ITM Power (AIM: ITM), the energy storage and clean fuel company, provides a trading update, which includes progress on the contracts pipeline and updates on some of the major projects currently underway.
Results
The delivery of completed projects increased significantly in the second half of the financial year to 30 April 2019 as expected. As a result, the total income under IFRS 15 is expected to be approximately £17m1 (unaudited) (£14.1m), an increase of over 20% year-on-year. The EBITDA2 (unaudited) loss from operations of approximately £6.7m (£4.9m) is in line with Board expectations. Total financial assets at the year-end were approximately £19.8m, comprising £5.2m of cash, £1.7m of cash on guarantee and deployed working capital (debtors less creditors) of £12.9m.
A cash movement of £10.4m for H2 FY2019 reflects a period of deploying working capital. This has involved procuring components for the delivery of 4 hydrogen refuelling stations (HRS) in the UK, the bus HRS in France, and also materials for the Shell 10MW Refhyne project. This increase in working capital is expected to partially unwind in H1 FY2020 as cash receipts are recognised from these projects.
Pipeline Numbers
The contracts backlog today stands at a record level of £45.1m, an increase since February 2019 of £9.4m (up 26%) comprising £29.0m of projects under contract and a further £16.1m of awards in the final stages of negotiation. The tender opportunity pipeline also stands at a record level of £330m, an increase since February 2019 of £90m (up 38%) comprising 46 active commercial tender responses over the last 12 months with an average project size of £7.2m (£6.5m) reflecting strong industrial demand for larger systems.
New accounting rules – IFRS 15
The Company has used IFRS 15, “Revenue from Contracts with Customers” for these results and for all subsequent periods. Under IFRS 15, revenue is recognised upon completion, rather than at stages of completion. The various products that the Company is in the process of building will be deployed in FY2020 and FY2021 and the revenue recognised respectively across the two accounting periods. This revenue recognition will have no effect on the Company’s cash position.
1 Includes sales revenue and grant income against both development projects and HRS sites in the UK
2 EBITDA includes grant income recognised on the income statement
Refuelling Stations
Refuelling station network availability was consistently above 98% as a result of the close collaboration with the Company’s partners Shell and Linde. On 7 May 2019, ITM Power announced the extension of the UK refuelling collaboration agreement with Shell, expanding on the original announced on 10 September 2015. The new agreement will run until 2024 and covers the refuelling of all types of hydrogen vehicles; from passenger cars to commercial vehicles, including buses, trucks, trains and ships.
Projects
The Company currently has a portfolio of 34 projects and a team of 10 dedicated project managers, including French and German speakers, who work closely with clients to support the delivery of projects to time and budget. Many of the projects are innovative in terms of technology, integration and deployment environments. A close working relationship with customers enables ITM Power to capture valuable learning and to develop leading best practice.
As an example, one of the Company’s electrolysers was deployed in an extreme thermal environment and is now being redeployed, under a commercial agreement, and is being analysed to gain data on deployments at operating temperatures above 40oC. ITM Power now has experience of deploying in a range of difficult real-world weather environments including extreme heat and dust, high winds, sea spray and freezing temperatures. This experience generates important and valuable data for system design and accurate tender assessment and costing.
Considerable compliance experience has been gained from deployments in industrial settings including supply critical chemical plants and industrial gas plants. Documentation, project management and health and safety processes in these industrial locations have all been important in delivering increased commercial advantage.
The 10MW Shell Refhyne project is progressing well and the ground-breaking ceremony will be on 25 June 2019 at Shell’s Rhineland Refinery in Germany. The Refhyne consortium has produced an information video, available at: https://www.youtube.com/watch?v=tpPS62RTKd0
Resources
The Company currently employs 170 staff with recent recruitment focussed in the areas of production, standard product design, commissioning and after sales support. These increased resources will lead to an increased capability to meet the new orders expected from current market and pipeline trends. The Company has developed a number of options regarding the large factory move to most effectively accommodate the Company’s requirements including alternative sites. The move, to enable greater production and in particular testing capacity to keep pace with orders for the coming years, is expected to be completed in early 2020.
Outlook
The market for electrolysis is growing very strongly. Many international projects at the 100MW level have been announced by energy majors including: Energinet, Tennet, GasUnie, Tata Steel, Nouryon, RWE, BP, ONTRAS and the Northern Netherlands initiative. In the UK, the Committee on Climate
Change report “Net Zero” predicts (depending on load factor) between 6 GW (6,000 MW) and 17 GW (17,000 MW) of electrolyser capacity to be required in the UK by 2050.
In addition to commissioning the Committee on Climate Change report “Net Zero”, the UK Government has also established, via the UK Offshore Wind Industry Council (OWIC), a new task force dedicated to finding innovative solutions to make the best use of electricity generated by renewable sources with a strong focus on electrolysis. The task force, which began work on 20 May, includes senior representatives from the Department for Business, Energy and Industrial Strategy (BEIS), the Scottish Government, the Committee on Climate Change, National Grid, ORE Catapult, Energy Systems Catapult, Atkins, Engineering and Physical Sciences Research Council, ITM Power, Good Energy, Shell, Equinor, Vattenfall and Ørsted.
Dr Graham Cooley, CEO, ITM Power plc. commented: “ITM Power is undoubtedly in the right place at the right time. This trading and pipeline update demonstrates the attractiveness of our products around the world and the hard work of our team. Total recognised revenue, our contracts backlog and quotations against tenders are all showing strong growth and the world outlook for green hydrogen demand and electrolysers is very encouraging.”
About ITM Power plc:
ITM Power plc manufactures integrated hydrogen energy solutions for grid balancing, energy storage and the production of green hydrogen for transport, renewable heat and chemicals. ITM Power plc was admitted to the AIM market of the London Stock Exchange in 2004. In September 2017, the Company announced the completion of a £29.4m working capital fundraise. The Company signed a forecourt siting agreement with Shell for hydrogen refuelling stations in September 2015, which was extended in May 2019 to include buses, trucks, trains and ships, and subsequently a deal to deploy a 10MW electrolyser at Shell’s Rhineland refinery. The Company entered into a Strategic Partnership Agreement with Sumitomo Corporation in July 2018 for the development of multi-megawatt projects in Japan. Additional customers and partners include Ørsted, National Grid, Cadent, Northern Gas Networks, RWE, Engie, BOC Linde, Toyota, Honda, Hyundai, Anglo American among others.
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