HIGHLIGHTS

Backlog and pipeline
• Work in progress(1) as at September 2022 increased by 79% YoY to 77 MW
• Contracts backlog(2) as at September 2022 increased by 79% YoY to 755 MW
 
1. Work in progress, contracted backlog. 
2. Contracts backlog, contracted work in progress and contracts in the final stages of negotiation and preferred supplier backlog. 

Developments in the year 

• Geopolitical developments have resulted in a further increase in demand for large scale electrolysis projects to produce green hydrogen driven by achieving net zero targets and increasing energy and food security.
• November 2021 raise of £250 million principally to expand manufacturing capacity to 5 GW by December 2024.
• Continued investment in technology platform focused on the development of the 2 MW MEP 2.0 stack and the 5 MW Gigastack.
• Latest generation of stack modules represents a step change in performance with a 10% improvement in efficiency.
• Sale of a 24MW electrolyser to Linde Engineering to be installed at a site operated by Yara Norge AS located at Herøya outside Porsgrunn, about 140 km southwest of Oslo.
• Strategic partnership agreement with Vitol Holdings SARL (“Vitol”) for wholly owned subsidiary ITM Motive Limited, trading as Motive, to become a 50/50 joint-venture owned between ITM Power and Vitol.
• Announcement of world’s first clean-hydrogen subsidy scheme by UK government targeting 10GW by 2030.
• Established an aftermarket focused customer support business based in Germany.

FY22 results 

• Revenue of £5.6m (FY21: £4.3m), reflecting delayed delivery to the current year of the 24 MW Leuna contract
• Gross loss £23.5m (FY21: £6.5m)
• Adjusted EBITDA loss¹ of £39.8m (FY21: loss of £21.4m)
• Cash balance at year end of £365.9m (FY21: £176.1m)
• Cash burn² of £53.3m (FY21: £37.7m)

1. Adjusted EBITDA is a non-statutory measure. The calculation methodology is set out in the CFO’s Review and in Note 4.
2. Cash burn is a non-statutory measure the directors use to monitor the Group, and is calculated by deducting from annual cash flow the effects of any equity fund raise after costs.
    

We were disappointed that the revenue from the Leuna project was not recognised in the year, being delayed into the next financial year. However, the lessons learned from building this latest generation of electrolysis equipment will ensure that our future competencies and capabilities are enhanced. Our gross loss also widened in the year reflecting increased costs on committed contracts, much of which was associated with first-of-a-kind plant or technology improvement. We have also not yet fully realised the benefit of our decision to stop undertaking EPC work. More widely, the lessons learned include the need to consider carefully introducing any technology development on the critical path of projects, and as such we will focus in future on selling validated products, which we see as worldleading. The focus on recruiting staff to support delivery has resulted in overheads staying broadly consistent with the prior year, with the increase in staff being deployed either to delivery (cost of sales) or future value creation (product development). Further details are discussed in the CFO’s Review. 

Production capacity strategy We are amending our ambitions for the timing of our target to have 5 GW of production capacity. We have also reviewed our plans to open a second UK factory at Aviation Park, given the current business climate and cost escalation. Our ambitions remain as strong as ever, but we need to be nimble and flexible, and we want to ensure investment decisions are correct and right for the business and considered fully before capital is committed. 

We believe in the near-term that extending the total capacity at Bessemer Park up to 1.5 GW is a better use of capital with commensurately improved near-medium term cash flows. Available annual capacity at Bessemer Park will be ramped up to around 700 MW over the next six months. The factory has been reconfigured such that the final part of the expansion, to 1.5 GW, is planned to be achieved within the next two financial years but could be accelerated to within eight months from the time we take the expansion decision. 

People 

• Denise Cockrem was appointed as a Non-Executive Director from July 2022; Tom Rae, the representative of J.C.B. Research, a significant shareholder in ITM Power, resigned as a NonExecutive Director in November 2021.
• Tim Calver has been appointed to the new position of Commercial Director. Tim joins us from EY Consulting, where he has spent the last 6 years working with a wide range of energy and utility clients in UK and Ireland. He was also a member of EY's UK Energy and Resources Consulting Management Team, leading EY’s consulting work in hydrogen. Prior to joining EY, Tim spent 12 years with RWE, with senior roles in strategy, major energy project development and commercial asset optimisation, ultimately as Director of Corporate and Organisational Development for RWE Generation, reporting to the CEO. He was based in Germany and led a department of 100 across three countries with responsibility for portfolio strategy and long-term commercial decision making for 50 GW of power plant. His early career was spent with National Power in the UK, including a focus on energy storage and commercial analysis following a degree in Materials Science from the University of Cambridge.
• Helen Baker will step down as Company Secretary and leave ITM Power at the end of September 2022. She will be replaced in November 2022 by Vicky Williams. Andy Allen, CFO, will act as Company Secretary in the period between Helen leaving and Vicky joining. 

Current year guidance 

• Product revenue in the range of £23-28 million
• MW delivered in the range 48-65 MW
• Adjusted EBITDA loss¹ of £45-50 million
• Capex of £30-40 million, with focus on development costs
• Working capital of £40-60 million
• Cash burn² of £110-135 million

1. Adjusted EBITDA is a non-statutory measure. The calculation methodology is set out in the CFO’s Review and in Note 4.
2. Cash burn is a non-statutory measure the directors use to monitor the Group, and is calculated by deducting from annual cash flow the effects of any equity fund raise after costs.
    

