ITM Power Plc

Good morning, ladies and gentlemen, and welcome to the ITN Power PLC preliminary results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Please just simply type in your questions at any time and press send. Given the significant attendance on today's call, the company will not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish those responses on the InvestorMeet company platform where it's appropriate to do so. Before we begin, I would like to submit the following poll. If you could give that your kind attention, I'm sure the company would be most grateful. I'd now like to hand over to the CEO, Dennis Shorts. Good morning.

Good morning. Thank you. And welcome everyone to our market update. Good morning. Good morning. We are pleased to share with you the vast progress we've been making over the last six months towards fabric deployment and volume manufacturing. And as the headline suggests, we have been gaining traction. We will start with a quick market update. I will then hand over to Andy Allen to present our financial year results, 23, and guidance for the year 24. Dr. Simon Born and I will then report on our 12-month plan implementation. Before we come to the most exciting part, which is our new product release, and we will then close our presentation with the audience. The market has broadly developed as predicted in our January update. Climate decarbonization and energy independence imperatives have continued to fuel the projected hydrogen demand. The now observed synchronized attempt to build up a worldwide hydrogen economy is underway at quite ambitious speed. I think more ambitious and more speedy than we have seen any other industry ever growing in the world. This is opening vast demand opportunities for companies like IDM, though we have to say that the electrolyzer market itself is still quite immature. There are only very few technologies credible for commercial deployment today, and many companies have not yet been tested in the market. IDM now has the industry experience and capabilities to identify and execute what we would consider the real projects in the market. We are confident that we can also conquer this market through robust and commercially proven products, reference plans that give customers the confidence to invest into large scale projects, and credibility to manufacture at the necessary scale, quality, and very importantly also on time, which will require not only professional processes and controls from us, but also semi automation or automation, strong execution partners, like we have it with Linde, and very close collaboration with leading suppliers, as we have recently announced one or the other collaboration. We have been working very hard on these three areas with laser-sharp focus over the last six months and have made tremendous progress, which we want to share with you today. Today, ITM is the only PEMElectrolyzer company in the world entrusted to deliver several commercial 100-megabit plants And when I say plans, I don't talk about just me announcements, but real physical plans being built. We are supplying into projects for industry leaders such as Linde, RWE, Shell, Yara, Infineon, and others who all have very ambitious plans for the future. Due to recent development in energy prices, as we all know, and inflation, coupled with slow funding decisions by some governments, some customers have delayed their fine investment decisions. As such, the big demand spike is yet to come and ITM will be ready for that. We now hand over to Andy for our full year results.

