ITM Power Plc

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

Good afternoon. Thanks very much. And thanks to everybody in the audience for joining this call. So, we're going to be presenting to you the final results for the year ending April 2021. So, just a very short slide on positioning, first of all. As you probably all know, ITM Power is an electrolyser manufacturer. We manufacture PEM electrolysis equipment, and we've been developing and deploying PEM electrolysers now for the last 20 years. We are scaling electrolyzer manufacturing and deployment. And we moved into the world's largest electrolyzer factory at the beginning of this year. And we have a strong collaboration with Linda Engineering. So ITM Power is doing the scaling in terms of manufacturing and Linda Engineering in terms of deployment. Why is our electrolyzer so interesting right now? Actually, the world is moving towards net zero and an essential piece of equipment to achieve net zero is the electrolyzer. Because electrolysis equipment is used to couple to renewable power and make green hydrogen, which is the only net zero fuel, the only net zero energy gas. So incredibly important for the energy transition. And what we've seen is a major acceleration in the market over the last year or two. Certainly over the last year, the acceleration has taken the whole industry by surprise. And you've seen industrial companies, governments and policy makers announcing electrolyzer targets all over the world. So, perhaps if I can give you a bit more colour on that. We had a very important report that was announced in May of this year. It was the IEA report, and it identified that to get to net zero by 2050, the world needs 3,500 gigawatts of electrolysis. That's a very, very large number. That's about three centuries of the current production in the world's largest electrolyzer factory here in Sheffield. 3,500 gigawatts at half a million pounds a megawatt is 1.75 trillion pounds. A very large and significant market. And that's over the next 29 years. And the Aurora report also came out in May. and interestingly identifies 200 gigawatts of electrolyzer projects that are already in development. In fact, 85% of them have been identified as being in Europe. And if you look at the national electrolyzer targets worldwide, these are targets for deploying electrolysis equipment over the next decade. So they are targets for deployment to 2030. And they total 144 gigawatts. And there are many more hydrogen strategies, national strategies being announced all of the time. We also, in June, have the U.S. DOE's Earthshot. which is the five major projects that the U.S. is going to enter into to get them to net zero by 2050. And the first announced earth shock was green hydrogen. And actually, the Green Hydrogen Shot Summit was last week, was chaired by John Kerry and actually attended by Bill Gates. And you can see a great emphasis now on green hydrogen also in the US. So, an increasing emphasis on the need for green hydrogen to achieve net zero. Some achievements from ITM Power then. We reported this morning a record backlog of 310 megawatts, a record tender pipeline of 1,011 megawatts, which is just above a gigawatt. We have now moved into the Gigafactory in Sheffield, which is fully operational. We delivered the 10 megawatts at the Rhineland Refinery. and was really pleased to get the announcement from Shell that they're expanding by 100 megawatts. And we'll be doing that with ITM and Linda. And we also completed the feed study in Humberside for 100 megawatts. And what we increasingly see now is interest in the class of electrolysers around 100 megawatts in size. And I'm going to show you more about that dynamic when we look at the tender pipeline. So, first of all then, the results. The results, we're looking at three levels, work in progress, contracts backlog and tender pipeline. And at each level we're going to drill into more detail about unpacking those numbers. The work in progress is up 125%, contracts backlog up 45%, and the tender pipeline is up 94%. And you'll note now that all the numbers, including the tender pipeline, are reporting the ITM portion of the value only. So if we begin then with the backlog, So both of these graphs, you can see five half year results and then a final bar, which is related to the current position. So the penultimate bar is H2 2021. So the backlog is made up of under contract in the final stages of negotiation and preferred supplier. contracted is 43 megawatts in negotiation 169 and preferred supplier with SNAM is 98 megawatts. So you can see that for the first time contracted plus negotiation has now gone over 200 megawatts in size and in fact if you look at the blue line on the right hand chart you can see the tender pipeline So the tender pipeline is the number of quotations we've made against commercial tenders over the last 12 months. And it has increased radically since June. Back in June, it was 600 megawatts. It's now 1,000 megawatts. Actually, if you go back two years, the tender pipeline was around 200 megawatts in size, which is what we now see in the backlog. So the trend in both cases is following a rapid growth, the backlog lagging the tender pipeline by about two years. The other thing that we see in the tender pipeline is an increased weighting towards larger projects. And I'm going to explain that a bit more now in a couple of slides. So when we look at the projects, we're looking at the products that are deployed in projects of a given size. And we divide the tenders up into projects between nought and four megawatts in size. And all