Fusion Fuel Green PLC

Welcome to Fusion Fuel Green's fourth quarter 2022 investor update. My name is Ben Schwartz and I'm head of investor relations at Fusion Fuel. I would like to first remind everyone this call may contain forward-looking statements, including but not limited to the company's expectations on predictions of financial business performance, which are based on numerous assumptions around sales, margins, competitive factors, industry performance, and other factors which cannot be predicted. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions, and they are not guarantees of performance. I encourage you to read the disclaimer slide. In the investor presentation for discussion of the risks that may affect our business or may cause our substance group incorrect, the company is under no obligation, expressly disclaims any obligation to update, alter, or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Thanks again for joining us today. So I'll just quickly run through the agenda for the next hour. So we'll kick things off with an overview of our value proposition. The management team will share fourth quarter highlights, financial results, the technology update, and the latest on our commercial strategy before wrapping up with a discussion of our milestones for 2023. We'll then open up the floor for a half hour of facilitated Q&A. And as in our previous quarterly calls, questions can be entered in the chat box in the webcast platform at any point during the next hour. You can also submit your questions to the investor relations mailbox at ir.fusion-fuel.eu. So with that, let's proceed to the following slide. So we'll begin with an overview of how we at Fusion Fuel are creating value in the nascent green hydrogen market. So Fusion Fuel, we are in the business of developing and delivering cost effective clean hydrogen solutions to accelerate the global energy transition. At the heart of our value proposition is our patented miniaturized PEM electrolyzer, the HEVO. Our simplified and scalable technology democratizes access to green hydrogen and gives us a material advantage in the markets in which we play. It does so in a number of ways, by unlocking the advantages of mass production, by positioning us to create bespoke, fit for purpose solutions, and by enabling co-located and integrated deployment of our hydrogen generators we'll talk further about some of the innovations that are within the hevo itself but what it comes down to is that we're able to deliver highly competitive levelized costs for small to mid-scale green hydrogen projects this is a segment that's often overlooked but aligns with where much of the commercial demand is today particularly for the verticals that ascribe the highest value to green hydrogen I also want to drive home the reality that despite progress, distribution infrastructure for hydrogen remains a key downstream bottleneck, and that available solutions for moving hydrogen from sources of large-scale production to demand centers add both meaningful cost and complexity. We've estimated north of $2 per kilogram for the cost of last mile distribution and logistics. So we believe that co-located and scalable production is and will remain an extremely attractive offer for the foreseeable future. So with that, I'll pass it over to Frederico Chavez, co-head of Fusion Fuel, for an update on the fourth quarter and subsequent events.

Great. Thank you very much, Ben. And thank you everyone for joining us today. So I just want to start with some highlights of the fourth quarter and also from the first quarter as of today. So in the fourth quarter, we announced 7 million euros of tech sales that have been contracted. We also announced our first projects in the US and Italy. In addition, we were awarded a 36 million euro grant from Portugal's C5 agenda. And we completed the €9 million sale leaseback of our BenefitMJ facilities real estate. In the first quarter, we signed Portugal's first green hydrogen offtake contract with Dorogas. We also signed our €10 million grant for our C14 project in Portugal. And from our joint venture partners in Spain, we have exciting news recently that we were selected for a 2.5 million euro tech sale tender in Spain, and we were awarded a 3.4 million grant for a project in Spain as well under their Palatate program. Lastly, as part of our efforts to develop strategic partnerships, We signed in Spain as well an MOU with a leading logistics equipment provider to create green hydrogen logistics equipment projects together. This is truly a really exciting strategic move, and we hope to be able to disclose more details to you all about this partnership in the future, in the near future. Now on to the financials. In the fourth quarter, We recorded an operating loss of 13 million euros. This is an increase of 5 million euros from the third quarter driven by significant non-cash items. Our cost of goods sold consists of two main items. Exolume-related impairments of 2.5 million euros relating to further costs incurred on this first third-party project that we undertook. As disclosed in our September financials, we, together with Exalume, are working to pursue innovation awards to partially offset this contract loss. We are also taking an inventory provision of 2.9 million euros. This has been the case for us as well as others in the industry. The speed of technology evolution means that we have items that the value needs discounting and in certain cases reworded. to be suited for our latest tech developments. Both of these are non-cash expenses. During the fourth quarter, our operating expenses