inquired about as a part of that course of. So whereas it has been detailed and a variety of work has gone in from many individuals to try this, there’s a sense of pleasure really of popping out the opposite facet. These selections aren’t taken frivolously, appropriately so, and we’re delighted that we have got by that course of and we’re working with — working properly along with Shell and Linde on the mission.
Dennis Schulz
Sure, I may verify that. Perhaps as well as, or speaking a bit of bit in regards to the hybrid stack improve. I feel that is necessary on varied ranges. So I feel we beforehand spoke in regards to the hybrid stack improve having delivered 10% effectivity improve within the REFHYNE I plant. That in itself is nice, and that in itself has motivated different prospects to do hybrid upgrades as properly.
Nonetheless, it additionally says one thing else. The inherent promise you get should you purchase a PEM expertise plant is that, over time, you’ll be able to trade stack generations. So should you purchase a TRIDENT stack right now, then I’d say, in a few years, there have been a variety of technological enhancements. Over time, you’ll be able to then simply purchase the following technology, put it in your plant, and it is nonetheless working and it is working higher.
Now a variety of corporations, principally everyone, has been speaking about that. However we at the moment are the one one who has really pulled it off in actuality. We’re the one firm who has ever introduced in business scale a new-generation expertise right into a previous-generation plant, delivering a ten% effectivity enchancment. So this was one other aspect, which has satisfied Shell, however which can also be essential to different prospects as a result of they see {our capability} of in the event that they purchase a plant right now by us, they are going to revenue in the event that they improve from any innovation we do to our core product lineup through the years to return.
And at any given level, they’ll transition to the following stack technology and get a higher-performing plant as any person would who’s shopping for a brand new plant from us. That is one thing which is admittedly necessary to prospects. They are not locked in inside, I’d say, an older expertise for an extended interval, however they’ll at all times improve.
Justin Scarborough
Thanks, Dennis. May you present an replace and a touch upon our relationship with Linde?
Dennis Schulz
Sure, I can. The — I feel the proof is within the pudding. That is what I realized within the U.Okay. And I feel one necessary proof level has been REFHYNE II. REFHYNE II is a mission we’re delivering along with Linde Engineering for Shell. And I’ve additionally proven in my a part of the presentation how the Lingen plant seems to be like as a win. Linde and ITM have a joint providing, which could be very mature available in the market.
Linde has developed their so-called HYPEM module, which is a 10-megawatt very mature central resolution round our core expertise. And we now have a observe document of deploying that to a few of the most prestigious and a few of the largest initiatives on the earth. We’re tendering for lots of initiatives collectively available in the market, particularly in markets the place Linde has a really sturdy footprint, clearly. So I’d say the connection could be very constructive. It is skilled. However that doesn’t essentially imply that it is at all times straightforward.
I feel we’re each two corporations, two completely different corporations. We’re working carefully collectively. There could be one or the opposite dispute at occasions, however I feel now we have discovered a technique to positively work collectively additionally by a few of the earlier mission delays, which occurred earlier than I joined ITM. And I feel we at the moment are in far more regular waters. And I feel that now we have now signed not solely 200 megawatts for RWE however one other 100 megawatt for Shell is a vital proof and proof level right here.
And we’re hoping for extra initiatives collectively. I imply, as I stated, we’re tendering for lots of initiatives proper now. And I feel now we have a really convincing providing available in the market of a confirmed mixture of a powerful expertise firm and a really skilled and mature EPC group.
Justin Scarborough
Thanks. Slide 20 was the steering slide. Andy, may you give some indication over which years you anticipate the GBP105 million of revenues to be acknowledged over?
Andy Allen
Certain. So that is the GBP105 million of contract backlog that’s not anticipated to be acknowledged throughout the present monetary 12 months. I imply, I ought to say on the steering for this monetary 12 months, that’s purely associated to contracts which are already signed. So with some NEPTUNE merchandise being constructed to inventory, we may see an upside within the 12 months, however we’re sticking very rigorously to what now we have contracted and inside our management.
That very same strategy will probably be taken with that GBP105 million of backlog past FY ’25. A few of that’s TRIDENT merchandise. We expect it to exit into future years. And so we’re being cautious that we disclose precisely the timing of that when now we have management or at the very least a better stage of visibility.
Dennis Schulz
I feel it is necessary to reiterate what you stated in your a part of the presentation, Andy. And if you wish to construct a sustainable and resilient enterprise, it is necessary that your backlog of contracts, so not what you might have in your gross sales pipeline, however what you have really signed as agency orders, is rising faster than the income you generate as a result of over time, your organization will develop, proper? When you have spikes in income, that are principally consuming up your order backlog faster than you’ll be able to generate new order backlog, you are operating into an issue territory.