Outlook 

We start the new financial year in a strong financial position and, whilst there are many operational changes being made within the Group, we expect good sales momentum, with further investment into our people, our processes and our assets. We also see the economic case for green hydrogen projects increasing, with the macro picture expected only to improve. 

We have a contracted backlog of 77 MW which we expect to increase in the coming months as more projects reach their FID and become contracted. That said, with lead times stretching within many supply markets in FY22 as a result of macroeconomic conditions, the focus in the next financial year will be on delivering what is already contracted, with 60% to 80% of the MW in contracted work in progress expected to be recognised in FY23. We will also continue to utilise working capital to build products to stock, with 50 MW to 100 MW of core stack modules being built for products to be recognised in future years. 

Continued investment in capability and capacity will see losses increase in the near term, with an improved position in the medium term. The cash on our balance sheet will enable us to grow capacity, initially through £10 million to £15 million further investment in Bessemer Park. Longer term, we will invest to increase capacity towards 5 GW to enable us to address the large demand we see in the future. 

Graham Cooley, CEO of ITM Power, said: “There is only one net zero energy gas that can replace methane to help the world address climate change. Green hydrogen can also help to deliver energy security and contribute to food security through the production of green ammonia for fertilisers. These abilities have become very powerful drivers for our business as governments seek to accelerate the share of intermittent renewables in their countries’ energy mix to address dependence on weaponised gas supply from Russia. Over the last nine months, as the prices of methane and fertiliser have increased, green hydrogen has achieved first parity and then become cheaper in many cases than producing these commodities from gas feedstocks. 

“In and since our last financial year, ITM Power has completed a transformational fund raise, won our first project for green ammonia, further developed our technology and production systems and set out a path that will enable us to remain a world leader in electrolyser manufacture. I believe the next twelve months will see the benefits of our position becoming even clearer as governments urgently address their dependence on methane.” 

For further information please visit www.itm-power.com or contact: 

ITM Power PLC
+44 (0)114 244 5111
James Collins / Justin Scarborough, Investor Relations

Investec Bank plc (Nominated Adviser and Broker)
+44 (0)20 7597 5970
Jeremy Ellis / Chris Sim / Ben Griffiths

Tavistock (Financial PR and IR)
+44 (0)20 7920 3150
Simon Hudson / Tim Pearson / Charles Baister

There will be an analyst call today at 0930h GMT. Those analysts wishing to join the call should register to receive an invitation by contacting ir@itm-power.com.

There will also be a presentation for investors at 1400h GMT on the Investor Meet Company platform.  Investors can sign up to Investor Meet Company for free and add to meet ITM POWER PLC via: https://www.investormeetcompany.com/itm-power-plc/register-investor.

About ITM Power PLC

ITM Power manufactures integrated hydrogen energy solutions for grid balancing, energy storage and the production of renewable hydrogen for transport, renewable heat and chemicals. ITM Power PLC was admitted to the AIM market of the London Stock Exchange in 2004.

ITM Power operates from the world's largest electrolyser factory in Sheffield with a capacity planned to reach 1.5 GW (1,500 MW) per annum and has an ambition to grow capacity in line with demand to 5 GW per annum, supported by a £250m equity raise in Q4 2021. Partners include Linde, Shell, Snam, and Vitol among others.

Statement from the Chair of the board

The macro picture

The case for green hydrogen produced by electrolysis strengthened significantly over the last year. In addition to global initiatives and commitments to address climate change, the role of green hydrogen to address energy security and price volatility has moved up the global political agenda. The events in Ukraine, and the subsequent sanctions on Russia have created price spikes in hydrocarbons and in fertilisers. The cost of green hydrogen in many parts of the world is now at parity with the cost of grey hydrogen, which together with the increased desire for energy security and independence, should accelerate the replacement of grey hydrogen by green hydrogen, the only net zero gas, whilst at the same time, reducing energy cost volatility.

Geopolitical developments have resulted in a further increase in demand for large scale electrolysis projects to produce green hydrogen. The Board believes that the twin drivers of achieving net zero targets and the increasing need for energy and food security represent endorsements of our strategy to increase production capacity.

Scaling for the future

In November 2021, we raised £250 million to expand our manufacturing capacity to 5 GW by 2024, to develop our core products and to accelerate our technology capabilities and to continue investment in organisational development as we scale towards global manufacturing. Just like the energy industry, ITM Power is going through a transition which includes changes to our internal processes and procedures, which are being enabled by the recruitment of many highly skilled and experienced people who will enhance our competencies and capabilities across all areas of the Group.

Our ambitions today remain as strong as ever but after careful consideration we have taken the important decision to review our manufacturing strategy. This has been brought into even sharper relief by current geopolitical instability, high inflation and economic uncertainty.

We have decided to redefine the timing of the expansion of our capacity. While it remains our aspiration, we recognise that given cost escalation, supply constraints, and time delays it might not be possible to reach 5 GW by the end of 2024. Capital discipline has to be at the heart of every investment decision we make and having an explicit capacity target by a defined date could lead us to capital investment decisions that are not right for our business.

For the same reasons, we have looked again at our plans to build a second factory in the UK, at Aviation Park, and have decided that the timing is not right to proceed with this in the immediate future. Instead, capacity at Bessemer Park will be rapidly expanded, with around 700 MW of capacity available by early 2023, followed by further early expansion of up to a total capacity of 1.5 GW, which can be achieved by around eight months after the time the expansion decision is made. We believe this is a much more efficient use of capital, and a more realistic near-term plan. The CEO’s Review, which follows, sets this out in a little more detail.