of these are plug-and-play containerized units, which are deployed by ITM. And you can see a picture of those products at the top right-hand side of the slide. From 4 to 20 megawatts, there's a crossover between plug-and-play containerized products and those that are integrated with an EPC contract by ITM Linda Electrolysis. And from 20 to 80 megawatts, those projects are deployed using the two megawatt module. And above 80 megawatts, we deploy using five megawatt modules. And at both those levels, those are integrated with an EPC contract by Lynda. So if you look at the tender pipeline then, you can see how many projects and the total number of megawatts in each of those classes of project. So projects that are between 0 and 4 megawatts, where the deployment is done by ITM, there are 87 megawatts in total across 42 projects. If you go to the next level, up to 20 megawatts in size, fewer projects, 13, but more megawatts, 154. And as you increase down, between 20 and 80 megawatts is 190 megawatts with only five projects. And at the very largest class deploying our GigaStack five megawatt module is more than half of the tender pipeline with only three projects. So we have a very significant move and an increased weighting in the tender pipeline towards larger projects deploying the five megawatt stacks with a Lynda Engineering EPC. In terms of where the projects are in the world, you can see the pie chart divides up into EMEA, APAC and the Americas. And actually, the EMEA territory is leading, particularly Europe. And you can see a very significant amount projects in Europe. If you go to APAC then, particularly Australasia, you see a fast follower, and the projects are building there, particularly very large-scale projects. And then the US, where we were very pleased to announce a four megawatt electrolyser at Niagara, in the results. America, after the announcement of the Earthshot, is just getting started with large-scale industrial electrolysis. And we see this as a very significant growth area. And actually we have quite a significant positioning in the US because of Lynda. and their deal a couple of years ago with Praxair. So, we feel very encouraged, not only by our first major reference plant in the US, but also Linda's presence there. So, that's locations. In terms of applications and end use, you can see that the most significant application is energy. This is power to gas energy storage working with renewable energy companies. In APAC, the most significant market is industrial. So, this is looking at things like refineries, ammonia and methanol production. And the third and smallest category is in mobility. So what is it exactly that customers are looking for? So when we have negotiations with customers about electrolysis equipment, all customers are looking for the same thing. They're looking for the lowest levelized cost of hydrogen or the lowest total cost of ownership of the equipment. And to achieve the lowest levelized cost of hydrogen, the most important thing is the production costs. Because when you look at the revenue model for green hydrogen, the most significant cost is the renewable power. So that relates directly to the performance of the electrolyser. So that's key and that's the most significant. Second is the full system price to the customer. So that's the capital outlay and it has to be full system. And then the after sales support. that's looking at not only the lifetime and the performance, but sharing performance data with the customer so that they can operate the electrolyser in an optimal fashion. And at all three levels, we look at optimizing our electrolysis equipment and there are sources at all three levels of competitive advantage. And we work by investing in R&D and continuous improvement on the performance of the electrolysers. We have a very aggressive cost reduction program for the lowest full system price, and we're working closely with Linda in that area. And also, we've been developing remote monitoring and excellence in after-sales support. So we feel that we have a competitive advantage at all three levels of reducing the levelized cost of green hydrogen. And then finally, my last slide about partnerships. At ITM, we spent most of the life of ITM developing long-term productive partnerships. So, we started deploying electrolysis equipment on Shell Fort Courts, now back, well, our first announced collaboration with Shell was back in 2015. We started deploying 100 kilowatt units back in 2017. Fast forward to this year, and we've announced 100 megawatts with Shell. That project is going to be deployed with Linda, and we've been on the whole journey with Shell, also with Linda. So that's more than half a decade. Linda and recently SNAM became strategic investors in ITM Power, and we've also developed a strong relationship with Scottish Power, who are part of the Iberdrola Group, and also with Orsted working on the Humberside project and also on the Oyster project, also collaborating with Siemens Gamassa in that project. And then last but not least with Sumitomo, and we were delighted to announce the first large-scale electrolyser to be imported into Japan. It's the first non-Japanese electrolyser to be imported into Japan, and it's working not only with Sumitomo, but also Tokyo Gas. So, I think an important announcement for that territory. So, going forwards then, partnering particularly with renewable energy companies and the oil and gas industry, is going to be a significant part of our strategy. So I'll hand over now to Andy, our Chief Financial Officer, who's going to take you through the financials.