Proper now, we’re seeing the alternative pattern. Our order backlog of firmed up orders is rising considerably and far faster than our income, which is the extra necessary indicator. I imply you introduced that a few of our initiatives will run for 3 years, and solely then we’ll acknowledge 100% of the income on the very finish of the contract. So in such form of situation, which we’re in, I feel income is just not probably the most related indicator for firm progress. I feel contract backlog is probably the most related indicator. And that is why I feel we’ll shift focus additionally a bit of bit to speak extra about contract backlog and what number of orders we nonetheless have in entrance of us to execute.
Justin Scarborough
Thanks. Has your view on the U.Okay. outlook modified or improved within the context of the latest Labor election win?
Dennis Schulz
I feel, improved. So I imply in precept, it was necessary that the brand new authorities, which got here in, the Labor authorities, is constant on the funding packages, which had been began earlier than them. The so-called HAR packages, I additionally launched in my a part of the presentation. As a result of a disruption to that or a whole new program would have principally delayed a variety of initiatives that are at the moment near FID.
So I feel for us, this continuity was actually necessary. And we’re additionally welcoming the Labor authorities’s sturdy drive in direction of vitality transition. And I feel there’s a variety of ambitions proper now, which we’re clearly welcoming rather a lot. Then once more, I feel in the long run, we should anticipate outcomes of that, proper?
I imply, in the long run, the one factor which counts for us is will we get contracts signed with prospects? So do any regulatory or funding modifications by authorities result in precise contracts? I feel to this point, all the pieces I’ve seen from the Labor authorities is pointing in the best course. However once more, let’s wait and see over the following couple of weeks and months how that’s then materializing into precise orders. However to this point, I feel very optimistic.
Justin Scarborough
Thanks. Subsequent query is a lot of our friends have introduced licensing agreements to facilitate entries into varied markets. Are you able to give an replace in your strategy and look at with regard to licensing?
Dennis Schulz
Licensing in itself stays an attention-grabbing mannequin, I’d say. It is not our most popular mannequin. Our most popular mannequin is to be the producer of the tools. I personally imagine that if you wish to be a expertise chief and if you wish to, within the optimistic sense, dominate a market, it’s worthwhile to have very tight management over your provide chain. So the place you purchase your merchandise from, how good is the standard, additionally if amount goes up, it’s worthwhile to just be sure you have inside processes underneath management and so forth and so forth, proper, since you wish to construct up your fame with prospects, you wish to generate area knowledge.
If now you might have a variety of licensing offers with completely different corporations, producing to completely different qualities and probably completely different provide chains, you could find yourself in a state of affairs the place your fame is broken if the standard of your merchandise doesn’t reside as much as expectations.
So I am usually a bit cautious with expertise license agreements. I’d not rule out fully that this may very well be an choice for ITM for very particular world areas. However proper now, our focus will stay on being a producer, being the producer of electrolyzers and to provide the world’s greatest electrolyzers and ship them to our prospects.
Justin Scarborough
Thanks. A few monetary questions for Andy. That is okay. Inside the gross loss clarification within the launch this morning, does the price of high quality of GBP3 million relate to testing? And what does buyer contracts of GBP4.2 million particularly discuss with?
Andy Allen
Okay. So the — it is good that we cut up these two. So the price of high quality is round our manufacturing processes. And should you checked out that over the course of the 12 months, you noticed a taper as we introduced in higher automation and higher management round our manufacturing processes as evidenced by that Shell DD course of. So that’s the price of extra manufacturing prices, which aren’t making it into the merchandise, however far smaller than they had been a 12 months in the past.
When it comes to the GBP4.2 million for initiatives, that’s the place mission forecasts have elevated. And the necessary bit there may be we are literally seeing a slight discount in the price of manufacturing throughout the operations. The place now we have seen prolonged prices is definitely the on-site work and us being really current on web site for longer than anticipated, so these are price forecast will increase within the 12 months. There are nonetheless alternatives to mitigate these going ahead, however that may actually rely on how a lot time we spend on web site finally.
Justin Scarborough
Thanks. I suppose it is a basic query when it comes to the event of electrolyzer provide chains, how they’re growing. And do you see any explicit areas of weak point which will affect ITM going ahead?