increased by 2.3 million euros, driven by significant non-recurring items listed in Footnote 3 and that I will address shortly. Before I do so, I just want to highlight the operating costs for the full year. So for 2022, we had provided guidance of operating costs of around 14 million euros, but given the significant one-offs, the total operating costs for 2022 are around €18 million. The €4 million difference is mainly driven by the costs identified here in the few four figures. Firstly, we reserved a production capacity with our production partner, which given projects delays, we did not use, mainly to avoid spending more money on raw material purchases, but this has led to a 1.5 million euro charge. The production agreement for 2023 has been altered to avoid this potential charge in the future. In Q4, we also started amortizing our HEVO Gen 1 development costs, and we will amortize this over its expected useful life of three years. In addition, We had €700,000 of R&D costs related to our demonstration plans in Q4, and this totals around a million euros for the full year for the same cost item. During Q4, we saw service and professional fees of €700,000, again, one-offs, mainly driven by the sale-leaseback transaction costs, some strategic partner engagements, and also legal fees. These are significant one-off items, which we were not able to foresee when we first provided our 2022 guidance. At the end of the presentation, we'll provide guidance for 2023. To note, and I think importantly, and hopefully this slide will develop in coming courses, in Q1 of this year, we have already started invoicing clients for technology sales. During the fourth quarter, we strengthened our cash resources through the following activities. Principally, our sale-leaseback efforts. We were able to secure net inflows of €7.5 million, which we received net of the security deposit and some deferred considerations. So the €7.5 million was the net on the €9 million sale-leaseback sale. We also, from VAT, we saw inflows of 3.8 million euros, mostly on reimbursement claims that we made to the Portuguese authorities. We have submitted additional claims in the first quarter for a significant portion of the 3.7 million euros receivable balance as of year-end. In addition, we received 3.0 million euros as a prepayment of a portion of the C5 grant awarded. The very fast turnaround time of this payment, so we were awarded the grant in December and we actually received the reimbursement cash in December, re-emphasizes Portugal's commitment to the hydrogen business and to operationalize it as quickly as possible. During the fourth quarter, we raised 1.5 million euros through the ATM shelf. and a further $2.5 million through the ATM shelf, and a further $2.3 million was raised prior to mid-February this year. We continue to see an increased efficiency in the grant process in Portugal. Recently, the Portuguese Prime Minister signed the terms of acceptance of our €10 million C14 grant award. And our team is already working on submitting the prepayment application for this project, similar to the C5 process. In addition, we expect to be able to operationalize additional drawdowns under our C5 grant award as 2023 progresses. Grants bring substantial value to our project, and in the early stage of this emerging green hydrogen market, It makes many projects viable. We'll continue to secure grants where possible, and we'll continue to add to the nearly 65 million grants already awarded to us. I would like to now take a moment to truly drive home what makes our technology so special, as we are unique in the market. Our technology centers around the HEEVO, as you see a picture there on the slide. It is at the heart of both the HEEVO solar and the HEEVO chain. It has a unique membrane electrochemical cell design that allows for reduced power system costs. This is a major cost driver for any centralized electrolyzer. It also protects against system-wide degeneration. and issues as our membranes operate independently and not in the traditional stack. It allows for a modular approach using this miniaturized electrolyzer, which reduces O&M costs and complexity, as well as system downtime as modules can be replaced individually. We can use inexpensive structural materials and simplified engineering and assembly, which reduces costs further. All of this enables us to create an industry-leading cost of green hydrogen, which Ben showed previously, an advantage that is amplified further in small to mid-scale projects. To note, we have two core products. We have our Hevo Solar, which is for those of you who've been following us for some time, hopefully very familiar with. This is an integrated solar to hydrogen generator. It integrates the CPV technology to our miniaturized PEN electrolyzer, the Hevo, and allows to have a grid-independent and modular solution that requires good solar radiation levels and available land. In addition, we also have our other Hevo chain, which is also modular and scalable and a highly, highly efficient PEM solution. The Hevo chain is a containerized PEM solution that uses our miniaturized PEM electrolyzer, the Hevo, working in a series. The interesting thing is it becomes location and power agnostic. It can be deployed to connect to any source of energy. So we have received questions that what does the European Union's, what are the implications of European Union's consideration of nuclear power as renewable? Well, if a chain can work with any source of energy, including nuclear. So we actually have a product that fits for several types of requirements. I'll now pass on to Zach.

