Fusion Fuel Green PLC

Welcome to Fusion Fuel Green's fourth quarter 2023 investor update. My name is Ben Schwartz and I'm head of investor relations at Fusion Fuel. I'd first like to remind everyone that some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties. It's possible that our actual results and financial condition may differ from the anticipated results and financial condition indicated in these forward-looking statements. For discussion of some of these risks and important factors that could affect Fusion Fuel's future results, See the risk factors in the company's latest annual report on Form 20F, filed with the SEC. Fusion Fuel assumes no obligation to update or revise any forward-looking information provided during the conference call and should not be liable for any action taken in reliance upon such information. Okay, with that out of the way, thank you all for joining us today. In terms of our agenda for the next hour, again, I'll kick things off with an overview of Fusion Fuel, along with some thoughts on the hydrogen market and industry dynamics. federico and gavin will then review highlights from 2023 fourth quarter results on commercial updates including the exciting announcement of our recent ipsa designation earlier this year before wrapping up with a discussion of our 2024 priorities we'll then open up the floor for facilitated q a 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 directly to the investor relations mailbox at ir at fusion-fuel.eu so let's begin with a refresher on fusion fuel our value proposition and positioning in the green hydrogen market so our mission is to unlock the energy transition through the design and development of innovative green hydrogen solutions at the heart of everything we do is our proprietary hevo micro electrolyzer technology which employs a simplified and modularized architecture that creates multiple sources of advantage for us, including high throughput industrialized production and a scalable building block approach, enabling us to play competitively in small to mid-scale projects, a segment of the market where we're seeing considerable demand today. We built a robust European pipeline of actionable near-term green hydrogen projects, with diverse avenues for monetizing value creation along the development cycle, highlighted by the recent designation of our Hevo Portugal project as an important project of common European interest. More on that later. We have a differentiated and complimentary business model that positions us as one of the few green hydrogen players that can credibly deliver truly end-to-end solutions, supporting clients throughout their green hydrogen journey. and finally we're well positioned to take advantage of the significant growth ramp as the market develops with an extensive long-term project pipeline and a world-class production facility located in portugal as dimensioned for 500 megawatts of annualized production on the next slide so a couple observations on the green hydrogen market to help ground today's discussion it should come as no great surprise that 2023 was a difficult year in the green hydrogen space what was expected to be an inflection point turned out to be in many ways a step back as we saw a deceleration of commercial activity There are multiple factors that drove this dynamic, some of which we've touched on previously, including technological immaturity, regulatory uncertainty, a persistent cost premium for green molecules, and a lack of access to product financing, among others. One of the downstream impacts of the delay in market development is that it has extended the timeline to profitability for many market participants, prompting greater attention from investors on capital discipline and triggering a shift in strategy towards more sustainable balanced growth. We did start to see some signs of life in the fourth quarter, which we'll discuss a little bit later, capped by the announcement of the H2 Infra IPSE program last month, which had the potential to catalyze the European green hydrogen market and address the longstanding infrastructure bottleneck. It's not unreasonable to expect some of these more structural headwinds to persist, into 2024, but these challenges also present an opportunity for differentiation. As Frederico and Gavin will explain over the course of the next half hour, we believe Fusion Fuel is well positioned to overcome these challenges and capitalize on the emerging opportunities we see in front of us. So with that, I'll now introduce Gavin Jones, CFO of Fusion Fuel, to share some highlights from the third quarter, fourth quarter, I should say, of 2023. Thank you, Ben.