Thanks, Graham, and good afternoon all. So I'm going to take you through the key drivers for the finances for the year ending April 21, and also take a look at the results snapshot, which you will have seen in this morning's announcement. Then I'll also be talking about the performance, revenue, EBITDA and cash, and also some guidance for the current financial year. So in terms of key drivers, the obvious one that we've spoken about before is the move into Bessemer Park. Bessemer Park opened in January 2021 and was officially opened more recently by the Secretary of State. And during the financial year, we fit out the factory with semi-automated plants. We've got the blueprint and the machinery for further expansion and can scale to a gigawatt within six months. And we're able to respond to demand that we see coming. In terms of partnerships, this was the first full year where we'd worked with ILE, which is the joint venture between ITM and Lynda. And ILE is really the sales quoting house for large-scale product that ITM would sell. And ILE is now up to 15 staff whose mission is to fill the factory. So not only We've got the sales team within ITM, but we've also got ILE. And whilst that hasn't impacted the numbers yet, what we're starting to see is the impact on the tender pipeline. We also had the partnership with STAM and the investment of £30 million, which formed part of a wider fundraise, totalling £172 million. We've also seen the refined commissioning. where ITM Power had a significant chunk of EPC scope as part of the project. That's going through the numbers. That was commissioned and inaugurated in July this year. And broadly, we're closing out that project now. And finally, in terms of partnerships, we had the GigaStack product program developments with Bayes, where we're developing our next generation products. You'll see from Graham's slides that we're now quoting that in many tenders going forwards. The other thing that's been a feature of the last financial year, global events, we all understand the pandemic and how that's impacted daily life. For ITM, it's been about how we get on-site and finish site works. Our revenue recognition is dependent on us completing the final milestone in our contract, and certainly for plug-and-play units, that includes on-site commissioning and installation. We've also had Brexit providing an element of disruption in terms of getting to site to conclude those works. And post year end, we've got a developing disruption within the supply chain, particularly around microchips, which affects our plug and play systems. This has been quite widely reported. Actually, ITM's demand is very, very low and only impacts one subsystem. But that is still something that could be a risk in the current year. So a results snapshot then. We had total income of £5.1 million, down 6% year on year. But what was up was the sales revenue. And sales revenue was £4.3 million, up 30%. This is where we start to see grant income being a smaller part of the income mix going forwards. ITM will still look to win grant income to develop the technology roadmap and have that subsidised and create innovation along the way. But equally, we're seeing more and more of a lean towards product revenue. Our adjusted EBITDA loss was £21.4 million. And that's characterised by a few features. The big one, we spoke about the refined projects being commissioned. That's one of a couple of legacy projects where we've incurred gross losses, mainly around the EPC bit of the scope, the on-site works, and was a key driver for the relationship that we've generated with Linda, where they would now take that work. And the other part about the loss was to basically set up to capture the one gigawatt of demand we see coming per annum for Bessemer Park. In terms of balance sheet, we had £176 million of cash at year end and a cash burn of £32.7 million, of which about a third of that was on capital equipment for Bessemer Park. So just on the revenue then, the The graph on the right-hand side tells us the picture about how this differs from the prior year. So the prior year was the grey bar on the left, 3.3 million of income, and the year ended April 21 is on the right-hand side, 4.3 million. You can see the first orange bar, the first dip, is in product revenue, and that's because we haven't been able to complete all of the on-site works that we might have expected to. Then you have an uptick in consultancy. And just to be very clear on what that is, that is money we've received for developing the GigaStack product. And so it's all about technology roadmap rather than ITM becoming a consultancy company. Maintenance is starting to tick up and we saw fuel sales also impacted by COVID to leave us with 4.3 million of revenue. In terms of EBITDA, you see the prior year 18.1 million of loss and April 21, 21.4 million of losses. The first orange bar, 0.7 million, was the difference between gross margins in the two years as we closed out those legacy projects. The next three orange bars represent investment. So we firstly have Payvon. I've got a slide coming up about resource in ITM. But we've brought in skilled manufacturing experience and project delivery experience for the company. We've then had 0.6 million of losses in ILE, the joint venture, as it starts to grow. And what we're expecting is we're expecting a need to support ILE until the end of calendar year 2022, at which point it ought to be self-sustaining. And then finally, we spent more on R&D than we did in the year before as we developed the GigStack products and the technology surrounding that. So really, the middle three bars are all about setting us up for the future. In terms of resources, then. As at the end of August, we had 305 full-time equivalents. And you'll have seen an R&S recently which said we filled COSEC and OPS director vacancies and we're now seeking a projects director as well. So we're strengthening the management team. Within the other recruits that we've had this side of year end, we've had a heavy emphasis on delivery. So 27 people within production and quality, 41 within R&D, ten within our sales and nine within projects. We've also added five people to the sales team but that doesn't include the impact of the ILE team and work we've done previously to bolster our business development exercise. And in terms of the balance sheet, we ended the year with a strong balance sheet with 176 million of cash at year end. And the bridge really, for me, splits into two parts. There's the operating activities, which is Bessemer Park. We spent 17.2 million on operating activities and 10.4 on CapEx. And there was a working capital impact of 3 million pounds. 2 million of that is building inventory and really starting to reduce lead times for customers. And in terms of partnerships, we've invested in ILE, we've received money from the fundraise and the stand partnership, and we've started to spend money on Gigastack as well, which we recognised on the balance sheet. So in total, we spent about £4 million on Gigastack in the year. And finally, to the current year guidance. So we've added an extra metric here, which is the core stack module production. This is the bit of electrolysis in the middle of the products that we make and that will be in excess of 55 megawatts this year with an ability to ramp so that is the core system goes into everything beyond that we have different subsystems that then are attached to it to make up a completed product we're expecting that production volume to between to be between 33 and 50 megawatts this year The revenue recognition will depend on a few things that we've already touched on. Site access in particular, travel restrictions, but also some disruption to the supply chain affecting plug and play products. And as we said before, revenue will be heavily related to the second half of the year and we look forward to updating more at a later date. I'll hand back to Greg for a final slide.