Our products

Our technology continues to develop. Our latest stack platform, MEP 2.0, increases pressure, efficiency and output. This technology will be showcased for the first time through the 24 MW Leuna project. Unfortunately, delivery of this project has been delayed due to a number of factors, including supply chain constraints, changes to Leuna’s site requirements, and both manufacturing and testing delays. Delays are to some extent understandable given we are delivering a first-of-a-kind product into a commercial project. The impact this had on our results is discussed in more detail in the CFO’s Review.

Our product range will continue to develop and Linde announced at its Green Hydrogen webinar in July 2022 the development of a larger system module. This has been jointly designed and will enable five MEP 2.0 stack skids to be integrated into a single module that can be deployed into large projects.

We have also been awarded a contract by The Department for Business, Energy and Industrial Strategy (BEIS), under its Net Zero Innovation Portfolio Low Carbon Hydrogen Supply 2 Competition, to accelerate the commercial deployment of our next generation platform and its manufacture. This follows the publication of a report highlighting the progress made to date and describing the pathway to a final investment decision (FID) and commercial operation of a 100 MW scale electrolyser system powered by offshore wind in 2025.

Our people

We have continued to build our team and have been very fortunate to have attracted highly talented individuals in all departments. Today we employ over 430 people and have a growing apprentice scheme, which has proven to be a great success.

Dr Graham Cooley has decided to step aside from his position as CEO after 13 years in post, during which time he has led the Company through very significant growth and development. He will remain in position until a successor is appointed, and thereafter assume a senior strategic role in the Company, reporting to me and the new CEO. We wish to place on record our enormous gratitude and respect for his leadership over the years. We are delighted that we will continue to benefit from his immense experience and expertise in the hydrogen sector.

Tom Rae, the representative of J.C.B. Research, a significant shareholder in ITM Power, resigned as a Non-Executive Director in November 2021 following completion of the fundraise which resulted in J.C.B. Research’s shareholding falling below the threshold giving it the right to appoint a Non-Executive Director. I’m sure I speak for the whole Board when I thank Tom for his contribution during his year as a Non-Executive Director.

I am delighted Denise Cockrem agreed to join us as a Non-Executive Director from 25 July 2022. She combines a strong history of knowledge and experience of accounting with valuable experience in the renewable energy sector. She will bring directly relevant skills to the governance and future development of the Company. I look forward to working with her.

Our partners

Our strategic partnerships should enable us to capture a material share of the global green hydrogen market as its growth further accelerates over the coming years. I look forward to updating shareholders on our progress for what should be another exciting year.

As always, I would like to end by thanking all of our stakeholders – staff, partners, shareholders and our communities – for their help, support and enthusiasm in helping us to create today’s ITM Power, a recognised world leader in electrolysis technology and a creator of jobs and value in the UK. Here’s to the future.

Sir Roger Bone
Chair of the Board
 

Chief Executive Officer’s Review

Introduction

During 2022, hydrogen has increasingly emerged as a core component of world governments’ energy transition strategies. Green hydrogen produced by electrolysis from renewable power is pivoting from demonstration and trial projects to intent and action as the world seeks to achieve increasingly legislated net zero targets.

This is a new market, with Proton Exchange Membrane (PEM) electrolysis at the cutting edge of the solutions to reach net zero. As such, we have continued to invest in technology development to address a market that demands performance and scale. In parallel, we have sought to increase manufacturing capacity as the technology is maturing. This dynamic has led to the need to manage the inherent uncertainty of rapid technology and production scale-up.

Due, in part, to the tragedy unfolding in Ukraine, governments are also now recognising that green hydrogen has a vital role to play in strengthening energy security, whilst at the same time, given the role that methane plays in the food value chain, the need to improve food security has also risen high on the agenda with increasing demand for green ammonia to produce fertilisers. Investment in renewables is also accelerating as governments around the world target an increasing share of renewables in their energy mix. These factors are combining to accelerate the demand for electrolysers.

However, in the short term, and across Europe for example, large projects are being delayed due to a lack of FIDs. A number of the EU’s ‘important projects of common European interest’ (IPCEIs) in the hydrogen sector fall into this large project category and whilst EU funding is available for such projects, until factors such as subsidies and incentive schemes are announced, there remains a risk of further FID delays.

Performance

We were disappointed that the revenue from the Leuna project was not recognised in the year, being delayed into the next financial year. However, the lessons learned from building this latest generation of electrolysis equipment will ensure that our future competencies and capabilities are enhanced. Our gross loss also widened in the year reflecting increased costs on committed contracts, much of which was associated with first-of-a-kind plant or technology improvement. We have also not yet fully realised the benefit of our decision to stop undertaking EPC work. More widely, the lessons learned include the need to consider carefully introducing any technology development on the critical path of projects, and as such we will focus in future on selling validated products, which we see as world-leading. The focus on recruiting staff to support delivery has resulted in overheads staying broadly consistent with the prior year, with the increase in staff being deployed either to delivery (cost of sales) or future value creation (product development). Further details are discussed in the CFO’s Review.

The market for green hydrogen

The green hydrogen market has been propelled onto centre stage of the global energy market with the unfortunate events in Ukraine. Nations around the world are taking action to shift away from expensive and scarce methane as soon as possible. This is underlined by the recent REPowerEU energy security plan which aims to transform Europe’s energy system. The measures in the plan set a target of 10 million tonnes per annum of domestic renewable hydrogen production and 10 million tonnes per annum of imports by 2030 to replace methane, coal and oil in hard-to-decarbonise industries and transport sectors. The 20 million tonnes per annum total is equivalent to 200 GW of electrolysis by 2030.