Good afternoon or morning to all of you who have joined our fourth quarter investor update call. I'm joining today from our offices in Ireland. During the fourth quarter, we received two separate purchase orders for a combined 4.2 million euros of revenue. These projects will serve as customers in Portugal and will include the supply of our HiboChain product, along with balance of plant equipment and EPC services, and will each represent a 1.25 megawatt system. In addition, we entered into a securities purchase agreement with Baliki nominees and Macquarie Group Company. After the end of the fourth quarter, we received notification of the European Commission's acceptance of our HIVO Portugal project as an important project of common European interest. Federico will cover what this IPSA stamp means for Fusion Fuel later in this presentation. We raised net proceeds of 5.9 million euros through our ATM facility during February with the lion's share of this being raised on February 16th when we witnessed unprecedented trading volume following the EFSA award. And finally, last week we were awarded a separate grant from the European Commission as part of the H2 Talent Consortium. The total value of this award is just above 1 million euros. We will now move on to the financial results for the fourth quarter. Please note that all values discussed are in euros unless stated otherwise. We recognize 1.6 million in revenue during the fourth quarter. This represents the revenue related with our manufacturer and supply of a hydrogen production system to SASEQ. As a reminder, SASEQ is the largest public research institution in Spain, and this project is based in Zaragoza. This contract has three phases, and during 2023, we completed phase one and phase two, with phase three scheduled for completion during the first half of 2024. In addition to the revenues recorded, we had 0.6 million of inflows that did not meet the revenue recognition requirements. And instead, these amounts will be recognized as revenue during 2024. As you may remember from our second quarter investor presentation, we booked a provision against components within our inventory that were manufactured to legacy design. During the fourth quarter, we recorded a net increase of 6.4 million to this impairment provision and recorded a separate impairment charge of 3.3 million relating to one of our development projects. These significant impairments are for specific components included in the legacy Hibo Solar bracket. When we carried out the reviews of the inventory components during the second half of 2023, we fully expected to utilize these components or sell to a third party. As recently as last week, it became apparent that selling these components will not be a short-term solution as negotiations with prospective buyers have stalled. When coupled with the changes in regulation and licensing that saw us give up on the HevoSolar project and that make installing HevoSolar units significantly more complicated, management has decided to impair the full value until such a time that we have a further certainty on our ability to sell or scrap these materials. Some of these components were capitalized within non-current assets with the remainder recorded within inventory. We have several of our people dedicated to recovering as much as possible from the legacy inventory that has been impaired during 2023. Since we first started to sell or scrap these legacy components, we've been able to recognize inflows of 0.6 million, which have been received between August, 2023 and February, 2024. We fully expect these recent impairments to close the chapter on the write-downs related to Hevo Solar, and we look forward to fully turning the page to Hevo Chain. In our investor letter, we allude to a feeling of before and after. The impairment of legacy materials is another step forward and towards the next stage of our lifecycle as a company. Our operating costs decreased for the four consecutive quarter. We saw a reduction to our personnel related costs when compared to the third quarter. This was mainly due to the allocation of a grant inflow against qualifying personnel costs. In addition, we recorded further reductions to legal, travel and consulting fees. The pre-tax loss for the quarter amounted to 12.3 million, which was mostly driven by non-cash items relating to impairment charges of 9.7 million, share-based compensation expense of 0.6 million, and a fair value loss associated with our warrants of 0.4 million. Both the non-current assets and inventory balances on the balance sheet are shown net of impairment charges. The further decrease to inventory is down to the revenue recognized. Until we recognized this revenue, the equipment used related to these contracts were recognized as part of inventory. Other notable movements during the quarter include a reduction of 1.5 million in onerous provisions, as we utilize some of the provision that was recorded in 2022 for the above-mentioned inventory impairment, and grant inflows of 2.6 million, which were received during the fourth quarter. Our bank balance was just over 1 million on December 31st. Since then, we have received 5.9 million through our ATM facility. Both our capital position and use of the ATM facility have been common themes during our investor updates over the last 12 months. Most recently, in our December meeting, I commented that it was our intention to cease activity with the ATM as soon as possible. This was and continued to be our position until the IPSA award. Around that time, management were considering various short-term financing options that would provide us with a longer runway to a more strategic capital raise. On foot of the IPSE announcement and the consequent trading volumes and share price spike, we opted fast and utilized the ATM. Based on the options that we had in front of