Thanks, Andy. So just a quick summary from me then. So, The results were very well telegraphed and predicted in the June 10th trading update. I think the announcement this morning is important in terms of achieving a record backlog of 310 megawatts, but also particularly a record tender pipeline of 1,011 megawatts, which is up very significantly since the 10th of June. We are seeing very strong market and policy momentum. And I think actually in the run up to COP26, you will see further green hydrogen announcements, further hydrogen strategies announced by national governments as we move into COP26. So the momentum in the whole industry is very, very strong. So thank you very much for joining the webinar and we're happy to take questions.

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

Thanks very much, Mark. Let me start with a few of the pre-submitted questions, all of which, by the way, have been asked from the live attendees on this webinar. Let me start with one for Graham. What's the likelihood of reduced use of iridium in the electrolysis units, and how are you dealing with PGM sourcing?

Yeah, so a question that comes up very regularly, actually, So, the place to start with this really is the length of time we've been working in this industry. So, precious group metals and the use of precious group metals in electrolysis, in PEM electrolysers, they're also used, by the way, in other forms of electrolysis, including alkaline electrolysers. That's a source of great competitive advantage for us now. I mean, we've been working on reducing the amount of materials that we use, we've been working on recycling, and we've been working on reuse. And I think we've made massive progress in that area. In fact, in our trading update, we did note that we've exceeded the 2030 EU target two years ago. So, yeah, a source of, I think, strong competitive advantage for us. We didn't put out in this results presentation the cost reduction curve, because we've presented it constantly for about two years, but I can confirm that we are still tracking ahead of that cost reduction curve, and that includes the current cost of all of the materials that go into the electrolysis equipment. So, the other thing to probably say is that we've just appointed a head of production and we're very, very focused on strategic procurement. and we'll be doing more and more work in the supply chain. So, there's precious group metals and catalysts as far as we're concerned is a source of competitive advantage for ITM.

Thank you. A couple of questions on when you might pull the trigger on a second Gigafactory. which you've said you'll do when Bessemer Park reaches 60% capacity. When is that expected to happen and are you currently actively looking for a suitable site?

Yeah, I think that the tender pipeline and the backlog numbers are moving very quickly. Tender pipeline particularly and the amount of activity in the market is surprised, well the whole of the industry actually. The exact date, difficult to say, but the answer to your second question is very definitely yes, we are already looking for a second factory.

Okay. Question for Andy here, I think. Given the company's forward financial projections, when do you expect to move into gross profit or to become cash flow positive?

Yeah, so obviously there's a number of notes out there and we can see the consensus for cash flow positive is somewhere between 2024 and 2025 for the next two years.

Okay. With the expected growth of the hydrogen market, why isn't ITM pulling out all the stops and getting the second factory up as soon as possible? Would it not be beneficial to have a stock of off-the-shelf electrolysers ready for when orders come flooding in, rather than making them to order?