In the UK, the Government has also responded by doubling its initial 5 GW of blue and green hydrogen target to 10 GW of low-carbon hydrogen, of which a minimum of 5 GW will be green hydrogen. This is good news for the UK as it looks to bolster energy security, energy storage and sustainability, and good news for ITM Power with our technology leadership in PEM electrolysis.

The US House of Representatives has recently approved the Inflation Reduction Act of 2022 (US IRA), a $369 billion package dedicated to decarbonise the United States. The bill will provide incentives for clean energy technologies with tax incentives being the primary mechanism, which should add long-term certainty to clean energy markets, thereby attracting significant investment. A tax credit for ‘qualified green hydrogen’ would pay up to $3 per kilogram depending on the levels of life cycle emissions and staff wages. This will have the effect of improving the viability of a significant number of projects in the US, thereby accelerating demand for green hydrogen products.

Across the world, more and more countries have announced hydrogen strategies. According to Bloomberg New Energy Finance, the 30 countries that have now announced hydrogen strategies plan to build a total of 73.8 GW of electrolysers by 2030.

The largest industrial users of grey hydrogen are the oil refining and fertiliser sectors, accounting for upwards of 70 million tonnes consumed per annum. With our 24 MW system deploying to Leuna Energy Park (refining), and this system being replicated for deployment at the Norwegian Yara Porsgrunn plant (ammonia), we are at the forefront of the move to decarbonise the most intensive users of industrial hydrogen. These two projects will form key reference plants for further large-scale projects in these sectors globally.

Backlog and pipeline

1. Work in progress, contracted backlog.
2. Contracts backlog, contracted backlog and contracts in the final stages of negotiation and preferred supplier backlog.
    

As at 1 June 2022, we had a record backlog of 755 MW, a year-on-year increase of 160%. New orders in the year included the sale of a 2 MW electrolyser (increased from the original 1.4 MW sale) to Sumitomo, a strategic partner, for Tokyo Gas, our first deployment in Japan.

In October 2021, we announced that the REFHYNE II consortium had been awarded a grant of €32.4 million by CINEA (the European Climate, Infrastructure and Environment Executive Agency) for the development of a 100 MW electrolyser to be sited at Shell’s Energy and Chemicals Park, Rheinland and which will be used to produce sustainable aviation fuel. REFHYNE II is the follow-on project to the successful 10 MW REFHYNE I project, Europe’s largest PEM hydrogen electrolyser, which began operations in July 2022. ITM is a key member of the 100 MW REFHYNE II consortium, and the project will see an engineering design phase which will be followed by a FID expected in late 2022 with delivery then scheduled for 2024.

In November 2021, the Green Hydrogen for Scotland Consortium, of which we are a member, received UK Government funding to support investment for the first phase of development for ScottishPower’s 20 MW Whitelee Windfarm hydrogen production and storage facility. Also, in November, we announced a 12 MW electrolyser sale, however the location and customer identity are restricted due to commercial sensitivities.

This was followed in January 2022 by our first project in the key ammonia market, the world’s largest consumer of hydrogen, with the sale of a 24 MW electrolyser to Linde Engineering to be installed at the Porsgrunn site operated by Yara, about 140 kilometres southwest of Oslo. The site covers an area of approximately 1.5 square kilometres and is the largest industrial site in Norway. The Porsgrunn site produces three million tonnes of fertiliser per year and is one of Norway’s largest sources of CO₂ emissions outside the oil and gas industry, emitting around 800,000 tonnes per year. The electrolysis plant will provide enough hydrogen to produce 20,500 tonnes of ammonia per year, which can be converted to between 60,000 and 80,000 tonnes of green fertiliser. The hydrogen required for ammonia production is currently produced from steam methane reforming (SMR). Yara intends to start replacing this grey hydrogen with green hydrogen. The 24 MW system supplying 10,368 kilograms per day of hydrogen will account for approximately 5% of the plant’s consumption and serve as a feasibility study for future upscaling.

Also in January 2022, we were pleased to announce that our wholly-owned subsidiary, ITM Power GmbH, had been approved for a €1.95 million (approximately £1.6 million) award for the SINEWAVE project, as part of the German Federal Ministry of Education and Research´s (BMBF) hydrogen flagship project H2Giga that focuses on technology development for series production and industrialisation of electrolysis systems. The project runs to March 2025 and is the first time we have accessed German federal funding. In our trading update in June, we announced that this project will support the development of ITM Power Service, an aftermarket focused customer support business based in Germany designed to provide full product life cycle support of deployed electrolyser systems.

All of our existing aftermarket operations, including the Group’s 24/7 UK Remote Support Centre will be merged into one focused organisation with new headquarters in Linden, ideally located in Hessen, which is a recognised transit state within Germany with excellent motorway links and local infrastructure. The facility will house spare parts, including core PEM stack technology, to ensure high service levels and rapid deployment capability to systems in Europe. The organisation will be led by Philip Wilson as Technical Director and Calum McConnell as Commercial Director, both long-term ITM Power staff members.

In May 2022, RWE announced that it will be using an ITM Power 4 MW electrolyser, made up of two of our 3MEP Cube products, as part of a pilot project at their Lingen facility. This pilot forms part of RWE’s Growing Green strategy announced in November 2021, which plans to create 2 GW of green hydrogen capacity by 2030.

Production capacity strategy

As the Statement from the Chair of the Board reports, we have decided to amend our ambitions for the timing of our target to have 5 GW of production capacity and have reviewed our plans to open a second UK factory at Aviation Park.