us, the ATM was the cheapest way of raising capital in the short term. We also didn't have to consider some of the bells and whistles such as warrant coverage, market discounts, interest coupons, and lockup periods that would have caused greater dilution to our shareholders and also could have impacted our ability to do a more strategic raise. This was an important milestone for the company given the challenges faced in raising capital. We have significant grant amounts expected for 2024, which will mostly be to reimburse us for spend relating to R&D, our production facility, and engineering services for our projects. Due to the strengthening of our balance sheet in February, and as we are now receiving customer inflows regularly, we are satisfied that the operational inflows coupled with the drawdowns from the Macquarie facility will provide sufficient runway to enable us to execute a more strategic capital raise. On the 20 million Macquarie facility, we are working closely with Macquarie to ensure that all remaining conditions that were set at the time of entering the securities purchase agreement have been met so that we were able to draw down the first tranche of 1.15 million US dollars before the end of the first quarter of 2024. This is in line with the expectations communicated back in our December update. We filed a notice for an extraordinary general meeting of the company's shareholders, which will take place on March 20th. Under Irish law, the company must have authority from its shareholders to issue any securities. The company's shareholders previously authorized the company to issue securities of up to 20% of the ordinary shares of the company during any calendar year, which is equivalent to 2.9 million shares. The company has determined that it would be in its best interest to seek approval from shareholders to provide the company with authority to issue securities above and beyond this 20% cap. The reason we are making this request now is that while February's ATM sales have meaningfully extended our runway, we no longer have ample room to maneuver what's remaining under the 20% threshold. We continue to believe that uncertainty around our capital position is the greatest concern of the market and that resolving the capital constraint will remedy our longstanding valuation disconnect relative to our peers. As we have noted in previous updates, we have been exploring multiple options to further solidify our cash, our capital position, which may entail selling securities more than this cap. A priority of ours is to exit cash burn by the end of 2025. And to do this, we will need to reinforce our balance sheet. A strengthened balance sheet should not only provide comfort to our teams, investors and shareholders that the company is sufficiently equipped to achieve its goals and targets, but also provides our customers with further assurances that the warranties that are being offered as part of our technology contracts can be fulfilled. It is imperative that the company can move quickly and decisively in the event of a prospective capital raise or strategic partnership. To be fully clear, we are not looking to issue 100 million shares as has been inferred both through direct and indirect communications with some stakeholders. We didn't want to mislead anyone by putting a specific number in the notice when we currently have no basis to support it. As noted in our investor letter, management and the board are amongst the largest holders of fusion fuel securities, and we are sensitive to the dilutive impact any significant financing would have on existing shareholders and are therefore fully motivated and aligned to ensure that any equity offering we consider creates meaningful long-term value for the company and its shareholders. We're maintaining our revenue guidance for 2024. Of the 34 million forecasted, 7.3 million of this has been contracted to date. The remainder will be made up from the sales that are currently in negotiation. Some of these negotiations are linked to our CNETs portfolio, and the IPSA progress has significantly broadened the client discussions around those projects. This means that the negotiations are taking longer, but are also more significant for the company. We have not included further equipment sales from our pipeline, which significantly exceeds the amount left to execute for 2024. Given our experience with delivering projects, delays will happen. So we were allowing some room so that further conversion of our pipeline will offset some possible delays. As a reminder, the timing of revenue recognition for each contract could be different. In some cases, revenue is recognized over the delivery phase of the project, and in other cases, it's at a point in time, usually when the full project has been delivered and client acceptance has been received. For that reason, our 34 million target will not be recognized on a linear basis or spread evenly over each quarter. From an outflow perspective, we are forecasting SG&A costs of between 14 and 16 million and CapEx of between 8 and 10 million for 2024. Right now, we have a lower cost base when compared to our competitors, and we are working to reduce this further without diluting the quality of our product and ancillary services. As can be shown in this slide, our costs reduced in 2023, and with a lower cost base, we fully expect to see further benefits during 2024. Our goal continues to be reaching cash flow self-sufficiency, and as noted earlier, we expect this to happen during 2025, if we can execute our business plan. Before I pass you over to Frederico, I would just like to reiterate our commitment to our shareholders that we will continue to manage the company in a cost-effective manner and migrate from the legacy products and projects that will not create value in the near term. Frederico, the floor is yours.