I think we're starting to do that, and you see that in the core module that we're building. There's something in that we need to work with the supply chain and the production line to ramp up. You can't go from zero to one here. And we're starting to do that and we're building in capacity as we go. So I think Bessemer Park gives us an opportunity to start to build to inventory. And there'll be a point where we will see, as Graham said, we ought to extend it to a second factory. But Bessemer Park can give us some of that flexibility.

Thank you. Graham, I guess this one's for you. Given the recently announced UK hydrogen strategy, when do you expect that strategy to impact on your order book if it hasn't already?

Yeah, so you would have seen the announcement of the hydrogen strategy in the UK, what that identified two areas of incentive in terms of revenue, the revenue model for green hydrogen and one in terms of capex. So the capex one is a quarter of a billion grant scheme for low carbon hydrogen and the two revenue ones, which I have to say by far the most important because that will incentivise the deployment and for investment to flow into the industry. And there's the RTFO in transport, which is in consultation at the moment, and it has been confirmed that there will be an RTFO for green hydrogen in transport, which is great news for ITM Motiv. And also that there will be a CFD for green hydrogen and for blue hydrogen. And it's been confirmed that there will be that CFD and that has now gone into consultation. So we're looking at that being announced as a biddable scheme in 2022. And those projects, of course, will be large projects because they are CFDs for replacing industrial grey hydrogen with green hydrogen. So UK, the two targets, one is a five gigawatt target, which is part of the raft of targets to 2030, but also one gigawatt target to 2024. And that's a very important one because you can't really deploy blue hydrogen in the 2024 timescale. Actually, most of the blue hydrogen projects are looking at 2028. So that implies that that would inevitably be green hydrogen projects. And that's as much as I can say. I am a member of the Hydrogen Advisory Council, so there is a lot going on. But those statements I've just made are those ones that are already public.

thank you um two-part question coming up graham maybe you could start on this one and then um andy um what are the greatest challenges you have converting tender pipeline opportunities to backlog contracts and given the sizable backlog what's the biggest challenge you face when it comes to converting those to revenue yeah so um it challenges in in all cases are that um

large companies have to make final investment decisions on large pieces of equipment. I think the tender pipeline, you know, the backlog, if you look at it, and this is more a piece of correlation rather than direct causation, but the backlog, lags the tender pipeline by about two years. So, if you look at the backlog now, under contract, plus the final stages of negotiation, in these results for the first time, it went over 200 megawatts. And if you look back two years ago, the tender pipeline was at 200 megawatts. So, you fast forward to June at 600 megawatts and now, this morning the announcement at 1000 megawatts. So, what's the difficulty in that? Well, it's sign off of large schemes and, you know, we're working more and more closely now with partners in the energy industry who have all sorts of targets that they need to meet. Let me give you one example that's driving the industry forwards, which is that, All refineries in Europe have to comply by the renewable energy directive. So, they all have to make 14% of their product renewably by the end of this decade. So, to deploy, they've got eight years and that is a very large amount of electrolysis equipment. So, worldwide, hundreds of gigawatts. So, that's one of the drivers that are driving things forwards.

Okay. Andy, any comments on converting backlog to revenue?

Yeah, I think I hadn't forgotten Simon. There are two features here, really, and it really depends on when the revenue recognition is. So what are the challenges of getting stuff through our factory? There's a revenue recognition at factory systems testing or at the gates. There's not so much challenges, but there are opportunities for us to reduce lead times as we build the stock or build subsystems. So that will accelerate the revenue recognition, but I wouldn't necessarily characterize any of that as challenges. The greater challenge or the bit where ITM has, particularly in the last year, had less control is the on-site works. And if revenue recognition depends on site acceptance testing, then there's been a lot out of our control in the last, well, 18 months. And so as we start to see things becoming more normal, that will also drop away. But we are also still reliant on working well with partners and subcontractors to an extent when we're doing the on-site stuff. So I think the challenges, particularly around the factory, are really opportunities to go faster. And there's still a little bit to unlock with the on-site work.

Thanks. A couple of questions now, definitely for Andy, I think. Can you please explain why provisions on the balance sheet have risen to 12.3 million and whether we should expect a further increase in fiscal 2022?

Yes, I certainly can. So the bulk of that, about 5 million of that, is provision on contract losses. And just to say exactly what that is, there's... These are the legacy projects that we recognize the gross loss on in the FY21. And they include the forecast cost of completion plus a certain amount of contingency in there as well. Beyond that, there are provisions for leaseholds and dilapidations, what I would call ordinary course of business, as you have a large site and that will grow in line with the length of the lease for Bessemer Park. And finally, there's a provision around share options costs, which is actually cash neutral to the company. So that's a bookkeeping piece rather than anything else.