Our ambitions are as strong as they have ever been, the outlook for the green hydrogen economy has never looked better and as such these decisions have not been taken lightly. In the case of the 5 GW target, we need to be nimble and flexible, and we want to ensure investment decisions are correct and right for the business and considered fully before capital is committed.

With regard to Aviation Park, the current business climate and cost escalation have caused us to review our original plans. We believe in the near-term that extending the total capacity at Bessemer Park up to 1.5 GW is a better use of capital with commensurately improved near-medium term cash flows.

Available annual capacity at Bessemer Park will be ramped up to around 700 MW over the next six months. The factory has been reconfigured such that the final part of the expansion, to 1.5 GW, is planned to be achieved within the next two financial years but could be accelerated to within eight months from the time we take the expansion decision.

Capital investment at Bessemer Park, which is a leasehold site, has totalled circa £16 million to 30 April 2022. Over the next two financial years, we expect further investment of around £13 million, which will take us up to 1.5 GW of annual capacity. Many of our manufacturing processes have been reengineered and we will continue to introduce more automation, particularly around the core stack product to improve consistency and reduce waste. Finally, we are working to identify new testing facilities to allow product testing and future product validation work to be significantly upscaled.

Technology

Our technology roadmap is focused on increasing efficiency, reducing cost (both operational expenditure and capital expenditure) and expanding production capacity of our electrolyser products. Product development at ITM Power is continual and includes, amongst other things, increased current density, improved membrane materials, ultra-low catalyst loadings, in-house component preparation and the adoption of automated assembly.

We have applied technology improvements to the next generation of 2 MW stack modules, internally known as MEP 2.0, which are being deployed in the 24 MW electrolyser for the Leuna Chemical Complex in Germany and thereafter at the Porsgrunn site operated by Yara. This latest generation of 2 MW stack modules represents a step change in performance with a 10% improvement in efficiency and a 50% increase in operating pressure to 30 bar, reducing both electrolyser operating cost and energy consumption associated with downstream hydrogen compression.

Recently, Linde announced the development of a larger system module, which has been designed in partnership with ITM Power. This will use MEP 2.0 stacks, configured into skids of three stacks and then packaged as a five-skid module thereby creating a 10 MW electrolyser module. The 10 MW modules will then be deployed in multiple batches for large projects.

Development of our next generation platform commenced in 2019 with the completion of a feasibility study funded by the BEIS Hydrogen Supply Competition. This was followed by a second phase, also funded by the BEIS Hydrogen Supply Competition, and covered two streams: a Front End Engineering Design (FEED) study for a 100 MW deployment at Phillips66 and Ørsted and the development and validation of our 5 MW stack platform. This phase concluded during the year with visits from project partners Phillips66, Ørsted and Element Energy, along with the UK Energy Minister and BEIS officials, to Bessemer Park when we presented our findings and showcased the first test station and prototype stack.

Shortly after the year end, we announced the award of a contract by BEIS, under its Net Zero Innovation Portfolio Low Carbon Hydrogen Supply 2 Competition, to accelerate the commercial deployment of our next generation platform and its manufacture. The award for the project was for £9.3 million.

The development and testing programme for our next generation platform includes both component level and full-scale evaluation and will remain ongoing as part of our technology roadmap and continuous improvement of our product suite. This platform is larger than our state-of-the-art MEP system and it will undergo rigorous testing in representative conditions to validate the performance through real-world conditions, ensuring the technology is ready for large-scale commercialisation.

Motive

In March, a strategic partnership agreement was made with Vitol for wholly-owned subsidiary ITM Motive Limited (now Motive Fuels Limited), trading as Motive, to become a 50/50 joint-venture between ITM Power and Vitol.

Vitol is a leader in the energy sector with a presence across the spectrum: from oil through to gas, power, renewables and carbon. Vitol will invest up to £30 million, which will be matched by a similar investment from ITM Power. Motive owns all UK public hydrogen refuelling stations constructed by ITM Power. It was set up as a Group division in 2020 and became a separate legal entity in May 2021. It operates with its own board, comprising three directors from ITM Power and three from Vitol.

As part of the transaction, Motive has entered into a framework agreement with ITM Power, under which Motive appoints ITM Power as its preferred supplier for up to 240 MW of electrolysis equipment to support Motive with the development and roll-out of new green hydrogen refuelling stations. Motive has also appointed Vitol as its preferred supplier for up to 240 MW of electricity demand, which will provide green power to the network of new refuelling stations.

Vitol shares Motive’s belief that the market for hydrogen in transport is on the cusp of rapid expansion, supported by government incentives to accelerate transportation decarbonisation. This partnership will help facilitate the rapid scaling up of production, distribution and demand stimulation for hydrogen to transportation. Vitol is aligned with Motive’s strategy to target the building of large refuelling stations for heavy duty vehicles, such as trucks and buses. Over the past 18 months, Motive has been working to develop deep relationships with a small number of blue-chip heavy goods users in the UK and aims to develop standard 4 MW sites around the UK.

Outlook

We are on the verge of a major energy and industrial step-change. I describe it as the fourth industrial revolution, one of interconnectivity and automation, powered by Net Zero, and ITM Power is playing a key role in supporting this revolution.

It has been a privilege to lead ITM Power through its transition from an R&D business to a world leading electrolyser manufacturing company. No CEO can remain in place indefinitely and now, as we seek to become a global manufacturing powerhouse, is a good time for me to step aside and hand over to someone with more experience in this area.