Thank you, Gavin, and good afternoon or good morning to you all. I'm pleased to share with you today the latest news from the numerous activities we have going on. Firstly, and I'd be remiss if I didn't start with such an important piece of news, we were informed that our CNIS project portfolio, which we submitted in 2020 for IPSA consideration, finally received its approval. This is a major milestone for us, having worked in the background on this project for nearly four years now. For many courses, we've been quiet on the IPSE and the Senus front, given the uncertainty and also its potential to significantly distort any figures we would publish. We made that mistake in our early years and decided to be substantially more cautious on how we communicate around this project going forward. At the same time, we put substantial effort into building a business that was not solely dependent on this large project and the IPSE decision. something that given the long lead times on these mega projects was a very proven thing to do. And I'm very pleased to note that today we have a business that counts the IPSE project as a boost to our plans rather than the foundation to them. Today, we want to clarify what the project is and what it means for the company. Firstly, the IPSE includes three phases. The first two of which have already been awarded grants totaling 32 million euros from Portugal's resilience and recovery plan. We've announced these awards in recent years and we have already received in inflows from these 32 million euros. The third and last phase is substantially larger for a total of 530 megawatts and is expected to take nearly to the end of the decade to execute. With its three phases, we expect this portfolio to be a driver of long-term value for fusion fuel. Being designated an important project of common European interest means that the company can now enter into bilateral agreements on funding plans with local governments beyond the existing grant programs. And we can also enter into discussions with the European Investment Bank for possible financing solutions and support. Financing large green hydrogen projects today is not possible without this type of support, given the early stage of the industry. Therefore, having these options is of immense value for any project investor. It quite simply makes a project of this dimension viable, which makes it incredibly valuable. The project foresees the production of green hydrogen to make green ammonia in Portugal, with the eventual shipping of a significant part of this production to Northern Europe. It is a truly ambitious project, enabling the avoidance of around 650,000 tons of CO2 in the process and producing more than 300,000 tons of green ammonia. This project is led by Fusion Fuel, but will be executed with several partners. It's simply not possible to execute a project of this size by ourselves. And a key consideration of the IPSEC conditions is the engagement of several partners across multiple countries. And it has substantial spillover benefits to the local economies. As noted, we expect this to be a significant contributor to our business over its long lifetime. However, we will only provide guidance on the expected amounts or parts to be implemented by FusionFuel once we have gone through the various negotiations with partners, governments and financing players. This will still take many months to see through, and we will look to update you as we have more information. In the meantime, we continue to relentlessly execute on our 2024 and 2025 activities. Last quarter, I provided some information regarding our engineering capabilities and the benefits it brings to our business and relationships. Today, I would like to drive this point further. As outlined in the slide, we offer engineering advisory services for one, two, and three studies, procurement services for balance of plant equipment. This is everything a plant needs beyond the electrolyzer. And in Iberia, we do construction planning and supervision and plant legalization. This full suite offering positions fusion fuel as a true partner and advisor for clients. Many of which are not CAASPP operators or developers and require the close support to bring the project to reality. Already in 2024, in the 34 million euros revenue guidance Gavin mentioned, we expect 2 million euros to be from pure engineering services alone and around 10 million euros to come from the procurement and supply of balance of plant equipment for plants that we are designing for and with clients. This allows us to capture a significantly larger share of the wallet of the total spend on each hydrogen plant. The electrolyzer can at times be less than 50% of the overall plant costs. So being able to deliver the remaining equipment and services can be a large contributor to our top line. Although we recognize that the equipment provision has lower margin, but also lower warranty and product related risks. With each plant we deliver and design, our expertise grows and further pulls us ahead in the early stage industry. It allows us to be a trusted partner and allows us to capture repeat business with clients. It's important to note that to date, every client we have has the potential for repeat business. And for nearly all of the clients we're dealing with, we are already designing and submitting proposals for follow-in plants. To share some of the latest information regarding the HevoChain offering, I want to note that this is a truly customizable and modular solution where we are producing cubes of various sizes, as well as containerized solutions for larger projects. I will pause here and just interact with the question that I've seen coming up. We haven't in the past provided the data sheet openly on our website as we effectively design the projects to the customized scope for the clients. So this is something that we do and we engage with in the client because we, given that it's such a modular solution, we truly tailor each project delivery to the client's needs. The Hevo chain, which began its commercialization in mid 2023, has already started full production at our Benevente