Thank you. Given the outlook for the electrolyzer market worldwide and what might be needed to get to net zero, wouldn't it be in the company's interest to consider licensing its technology to some of its strategic partners alongside the buildup of owned and managed capacity around the globe?

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

Okay. I think a question for both, but probably starting with you, Graham. What's your approach to pricing? Is there a gross profit figure that you have in mind? And is industry on the same page? Or are you looking ahead and offering customers value to gain market share?

Yeah, it's a great question. Pricing strategies are very, very important. I mean, you can have a competitive advantage in terms of technology and manufacturing. But it's easy to choke off orders with price. What you really want to do is actually enter the market as aggressively as you can. So cost reduction is very, very important in the early days. There comes a point then when cost reduction can lead to an increase in margin. and some of it you can pass on to the customer to gain market share and to increase your installed base and some of it you need to keep as margin. We constantly review that as we go forwards.

You mentioned reducing lead times. What's the rough average lead time on a project? Andy, perhaps you could talk us through the timetable.

Yeah, sure. So, to factory acceptance testing, Graeme's given you a picture of different types of products. A plug-and-play system historically would have been about 14 months a year ago, and we're now down somewhere between sort of nine to 12 months in terms of lead time. So that's good. When you look at modular solutions, then that can be quicker still. The balance of plants is simpler and we're doing something repetitious. So probably around about six to nine months for those cubes with opportunities to improve that further.

Thank you. I'm going to ask this question because there are four or five people who've asked them. What's your win rate for tenders?

Yeah, very difficult to assess. We haven't got enough data to assess that. And you can't just look at the tender pipeline and divide by a number and say, you know, that's what it looks like. We just don't have enough data and things are moving very, very quickly. So, hard to assess.

Okay. And again, a question that's come up more than once today. Who are your competitors, and how do you track what they're up to in the marketplace?

Yeah, so there are other companies that make PEM electrolysers there, and there are companies that make alkaline electrolysers, and they're kind of the usual suspects. So in the area of PEM electrolysis, there's Siemens Energy. There's Cummings, who bought Hydrogenics. there is Nell who bought Proton on site, and there is Plug Power who bought Gyna. And Alkaline Electrolyzers and market leaders, Tis and Krupp, there are a few other smaller players as well, those that are developing pressurised alkaline. And so there's a field, there's a handful of competitors, I think that it's a big market, it's moving very quickly, there will be new entrants, no doubt about that. It's a great market to be involved in, and all of our competitors will get projects, because I think it's a large enough market with lots of industrial collaborations being developed. How do we track, sorry, the key part of the question, how do we track our competitors? It's actually quite difficult to know what everybody is doing, apart from there are a lot of press releases, those are more at the level of renewable energy companies collaborating with the molecules industry, so the chemicals industry and the oil and gas industry. but the listed companies put out results, but we don't really dwell on what everybody else is doing. For us the most important thing is doing what we do as well as possible. So, I wouldn't say we're that concerned really. We get a lot of intelligence from our partners,

but you know the market's moving incredibly quickly the pipelines are moving very very quickly and I'm sure all of those competitors will do well Question for Andy can you make any comment on expected gross margins within the current contract backlog and as a supplementary about positive gross profit or positive EBITDA but I think you've already covered that one so And any comments you can make on expected gross margins, Andy?

I think we could probably give some indications here. So, the projects that are in the backlog and under contract have been bid with positive margins and with a long run expectation of getting somewhere between 20 and 30% margin and Graham's already pointed out that we need to fill the factory and as well as continue to be at the front and have an installed base. So that might not happen this year. So the The other part of that is obviously we are closing out these legacy projects with EPC work in the current financial year. And those seem to be in line with the forecast that we had at year end, which should not impact the gross margin this year. But that's still an exercise we need to go through.

So we are involved in quite an important value engineering exercise. We work very closely with Linda and internally in ITM on cost reduction. So when we tendered, actually we're still pushing hard for cost reduction, which will of course affect margin.

Thank you. Question on partnerships, Graham. Could you provide a bit more detail on the partnership with Shell and give us a sense of how the relationship has evolved? And secondly, Shell is not alone in the oil and gas space. To what extent are other oil and gas players actively looking at green hydrogen and electrolysis?