The whole team at ITM Power has been a pleasure to work with and I look forward to working with the new CEO and continuing my involvement with the Group.

Dr Graham Cooley
Chief Executive Officer

Chief Financial Officer’s Review

Introduction

FY22 was another busy year for ITM Power, with manufacturing ramp up at Bessemer Park starting to pick up in the second half of the financial year. We also continued to work very closely with all strategic partners, especially our route to market for larger projects, Linde Engineering.

In November 2021, we completed a successful equity fundraise of net £243 million which was well supported and underpinned our strategy to scale manufacturing capacity, aligned with demand, in the medium term. In the near term, the fundraise has enabled us to invest in accelerating technological development and organisational capability, start to ramp up production capability, to enhance our lead times and competitive positioning. This in turn revealed pressure points within the supply chain and Bessemer Park manufacturing processes, which whilst in the process of being resolved has led to revenue recognition for certain projects, and most notably the 24 MW Leuna project, being deferred beyond the year end.

Shortly before the year end, in late March 2022, we also announced that we had concluded a strategic partnership agreement with Vitol for our wholly-owned subsidiary ITM Motive Limited (now Motive Fuels Limited), trading as Motive, to become a 50/50 joint venture owned between ITM Power and Vitol. Vitol will invest up to £30 million in the venture, which will be matched by a similar investment from ITM Power. This will allow us to focus on executing our current contracts and developing core competencies as a manufacturer, ready for growth as demand is realised. From now on, the Group will account for its 50% share of profits or losses from Motive, as it does with its 50% share of ILE. Further information about the Board’s consideration of the Motive joint venture is available in Our Stakeholders and Section 172(1) Statement in our Annual Report.

Finally, we have continued to make significant investment in both the core technology and in the manufacturing site, Bessemer Park, as well as our people, during FY22 to support our future growth ambitions and retain our position as one of the world’s leading PEM electrolyser manufacturers.

Key financials

A summary of the Group’s key financials is set out in the table below:

1. Adjusted EBITDA in a non-statutory measure. The calculation methodology is included below.

Non-financial key performance indicators

We also use the following non-financial performance indicators to consider our performance over time:

1. MW output has become a key metric considered during the year as the Group moved towards execution of more projects.
    

Financial performance

Revenue

The principal ways in which we generate revenue and income are through product sales, consulting contracts (FEED and feasibility studies), maintenance contracts and grant funding.

Revenues of £5.6 million (FY21: £4.3 million) were generated in the year. Product revenue of £2.0 million (FY21: £1.7 million) related to delivery of two electrolyser products in Australia, as well as the progression of our REFHYNE I project for Shell. Consultancy revenue of £2.9 million (FY21: £2.1 million) predominantly stemmed from the design and proof of concept project commissioned by BEIS for the next generation stack platform.

Fuel sales during the year were £229,000 (FY21: £153,000) with the comparative period reflecting the effects of last year’s lockdowns. Following the announced Motive joint venture with Vitol, the entity will be equity accounted for going forward.

We had expected to be able to recognise the revenue from the sale, via Linde, to Leuna of 24 MW of electrolyser modules, but revenue is now expected to be recognised in FY23. This delay was attributable to scale-up challenges presented by the deployment of our MEP 2.0 technology, coupled with some local supply chain constraints. In collaboration with Linde, the delivery method for the modules was amended. As such, under accounting standard IFRS 15 Revenue from Contracts with Customers, the product will remain in WIP until later in the product delivery cycle, when the product is transferred to the customer.

The Group generated a gross loss of £23.5 million (FY21: £6.5 million loss). Gross loss was adversely affected by cost overruns on the REFHYNE I and Leuna projects. REFHYNE I is a project where we carried out all of the EPC, a role that is now carried out by Linde Engineering. The Leuna project is the first to use the latest MEP 2.0 generation technology. The lessons learned from both these first-of-a-kind projects have led to a sharper focus on validation timing, costings, and testing capability which we expect to improve as production of MEP 2.0 ramps up.

Losses

The adjusted EBITDA loss⁽¹⁾ was £39.8 million (FY21: £21.4 million). This was impacted by various factors: the loss at the gross margin level referred to above, as well as costs associated with production ramp up at Bessemer Park and the overhead increase, mostly as a result of recruitment of skills during the year, with an emphasis on manufacturing and delivery resource.

The loss before tax was £46.7 million (FY21: £27.6 million) and basic and diluted loss per share of 8.1p (FY21: loss of 5.5p per share).

Cash burn

Cash burn⁽¹⁾ increased to £53.3 million (FY21: £37.7 million). This was principally impacted by £7.0 million of product development associated with MEP 2.0 and GEP  1.0, a £25.8 million increase in WIP and inventory build, and £4.1 million for additional production equipment for the Bessemer Park factory.

1. Management uses the non-statutory measures adjusted EBITDA and cash burn to better reflect underlying performance. Cash burn is a non-statutory measure the directors use to monitor the Group, and is calculated by deducting from annual cash flow the effects of any equity fund raise after costs. Adjusted EBITDA is a primary measure used across the business to provide a consistent measure of trading performance. The adjustment to EBITDA removes certain non-cash items, such as share based payments, to provide a key metric to the users of the financial statements as it represents a useful milestone that is reflective of the performance of the business resulting from movements in revenue, gross margin and the cash costs of the business. We have set out below how we calculate adjusted EBITDA (see also Note 4 for more information).