Thank you, Dennis. And so I'm going to talk about the year end results, also spotlight on revenue recognition for ITM Power. and the guidance and particularly the e-regard guidance for FY24. So my first slide shows a typical IT Empower execution contract. This contract will, in terms of duration, will depend on exactly what the complexity, what product is being offered, but may typically last for 12 months. And we structure a contract so that cash inflows, which is the top bar, happen incrementally with various milestones that are met throughout the execution. Revenue, however, is only recognized when we have fulfilled all of our obligations. So that second line shows We hit revenue much later than we get cash inflows. And the revenue will either happen at factory acceptance test, FAT, or at site acceptance test. And for the products that we are delivering right now, it is predominantly at site acceptance test. That can mean that we have received up to 95% of the cash and zero of the revenue in any given product. So the revenue therefore tracks behind the progress that we have in the factory. It also means that when we are recognising revenue, we have fulfilled all of our obligations and we've got operating plans out and with customers and accepted by customers having completed all of our obligations. This is really important in understanding the financials for ITM, not just the year that we've just seen, but also the guidance and we'll come back to that later in the presentation. So in terms of summary financials, you can see that the revenue was 5.2 million pounds, with which 4.1 of that was product revenue. And that's against the guidance that we had in January of 2 million pounds. I think this is actually a really good result. It shows that we did more than we had expected to do in that short space of time, whilst also going through a reorganization and a restructure at the same time. In terms of cash, we had 283 million at year end against a guidance of 245 to 270 million. So this was again ahead of expectations that we set in January. It was very much to do with a series of one-off exercises, but also increasing our capital discipline throughout the company. One of those was about improving how we organize our deliveries from suppliers so that we face them to a closer to a just-in-time approach. But some of that was also about cash collection from customers. So a really decent result there. In terms of EBITDA, the EBITDA was in line with the guidance that we set both in January and June at a loss of 94.2 million. We did a detailed review of the business in January and looked at the causes of that 94 million loss. And some of these causes are on the slide. Historically, ITM had chased an aggressive expansion strategy based on technology leadership. And as such, there were processes within the business, particularly around engineering and manufacturing, that were not mature. And we see some of that reflected in the EBITDA position. I'm pleased to say that we see a number of those gaps closing very quickly as part of the 12-month priorities plan, and Dennis and Simon were talking more about that in the second half of the presentation. I'm also pleased to say that there have been no new surprises since we did that review in January, so a thorough job done. Notwithstanding, the result itself is unacceptable and something that we can't repeat. The 94 million had a number of one-off impacts, notably around stock that had to either be reworked or upgraded as part of those design reviews. But we will talk a bit more about how that shape changes for FY24 in a couple of slides. In terms of cash, the table on the left shows our opening balance of £366 million, and right at the bottom, our closing balance of £283 million, a cash outflow for the year of £83 million. If we start with our adjusted EBITDA of 94 million of losses, there are a number of non-cash movements in the income statement to the tune of 31 million pounds. This is predominantly the movements in provisions, which was a result of that detailed review in January. So our warranty provisions went up for infield plants by 0.7 million pounds. The warranty for contracted but not yet delivered products is also included in those provisions and is included within the contract loss provision. So we had nearly 10 million pounds of warranty provision against contracts that we are executing right now. Now these numbers are a cautious approach based on best estimates of future products that have not had significant time in the field. And it's based on mapping an older variation of the product and that performance to where we would expect to be going forwards. And you will see from Simon Dennis' slides, there are incremental improvements that are really looking to mitigate what the impact of this warranty cost is. We also had an increase to the contract loss provision and the contracts costs were essentially underestimated for deployments of the plant that we had. There have been a number of exercises to improve forecasting of contracts and also the governance around contract execution, not just in contract signature, but also throughout. So we can see ways to mitigate that. And I can confirm that no projects will be sold without a positive contribution to market from now on, margin from now on. 2023 was also a year in which we built both to stock and to projects. And we saw an increase, a net increase in inventories of 27 million pounds. If you think back to that revenue recognition slide at the start, we have seen cash inflows as part of those contracts that we are executing against and that's the working capital improvements below so those two numbers need to be taken in context whilst there is a build-up of WIP there's also cash being received against the majority of that we've also invested into factory automation and testing capacity to the tune of 8.6 million pounds and into product development to the tune of 6.6 million pounds in a year This brings me to the guidance for FY24. On the left are the three pillars of the 12-month plan, the product portfolio and the refinement of the products that we offer, and there'll be more from Simon on that, the capital discipline and the de-bottlenecking. In the middle are the key activities that we are looking to execute in this financial year. First and foremost, it's about delivering against the projects that we have contracted, but it's also about continuing to invest, not only in maintaining a technology advantage that we have, but also enhancing our people capability and then building in terms of investment on facilities, both in Sheffield and in Germany. So our revenue for the full year, will be in the range of 10 to 18 million pounds, which is a two to three times increase based on the current year. That is quite a wide range and that again is back to the revenue recognition. Where we have site acceptance as part of our obligations, we have a certain amount of deliveries to sites and then a number of dependencies when we are there as we are one of a number of soft contractors bringing a site into operation. I'll talk more about the EBITDA losses in a moment. But the big number here is about CapEx. CapEx we're spending between 35 and 45 million pounds. About 70% of that is on the facilities in Sheffield, expanding to a new unit, and also the upgrade of the power supply to unlock capacity and capability, not only for validation, but also for testing products as it goes out the door the balance of that capex is again about product development and you'll see some of that in the slides to follow all of that leads us to cash at year end of between 175 and 200 million pounds and this will leave us with a strong balance sheet positioned for growth going forwards. It looks like a similar cash outflow to the year FY23, but the balance is far more weighted to the future and making sure that we are set up to deliver against the demand coming. So back to the EBITDA losses. We see EBITDA losses of between 45 and 55 million in the year. In terms of project losses, there will be no cost but also no contribution against project losses. We are executing against projects where we have already made provisions for the losses that we will make on those. I've already said that we will not sell another project that does not make a contribution. That's a very easy statement to make. Actually, it's very easy to say we will add margin. And the very obvious question to follow is, does that mean that we can still sell product? And as we've been more active in the market in the last few months, actually, there is clear evidence that even pricing with a margin, ITM remains incredibly competitive and customers like what we have in terms of experience and product. We then have some costs around manufacturing scale up. And this is essentially the cost of quality, which is not just components, but also extra people required, et cetera, et cetera, which will be costs that are pre-automation. And as we fit out the new facilities in the next 12 to 24 months, we will see that reducing. We also have overheads not recovered, not recharged. So our gross overhead is above that figure that you see there, the 30 to 35 million pounds. And what we do is we recharge overhead based on product development, on project execution, and also on product build. So those overheads will be recharged to a greater extent as we gain volume in the market and accelerate from this point on. We then have some specific costs around the 12-month plan in the range of £5 to £7 million, which will be one-off costs for this year, which is about transforming ITM's capability and laying the foundations for the future. So for those who are looking to think about ITM, the manufacturing scale-up will reduce over the next 12 to 24 months. 12-month plan costs are a one-off for this year, and we see those overheads not being dependent on the volume of products that we produce. deploy out in the market. With that, I'll hand back to Dennis.