Yeah, so, I mean, the working relationship with Shell is extremely good. You saw them inaugurate the 10 megawatt electrolyzer and announce a 100 megawatt project with ITM and ILE. So, I think that's a very strong and positive endorsement for ITM and also ITM's technology and its relationship with Lynda. And they know what that relationship with Lynda is like because we've been deploying hydrogen refuelling stations on Shell forecourts going back to, I think the first one was opened in 2017. so that's half a decade ago. So we've been working closely with them and it's a very, very positive relationship. I mean, we did the full EPC on the Shell project and the next project we do with them, Linda will be doing that, Linda Engineering will be doing that EPC. In terms of other oil and gas players, So we work with Phillips 66 in Humberside, looking at the 100 megawatt deployment with Allstate and Phillips 66 to decarbonise that Humberside refinery. We work at Loina, the 24 megawatt electrolyser at Loina will be putting green hydrogen directly into the grey hydrogen pipeline, which is used by the whole of that chemical stuff. but that includes another oil and gas player. And of course, Lynda have many installations where they provide great hydrogen to the oil and gas industry and the chemicals industry. So, they are really well plugged in to the whole of that industry. And the dynamic that's going on in the oil and gas industry is moving from fossil energy gases and fossil fuels to net zero molecules and actually the dynamic in the renewable energy industry is towards power to X or making green hydrogen for energy storage. So, the big macro picture is you're seeing renewable energy companies partnering with oil and gas companies and indeed you're seeing oil and gas companies buying renewable energy assets. So this is a very, very strong industrial dynamic right now.

Andy, question for you. Will all of the 33 to 50 megawatts completed products volume for the current year be recorded as ITM revenues or will some go through the lender joint venture? And if that is the case, what's the split?

Yeah. Okay. So the 33 that we have contracted, we know that we've got 24, which are modules that go through ILE. And then the balance is smaller plug-and-play systems, which will be going 100% to ITM. But when we've been reporting the numbers in the R&S and here, those are all values attributable to ITM. So we're trying to remove what has historically been some confusion about what's ITM and what's Lynda. All the numbers we're reporting here are values to ITM. So that's the 33 that we have contracted. The other 10 we have contracted is the REFINE project. which is a bit of an outlier because that is recognised on stage of completion, but it's all ITM again. There's only a small amount of revenue left to recognise on that.

If I can add to that, as projects get larger, they have more and more additions to the balance of plant. And some projects that we're quoting now, the Linda part has got ammonia plant associated with it, it's got liquefaction plant, it's got additional compression and so on, and it doesn't make any sense to quote, for us to put the numbers out, um any other number than the pound value to itm power which is what is in our announcement today and you saw the slide and the table of the three different levels the work in progress the backlog and the tender pipeline and all of those stated pound values are to itm only okay um

Graham, I think this is probably for you again. A number of questions on the levelised cost of hydrogen. Let's start with how much more expensive is green hydrogen today compared to grey hydrogen? And when do you think you might reach parity as an industry or as a company?

Yeah, so the cost of green hydrogen is broadly the cost of the renewable power that you put through it. So to say how much is green hydrogen, it's a bit like saying, how much is electricity? You wouldn't ask the question, how much is electricity? And the reason you wouldn't is it depends where you are and what point in the network you are. So, when do you get to parity with grey hydrogen? Well, broadly speaking, when you're around two pence per kilowatt hour. for power costs. At that point, you're comparable with grey hydrogen in the UK. And getting to that cost requires you, first of all, to have direct coupling, so you don't pay distribution charges. And also, we're looking at being able to use electrolysers to balance the grid and get grid service payments as well. So if you look at the McKinsey model, for instance, and you look at an electrolyser of half a million euros or half a million dollars a megawatt with a load factor of around 40% and two cents per kilowatt hour, you're looking at hydrogen at about $1.6 a kilogram. And at that point, you become competitive with grey hydrogen. And grey hydrogen has a market of 600 gigawatts per annum worldwide, 70 million tonnes. So, there are many predictions. You can look at plants, you can look at the Hydrogen Council, you can look at Bloomberg New Energy Finance. But from the mid-2020s to 2030, about $1.6 per kilogram by 2030 going down to $0.9 per kilogram, making a net zero energy gas competitive with grey hydrogen. And they are the McKinsey numbers and the Hydrogen Council numbers, not ITN power numbers.

Okay. You mentioned on the way through that it would take you six months to scale up to one gigawatt. at the Bessemer Park. Could you just explain what you meant by that, please?

Andy, do you want to talk about capacity?