Financial position: positioned for the future

Current assets increased to £423.6 million (FY21: £205.5 million). This was principally as a result of the fundraise of £250 million in November 2021, which resulted in year-end cash of £365.9 million (FY21: £176.1 million), and an increase in inventories to £32.2 million (FY21: £6.4 million) as the Group stocked up on raw materials to deliver its order pipeline and saw WIP increase ahead of the delivery of the Leuna and other projects.

Trade and other receivables were £25.5 million (FY21: £23.0 million) including £10.3 million (FY21: £4.9 million) of prepayments to suppliers for long-lead time items required on the Group’s build projects. Trade and other payables increased to £34.3 million (FY21: £12.9 million), driven by an increase of £10.5 million in deferred sales income principally from the Leuna project.

Fixed assets increased to £34.5 million (FY21: £23.6 million) reflecting a £2.1 million rise in property, plant and equipment and £5.8 million of additional intangible assets, with the rest from investments.

Capitalised development costs increased significantly during the year, reflecting the Group’s focus on launching updated or new core products: the MEP 2.0 and the GEP 1.0. In FY22, the Group capitalised £6.8 million of additional development costs (FY21: £1.5 million) resulting in total capitalised development and know-how costs at year end of £9.1 million (FY21: £3.2 million).

The Group also recognised an increase in both payables and provisions. Payables rose to £34.3 million (FY21: £12.9 million), reflecting an increase in trade payables of £7.5 million as the Group improved payment terms with suppliers, and an increase in deferred income, with sales contracts paid on milestones, reflecting in particular money on projects in flight, including Leuna.

Provisions increased in the year to £21.8 million (FY21: £12.3 million). Provisions for contract losses rose to £12.5 million, (FY21: £4.8 million). This was due to continuing support for REFHYNE I through site acceptance testing, and the Leuna project with an increased cost of parts and increased labour expectations to fulfil the contract. Additions to warranty provisions in the year of £2.2 million (2021: £0.2m) reflect both contract progress in the year and recognition that first-of-a-kind plant requires additional support in the field. We retain our long-term expectation that warranty costs will reduce below 3% of sales price for standard product, repeat sales.

Events after the balance sheet date

After the balance sheet date, the Group announced that ITM Power had been awarded a contract by BEIS, under its Net Zero Innovation Portfolio Low Carbon Hydrogen Supply 2 Competition to accelerate the commercial deployment of our next generation platform and its manufacture. The award for the project is for £9.3 million and follows initial designs developed through previous BEIS funding competitions. The award is expected to be spread over a three-year period and is also expected to be back-end loaded.

In addition, at the time of the trading update in June, we announced the development of ITM Power Service, an aftermarket focused customer support business based in Germany designed to provide full product life cycle support of deployed electrolyser systems. All existing aftermarket operations, including the Group’s 24/7 UK Remote Support Centre, will be merged into one focused organisation with new headquarters in Linden in Germany.

In September 2022, we reviewed our plans to open a second UK factory at Aviation Park, given the current business climate and general cost escalation. Our ambitions remain as strong as ever, but we need to be nimble and flexible, and we want to ensure investment decisions are correct and right for the business and considered fully before capital is committed. In the near-term extending the total capacity at Bessemer Park up to 1.5 GW is a better use of capital with commensurately improved near-medium term cash flows. 

In September 2022 Dr Graham Cooley decided to step aside from his position as CEO of the Company after 13 years in post.  The Company has commenced a process to select a new CEO.  Dr Cooley will remain in position until a successor is appointed, and thereafter assume a senior strategic role in the Company, reporting to the Chairman and the new CEO.

Outlook and current trading

We start the new financial year in a strong financial position and, whilst there are many operational changes being made within the Group, we expect good sales momentum, with further investment into our people, our processes and our assets. We also see the economic case for green hydrogen projects increasing, with the macro picture expected only to improve.

In summary we provide the following guidance for FY23:

• Product revenue in the range of £23-28 million
• MW delivered in the range 48-65 MW
• Adjusted EBITDA loss of £45-50 million
• Capital expenditure of £30-40 million, with a focus on development costs
• Working capital of £40-60 million
• Cash burn of £110-135 million

We have a contracted backlog of 77 MW which we expect to increase in the coming months as more projects reach their FID and become contracted. That said, with lead times stretching within many supply markets in FY22 as a result of macroeconomic conditions, the focus in the next financial year will be on delivering what is already contracted, with 60% to 80% of the MW in contracted work in progress expected to be recognised in FY23. We will also continue to utilise working capital to build products to stock, with 50 MW to 100 MW of core stack modules being built for products to be recognised in future years.

Continued investment in capability and capacity will see losses increase in the near term, with an improved position in the medium term. The cash on our balance sheet will enable us to grow capacity, initially through £10 million to £15 million further investment in Bessemer Park. Longer term, we will invest to increase capacity towards 5 GW to enable us to address the large demand we see in the future.

Andy Allen
Chief Financial Officer
 

CONSOLIDATED INCOME STATEMENT AND OTHER COMPREHENSIVE INCOME

All results presented above are derived from continuing operations and are attributable to owners of the Company.

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

NOTES

1. GENERAL INFORMATION

ITM Power PLC is a public company incorporated in England and Wales under the Companies Act 2006. The registered office is at 2 Bessemer Park, Sheffield, South Yorkshire S9 1DZ.

