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