Yeah, so we've put down machines that are semi-automated, and we validated a whole load of processes in the first half of this calendar year, which are new processes to Bessemer Park, which wouldn't have fit into our old production facility. That includes technologies for the core products, but also for managing the larger products as it goes around the factory. And really, what we're saying here is we're not just jumping up to the gigawatt capacity ahead of that demand coming. We have built in the flexibility within the factory that we can add machines as we need to increase the capacity to that gigawatt target.

So we're working on development work, we're working on cost reduction, and we're working on understanding what the product mix will be. So we have a product mix indication now from the tender pipeline, and I presented it to you and that broadly speaking looks like the sort of product mix that we will need to design into the processes for the factory going at a full one gigawatt. We're also doing value engineering and cost reduction to make sure that we pin down exactly what it is we're producing. And value engineering is going to play out over the next few months, as is understanding our product mix. And we'll be able to gear up production in a more accurate fashion.

Thank you. Okay, another one, another last question, I think, for the time being, maybe two more. Can you explain how the relationship between ITM Power and ITM Motive will work going forward. And how are you going to be addressing the various mobility markets?

Yeah, so ITM Motive's strategy is a return to base refuelling of industrial vehicles, so commercial vehicles. So we're looking at buses and trucks and trains. And a number of other municipal vehicles like dust lorries and sweepers and so on. And there are a large number of OEMs now moving forwards with either hydrogen conversions of those vehicles or actual fuel cell new vehicles and new electric drive trains. And that's our market for ITM Motiv. We've been talking with fleet operators, with local councils and also the OEMs making the vehicles. Okay. The RTFO is a very significant coming announcement from the UK Government. The RTFO is the incentive for using green hydrogen as a fuel, it's in consultation right now and it will, as soon as that is announced, it will propel that industry forwards and we are, aligning ourselves with some very significant players in the UK to develop that part of the business. And, of course, we've opened the Birmingham refuelling station. We work with National Express in Birmingham. And, yeah, I mean, more and more interest coming for the heavy vehicles, not so much the infrastructure refuellers.

Okay, I think we're on final question before we call it time. Would you go even larger than the five megawatt stack that you're developing? And how key is that five megawatt stack and developing it quicker than two years on the accelerated timetable to your future prospects?

Yeah, so look, five megawatts is a big module. If you look at the battery energy storage industry, for instance, the largest cells or modules that you see there are about 50 kilowatts. So you're talking about 100 times the size of battery installations that use modules. There's a logistics consideration to do with size as well. You have to be able to, if you manufacture a module, you need to be able to move it around. You need to be able to deliver it and transport it. and that means to get it on to standard transport and do the logistics, you wouldn't want to go too much larger. We did an exercise with Linda Engineering about how you do these deployments, and the strategy that we came up with was a 5 megawatt module, which is integrated into 20 megawatt packages with the standardized balance of plant so that you could also reduce the cost of the balance of plant by standardizing and modulating the balance of plant as well. So the building block modules five megawatts with an integrated 20 megawatt package to take you through installations that go up to hundreds of megawatts in size. So how important is it? Yeah, it's important. I mean, the weighting in the tender pipeline is definitely towards the larger scale projects and integrating five megawatt units.

Dr. Cooley, Andy, thank you very much indeed for being so generous with your time. And thank you also, To all the investors that have taken time to submit questions during today's presentation, of course, we'll make all of these questions available to the company post this presentation in case there are any other additions or answers that can be given. Dr. Curley, before I redirect investors to provide you feedback, I know that's particularly important to the company. I could ask you perhaps for a few closing comments, as I say, before I redirect investors to give you their thoughts.

Sure. Okay. So, look, first of all, thanks very much for joining the call. It's much appreciated. I think ITM have had a pretty amazing year this year. We moved into the world's largest electrolyzer factory in the midst of a pandemic and Brexit. We've developed partnerships that have become very productive in terms of quoting equipment worldwide, our pipeline has increased, our backlog has increased, and we're in a position now where the factory is, I think, performing very, very well, and the future looks very significant for green hydrogen all over the world. So, you'll see some, I think, interesting announcements in the run up to COP26, where nations all over the world begin to articulate more their hydrogen strategies, and we certainly look forward to making some great announcements over the next year. So thanks for coming.

Dr. Cooley, Andy, thank you very much indeed for updating investors this afternoon. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This will only take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team of ITM Power, I'd like to thank you for attending today's presentation. That now concludes today's session. Good afternoon to you all.