The summary accounts set out above do not constitute statutory accounts as defined by Section 434 of the UK Companies Act 2006. The summarised consolidated balance sheet at 30 April 2022, the summarised consolidated income statement and other comprehensive income, the summarised consolidated statement of changes in equity and the summarised consolidated cash flow statement for the year then ended have been extracted from the Group's 2022 statutory financial statements upon which the auditor's opinion is unqualified and did not contain a statement under either sections 498(2) or 498(3) of the Companies Act 2006. The audit report for the year ended 30 April 2021 did not contain statements under sections 498(2) or 498(3) of the Companies Act 2006. The statutory financial statements for the year ended 30 April 2021 have been delivered to the Registrar of Companies. The 30 April 2022 accounts were approved by the directors on 14 September 2022, but have not yet been delivered to the Registrar of Companies.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of accounting

The summary accounts are based on the consolidated financial statements that have been prepared in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

They have been prepared under the assumption that the Group operates on a going concern basis and on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Going concern

The Directors have prepared a cash flow forecast for the period from the balance sheet date until 30 September 2023. This forecast indicates that the Group would expect to remain cash positive without the requirement for further fund raising based on delivering the existing pipeline, for a period of at least 12 months from the date of approval of these financial statements.

By the end of the period analysed, the Group will still hold significant cash reserves. This should give the business sufficient funds to trade for the next 12 months if the business continues with its medium-term business plan.

The business remains in a development phase and continues in a cash outflow position, using funding generated from previous fundraises. As such, this cash flow forecast has also been stress-tested. As a worst-case scenario, if all payments had to continue as forecast while receipts were not received at all, the business would remain cash positive for the full 12 months from the date of approval of these financial statements.

The accounts have therefore been prepared on a going concern basis.

3. REVENUE, OPERATING SEGMENTS AND INCOME FROM GOVERNMENT GRANTS

All revenues are derived from continuing operations. An analysis of the Group’s revenue is as follows:

At 30 April 2022, the aggregate amount of the transaction price allocated to remaining performance obligations of continuing build contracts was £42.0 million (2021: £16.7 million). The Group expects to recognise 73% of this within one year, with the remaining 27% expected the following year.

Segment information

ITM Power PLC is organised internally to report to the Group’s Chief Operating Decision Maker, the Chief Executive Officer, on the financial and operational performance of the Group as a whole. The Group’s Chief Operating Decision Maker is ultimately responsible for entity-wide resource allocation decisions, evaluating performance on a Group-wide basis and any elements within it on a combination of information from the executives in charge of the Group and Group financial information.

Management has previously identified three target markets for our products (Power-to-Gas, Refuelling, and Industrial). Revenue reporting has begun to look at these three sectors to assess the commerciality of those sales. However, decisions for resourcing cannot be made by reference to these segments. The Group operates a single factory that builds units for use across all sectors. It would be hard to assign overhead costs to particular product segments as builds all occur in that one facility and can run concurrently. Similarly, fixed assets and suppliers’ balances cannot be assigned to the production of one specific segment. For overhead costs and net asset resources, therefore, decisions are taken on a group basis.

An analysis of the Group’s revenue, by major product (or customer group), is as follows:

In the prior year, the negative sales revenue on refuelling was caused by the effects of foreign exchange as well as actual and forecast overruns (affecting stage of completion) on the product sale therein.

The Other category contains a large consultancy project, involving design and FEED studies for larger scale product manufacture.

Geographical analysis

The United Kingdom is the Group’s country of domicile but the Group also has subsidiary companies in the United States, Germany and Australia. All non-current assets were domiciled in the United Kingdom or Germany. Revenues have been generated as follows:

Included in revenue are the following amounts, which each accounted for more than 10% of total revenue:

Except where extended warranties have been purchased and treated as separate performance obligations for the purpose of IFRS 15 Revenue from contracts with customers, warranty commitments are covered under Note 6 Provisions.
 

4. Calculation of Adjusted EBITDA

In reporting EBITDA, management use the metric of adjusted EBITDA, to better reflect underlying performance and remove the effect of the following items:

5. LOSS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following data:

The loss per ordinary share and diluted loss per share are equal because share options are only included in the calculation of diluted earnings per share if their issue would decrease the net profit per share. The number of potentially dilutive shares not included in the calculation above due to being anti-dilutive in the years presented were 45,064,658 (2021: 50,893,546).

6. Provisions

The leasehold property provision represents management’s best estimate for the dilapidations work that may be required to return our leased buildings to the landlords at the end of the lease term. During the year we vacated another property. In the prior year we recognised a dilapidations provision for Bessemer Park at a discounted value. This is for the present value of the cost of works quoted by our Employers Agent for stripping the work back to the original condition at handover from the landlords. The discounting has started amortising in the current year and will continue over the remaining 13 years of the lease. 

The warranty provision represents management’s best estimate of the Group’s liability under warranties granted on products, based on historical knowledge of the products and their components. As with any product warranty, there is an inherent uncertainty around the likelihood and timing of a fault occurring that would trigger further work or part replacement. Warranties are usually granted for a period of one year, although two-year warranties are the standard within some jurisdictions.

7. CALLED UP SHARE CAPITAL AND RESERVES

Holders of ordinary shares have voting rights at General Meetings in proportion with their shareholding.

The share premium account represents the amount paid in excess of the nominal value when shares are issued.

The merger reserve arose on the acquisition of ITM Power (Research) Limited in 2004.

The foreign exchange reserve arises upon consolidation of the foreign subsidiaries in the Group, and accounts for the difference created by translation of the income statement at average rate compared with the year-end rate used on the balance sheet as well as the effect of the change in exchange rates on opening and closing balances.

The Group’s other reserve is retained earnings which represents cumulative profits or losses, net of any dividends paid and other adjustments.
 

8. NOTES TO THE CASH FLOW STATEMENT