Thank you, Frederico. It's nice seeing everybody this morning. I want to start with a quote from the great Jack Welch. Strategy is simply resource allocation. When you strip away all the noise, that's what it comes down to. Strategy means making clear-cut choices about how to compete. You cannot be everything to everybody, no matter what the size of your business is or how deep your pockets are. This is very timely, not only for Fusion, but the entire industry. With such a massive addressable market, we need to boil down to the core what makes us competitive. Our key assets are the Hevo proprietary technology, our strategic land and grants we've secured, and our people. Our business model is transitioning more to a solutions provider than just a technology company, as that allows our technology to ramp up production, getting numerous facilities operational to build up track record, while getting to scale through hydrogen production focusing on development. First, the Hibo technology is particularly competitive at less than 10 megawatts projects to focus our efforts on small to midsize projects. We see most of the immediate market in the next couple of years as under 10 megawatt projects and have a strong pipeline of opportunities to execute this. As previously noted, the market is mobility, logistics centers, industrial and gas flooding opportunities. Regarding our technology, we have collaborated with upstream technology partners such as Ballard on the EverProject, and recently we signed a collaboration agreement with a global equipment provider to help us build out our mobility and logistic applications. Over the next few years, our plan is to ramp up production by investing in Benevente and expanding our addressable market with HevoChain. This allows us to focus on all of Europe and North America as our core markets versus just markets with strong solar radians. After an assessment of ourselves, our production capacity cannot meet the demands of our project portfolio and our tech sales are largely driven from our development efforts. For these reasons, our development portfolio is so strategic. Developing our own projects allows us to control our own destiny by having more control over our future tech sales pipeline. Our team has done an incredible job on establishing the equivalent of approximately 200 megawatts of high stream capacity in land that has been secured and 50 million euros in grants that have been secured. As we continue to work on business development opportunities, we're seeing a clear distinction between projects that are under 10 megawatts and larger scale projects. As I noted, this allows us to develop the current market, which is still in a nascent stage, which are mainly smaller projects, while also having an eye to the future for larger projects and larger demand. With our technology production estimated to be 250 megawatts of capacity till the end of 2025 and our development pipeline being substantially larger, an estimated 1.5 gigawatts, we look to maximize shareholder value by also working with other technology providers to execute our portfolio projects. This is a strategy we already kicked off and announced last year in our agreement to Shiva to explore solid oxide solution for certain large scale projects. This strategy solidifies Fusion Fuel as a holistic green hydrogen solutions provider. To do this, we have decided to create multiple development partnerships. First, we have Fusion Fuel Spain, which is doing an incredible job and building a pipeline of projects in Spain that has grown to 500 megawatts of high quality opportunities that are in various stages of development. The team in Spain continues to do a fantastic job. Secondly, we're creating a development company to focus on building out development opportunities, focusing on the North American market, one of the most important hydrogen markets currently. Given our extensive development experience, this will be led by myself and Jason Baron. We'll continue to de-risk our portfolio by working with world-class engineering, procurement, and construction companies to minimize construction risk and sign long-term customer agreements to provide certainty of recurring revenues in EBITDA. These key elements combined with what we've already initiated with entitling our portfolio will make this attractive to third-party capital. We continue to work with investors at both the project and broader development portfolio level. Our North American pipeline currently stands at over 250 megawatts of capacity, and the balance of our portfolio projects in Portugal and Europe is how we get to an aggregated total of 1.5 gigawatts. We'll have 200 megawatts of potential technology sales from the development activities, potentially over 30 megawatts of tech sales from third parties. As more and more of the development projects convert to operational projects utilizing Hevo technology, that will build up our track record. It'll make it easier to do a traditional tech sales model. And we also benefit from having potentially recurring revenues from the development projects that, again, will further de-risk the overall business. Fusion Fuel Strategy creates a diversified revenue model with traditional third-party technology sales and sales from our projects created by Fusion Fuel Spain and our other development company. We're currently focusing on, we're currently forecasting over 230 megawatts of potential technology sales until the end of 2025 based on our current pipeline and our forecast. Our third-party technology sales are focused on the Iberian Peninsula and Italy. We're seeing approximately 10 megawatts of potential sales this year, and as Fred highlighted earlier, we have recently been awarded another mobility project and winning another grant in Spain. We'll continue to explore additional technology sales and work on them in the current and our other core markets. We have also started commissioning of the Exxon plant and signed contracts for Alcala project and began invoicing to our client Keme in Portugal. All this brings our committed tech sales to a total of 12.5 million euros for 2023. We are projecting additional opportunities to expand the technology sale in Alcala, also to complete the sale of our recently awarded project in Spain, and a few other near-term opportunities to bring our target to over 25 million euros in revenue this year. We expect exciting things from our partnership with Deferco and are forecasting further opportunities in 2024 and 2025 with them based on our recent efforts. Fusion Fuel Spain and our other development entity have a pipeline, as I noted, of over 200 megawatts of tech sales for Fusion Fuel into 2025. This strategy also monetizes most of our grants and provides a steady diet of project pipeline for Fusion while we build up more traditional tech sales model in our core markets. As noted earlier, our strategy is to focus on creating value for our shareholders in project development and our technology. We see the benefits to Fusion Fuel being that we execute potentially up to the 200 megawatts of tech sales, as I've noted, generate potential equity returns via recurring revenue and fees from creating value in the development process, We also benefit from building a footprint and track record in five core markets, Portugal, Spain, Italy, USA, and Canada. Our development strategy will be to continue entitling our projects through securing strategic real estate grants where available and licensing these projects. Secondly, we'll commercialize our pipeline by securing offtake agreements and signing EPC contracts to de-risk the construction. We recently signed our first agreement with Dorogas and we plan to continue building off this by signing additional offtake agreements as our projects move towards final investment decision. This approach will increase shareholder value by monetizing the grants, the land and selling our technology. We will also potentially capture upside and development while controlling our own destiny through having our own project portfolio we've created that gives a credible backlog of tech sales. As part of creating this development entity, we'll opportunistically look to bring in third party capital to support the funding of the projects, both in the development phase and the construction phase. The more we entitle and commercialize our portfolio projects, the more attractive the portfolio will be to third parties. Fusion will balance how far it takes the portfolio prior to bringing in third party capital to maximize shareholder value while also keeping an eye on our financial exposure. This will be managed by myself, Frederico, and other senior managers of the current team, and we'll be adding additional members to support in this effort. Frederico, back to you.