facility, and we continue to see strong interest in the solution. And we are delivering proposals and project designs on nearly a weekly basis at this point. We will be delivering the remaining cubes during this month to our first Hevo chain installation at our client site. This project includes full plant delivery and allows us to see client bookings to the tune of three times the electrolyzer value with the provision of other equipment and services. This is a very interesting project where we are delivering a system that permits the use of hydrogen into their industrial furnace and allows them to change the fuel mix they currently use and significantly reduce their carbon footprint. The savings generated from the carbon reductions and the changing of the fuel mix are enough to offset the cost of the plant without needing grant support. This shows us that the HEPA chain solution is, for certain cases, economically viable even without grants at this early stage in the industry. To finish, I'll briefly cover on the strategic priorities we have laid out for the year. In 2024, we plan to deliver and install six to seven full HEVO chain systems to Southern European clients. Of these, five are expected to be full plant deliveries. In addition, we will already be working on the engineering and preparatory work for certain projects to be delivered in 2025. These projects range from 300 kilowatts, the one I just mentioned before, all the way to five megawatts in size. And we expect to also start work on the 10 megawatts seen as one project this year. One of our priorities for this year, and already mentioned by Gavin, but for most of what was last year as well, continues to be strengthening the strengthening of our balance sheets. We are laser focused on reaching cash flow break even, and we need to be properly capitalized to reach this milestone. A stronger capital position allows the company to have confidence in front of clients to close mid-sized project sales and to be able to provide credible warranty backup. In addition, now that we are booking revenues, we believe this is the last step to addressing the significant valuation disconnect to our peers. The Macquarie facility provides the company with a strategic line to be able to tap into as it needs capital and as opportunities arise where we see significant value but would be additional to our base plan. We have been in long-standing discussions with several capital and strategic partners that can bring additional value to the company. The Macquarie facility is a great complement to these potential capital sources, and we believe the combined effect will generate substantial shareholder value. With the facilities at hand and the recent ATM raise, we continue to be able to pursue the value-added capital strengthening activities that we launched quite some time ago. We have been cautious to do the right deal for the company, as Gautam mentioned before, and we will continue to do so. As we've noted, broadening the target addressable market for us is important. With AheboChain, we have a great solution to do just that. We not only want to sell to Northern European markets, but in 2024, we also plan to certify the solution for use in North America and in Australia. We are already delivering multiple proposals and plant designs for both these regions, and so ensuring that the solution is duly satisfied for local regulations will be part of our 2024 activities. As part of our focus to reach cash flow breakeven, we will continue to push cost reduction efforts to add to the significant savings already achieved. In addition, we will continue to make adjustments to our resource allocation and investments to ensure they are aligned with our strategy. In such a fast-moving industry, we are bound to make adjustments, and we see the reassessment of our spend and investment as an ongoing priority task for our Executive Committee. In the past, we made the costly mistake of building inventory for projects that were in advanced stages but could be cancelled or impacted by regulatory changes. This is an example of a resource allocation mistake that we will not be making again. We will not be providing working capital advances to projects or clients, and we will ensure that the capital deployed is aligned with our short and mid-term revenue targets. Lastly, on strategic partnerships. Partnerships are a key part of our value creation, and they range from commercial partnerships with developers and system integrators, such as the ones we've already mentioned in the past for Spain, Italy, and North America, all the way to partnerships with a technology angle, such as the ones we've mentioned before with Fraunhofer and with Toshiba. But adding to these, we are building close relationships with suppliers of balance of plant equipment, such as power components and compressor solutions. Our Ripsay project really brings a completely new scope to the partnerships that are possible. Given its size, the type of counterparts that we are dealing with are of a very large dimension and have the capacity to have a broad and long-lasting impact on the company. Therefore, we're also taking our time on these relationships to ensure that we're able to find the right partner and right fit for Fusion Fuel. These discussions started several months ago, and we expect them to continue throughout 2024. And so we look forward to providing you with more news during the year on the partnership front. I want to close by noting that it has been a very eventful few months of the company. It would not be an understatement to note that it very much feels that we have reached a before and after moment with the closing of the HivaSolo legacy, the ATM raise, Macquarie facility, combined with the IPSE approval. We are now fully focused on delivering on what we have mentioned here today and what has been in work for quite some time, including many client projects that have begun to move forward once again. We're excited by the opportunities that lie ahead. and the move forward that we see in the overall hydrogen market in the last year. Now with that, we'll open up to some Q&A.