Dennis Schulz
Perhaps I am going to kick it off and then you definitely take over. So I feel, in precept, what’s very evident is that increasingly corporations are taking the electrolyzer enterprise critical. I imply the market is rising, proper? It is rising shortly. During the last couple of weeks, now we have seen some very massive FIDs, a few of the most — a few of the greatest initiatives had been only in the near past determined, primarily in Europe.
So with any — with each determination of a giant buyer to take FID after which to speculate into these form of initiatives, increasingly credible suppliers attempting to participate within the provide chain, which can result in competitors and finally to larger high quality and a lower in price and value by suppliers. I feel it is a growth we’re seeing already, which could be very useful.
And particularly, I feel, and you may touch upon the Gore relationship, however having very massive corporations with a variety of capabilities coming into the house and partnering with OEMs is essential. After I joined ITM, I put a variety of emphasis and concentrate on our provide chain and on forming sturdy partnerships, one thing which is already paying off.
Simon Bourne
Sure. Simply to choose up on that, I feel Gore is an efficient instance. There are a selection of key suppliers, and we wish to be working very carefully with them. And infrequently, it is not simply as easy as discovering a provider and shopping for what they provide. There’s a variety of work to do to get probably the most out of these elements and be sure that all the pieces meshes collectively properly in your manufacturing and your general course of. So having a deeper relationship with key suppliers has been actually necessary to us. And I feel that is working properly and paying dividends now.
Justin Scarborough
Thanks. There are a number of questions pertaining to the 500-megawatt capability reservation in addition to the 200-megawatt partnership with Hygen. Is there any steering or insights you can give and supply with regard to these 2 large bulletins?
Andy Allen
I imply, I am going to begin. I assume the five hundred megawatts is round us receiving contracted orders between now and 2028. We’re not going to reveal companions essentially. We’re not ready to try this. However it’s an actual vindication of the work we have executed within the final 12 months and the boldness that individuals have with ITM, so an actual optimistic.
With Hygen, there’s two phases to that, but it surely’s very a lot linked to the U.Okay. authorities funding rounds. And I assume, the place we see Hygen as a really formidable firm on this, actually attempting to alter issues within the U.Okay., and one the place we see a made within the U.Okay. sticker for as having worth to the U.Okay.
Dennis Schulz
Sure. I feel that coated it. Only for completeness once more, so Hygen is just not a capability reservation. That could be a most popular provider relationship for PEM electrolyzers. The five hundred-megawatt one is the capability reservation as was the Shell REFHYNE 100-megawatt earlier than it turned out to be an actual FID there.
Justin Scarborough
Thanks. There are a selection of questions in regards to the U.S. market and its growth with a scarcity of readability on type of coverage tax credit. Is there any insights or ideas that you could present concerning the outlook for the U.S. market and ITM’s function in that?
Dennis Schulz
I feel the present growth is confirming that we took the best strategy. I feel we’re one of many only a few within the {industry} who didn’t announce a big funding right into a manufacturing unit within the U.S. This may have been untimely. As I stated in my a part of the presentation, we’re usually investing and rising in markets the place there may be important anchor demand, which can justify funding.
Proper now, we don’t see that anchor demand being there. I imply, not many mission selections have been taken. There are a variety of very large numbers being talked about on the subject of hydrogen hubs funding and so forth and so forth. And we had some excellent discussions with potential prospects for initiatives.
However I feel when it comes to maturity of mission discussions and the place we’re heading, I feel Europe remains to be main the way in which considerably. And in addition if you have a look at the pie chart, which I used to be displaying on the gross sales pipeline slide, I feel 17% was Remainder of World. This included U.S. It is nonetheless a lot smaller share of initiatives nonetheless, which we foresee to be materialized within the U.S. It stays an necessary market although, proper? I imply it has a variety of potential. The IRA funding could be very attention-grabbing. There’s a variety of actions by corporations, however this has not but translated into a variety of initiatives.
And I can simply come again to for me, coming from an {industry} the place it is about signed orders and constructing stuff, which really works, the one factor which counts is signed contracts. Every part else is scorching air for me.
Justin Scarborough
Thanks. That concludes our Q&A session. What I’d simply lastly say to folks is that I’ll endeavor to reply the questions you submitted through IMC or should you’ve acquired any particular questions, then simply contact me straight and I am going to reply over the course of right now and tomorrow. Thanks very a lot.
Operator
Implausible. Thanks all for updating buyers right now. I would prefer to remind you that earlier than closing this session, you may be redirected to offer your suggestions, which can solely take a couple of moments to finish and most drastically valued by the corporate.
On behalf of the administration crew at ITM Energy, I wish to thanks very a lot for attending right now’s presentation. That concludes right now’s session, and good morning to you all.
