TIDMITM
RNS Number : 1830P
ITM Power PLC
08 June 2020
8 June 2020
ITM Power plc
("ITM Power", "the Group" or the "Company")
Trading Update
ITM Power (AIM: ITM), the energy storage and clean fuel company,
provides a trading update for the year to 30 April 2020. This
update includes progress on the contracts pipeline, the effect of
the Covid-19 pandemic on the results for the year just ended, the
progress of the new joint venture ITM Linde Electrolysis GmbH
("ILE") and updates on some of the major projects currently
underway.
Highlights:
-- Record backlog of GBP52.4m, comprising GBP21.8m under contract and GBP30.6m in negotiation
-- Backlog up 24% since 27 January and not yet reflecting the ILE activity
-- Higher quality tender opportunity pipeline ("ToP") of GBP263m
-- Contract award for 8MW electrolyser secured
-- Bidding with Linde, via ILE, very strong and close
collaboration with Linde Engineering enabling ITM Power to focus
solely on its core manufacturing competence as opposed to EPC
activities
-- Shell Refhyne project programme progressing well with all
five 2MW electrolysers built and phase one of factory acceptance
testing successfully completed
-- Legacy projects, Covid-19 delays and Brexit transition
effects on EU grant funding increase expected EBITDA loss for the
year ended 30 April 2020 to GBP17.5m, in line with expectations
-- Minor Covid-19 impact on Bessemer Park fitout programme (now expected to open in Q4 2020)
-- Rapid hydrogen market development - three European
governments have stated explicit electrolyser targets for 2030:
Germany 5GW, Holland 3-4GW and Portugal 2GW
-- Cash position GBP41.0m at year end, GBP38.5m at the end of May
Dr Graham Cooley, CEO, ITM Power plc, commented: "The emerging
trends in different industrial sectors, together with increasing
acceptance by governments around the world that green hydrogen is
an essential vector to achieve their carbon reduction commitments,
bode very well for the electrolysis market. Against this
background, ITM Power with partner Linde is very well placed to
capitalise on the major opportunities we expect to arise from the
continuing drive towards climate change mitigation."
For further information please visit www.itm-power.com or
contact:
ITM Power plc
Graham Cooley, CEO / Andy Allen, Finance
Director +44 (0)114 244 5111
Investec Bank plc (Nominated Adviser
and Broker)
Chris Sim / Jeremy Ellis / Ben Griffiths
/ Tejas Padalkar +44 (0)20 7597 5970
Tavistock (Financial PR and IR)
Simon Hudson / Edward Lee / Barney
Hayward +44 (0)20 7920 3150
Introduction
The market for electrolysis is growing very strongly due to the
changing perspectives of industrial leaders and policymakers. In
the last year, the offshore wind and gas sectors have started to
advocate green hydrogen as the means for sustaining their long-term
business models. At the same time, in the transport sector, a
renewed focus has been placed on the development of zero-emission
heavy vehicles, where fleets need to be refuelled with large
amounts of hydrogen on a regular basis.
Pipeline
The contracts backlog today stands at a record level of GBP52.4m
(GBP42.4m as at 27 January 2020), an increase of 24%, comprising
GBP21.8m of projects under contract and a further GBP30.6m of
awards in the final stages of negotiation. The tender opportunity
pipeline (ToP) stands at GBP263m (GBP248m as at 27 January 2020),
comprising 32 active commercial tender responses over the last 12
months with an average project size of GBP7.7m (GBP7.2m) reflecting
strong industrial demand for larger systems. The ToP is now more
highly qualified and comprises only high probability projects. In
many cases the ToP does not include the Engineering, Procurement
and Construction ("EPC") component of bids, which it did before the
formation of the joint venture with Linde. This is expected to
increasingly become the norm going forwards.
ITM Linde Electrolysis GmbH (ILE) Update
ILE was incorporated in Germany in January 2020 with Andreas
Rupieper appointed as Managing Director to provide global green
hydrogen gas solutions using ITM Power's PEM electrolysis
technology and Linde's world class EPC expertise. Since then, ILE
has made significant progress with an operational centre
established in Dresden and several full-time business development
appointments made.
As a 50/50 joint venture between ITM Power and Linde Engineering
("Linde"), ILE leverages access to the capabilities of both parent
organisations and offers an extremely strong value proposition
which spans the full project life cycle from feasibility to plant
realisation. Uniting Linde's EPC capabilities, hydrogen processing
and application technologies expertise with ITM Power's proprietary
PEM electrolyser technology means ILE can provide fully optimised
turnkey packages.
ILE is already engaged in numerous proposals for the deployment
of large-scale electrolysis equipment. It has won its first
feasibility study for the installation of a 100MW plant at an oil
refinery and also a major Front End Engineering Design (FEED) study
for an additional 100MW plant.
Collaborative work with Linde Engineering
A constant in ITM Power's product strategy is standardisation
and modularisation. This remains central to both cost reduction and
production capacity ramp up as the Company transitions into its new
production facility at Bessemer Park.
Close collaboration with Linde Engineering has been
transformational for ITM Power. The availability of engineering
capacity, market experience, technical expertise and the Linde
supply chain has enabled ITM Power to accelerate development in
multiple areas. Of particular relevance is the ability to
accelerate compliance work for the deployment of products and
systems in a greater number of international territories.
A key reason behind the collaboration with Linde Engineering was
to enable ITM Power to focus solely on its core competence - the
manufacture of electrolysis equipment - as opposed to EPC
activities. Both the bidding of projects and their execution
benefit from a redistribution of efforts which ultimately makes ITM
Power more efficient. The synergies between the two companies have
made for swift collaboration and have generated enthusiasm within
the team.
Unaudited Results
The financial year to 30 April 2020 does not yet reflect any of
the benefits of the new arrangements with Linde. The financial
performance was also impacted by project delays due to Covid-19 and
losses resulting from EPC work on legacy projects. Whilst activity
remained at similar levels to 2019, total income recognised is
expected to be approximately GBP7.0m(1) (unaudited) (2019:
GBP17.6m), a decrease of 60 per cent year-on-year.
(1) Includes sales revenue and grant income against both
development projects and HRS sites in the UK
Sales revenue was GBP3.0m (GBP4.6m), down 30 per cent with the
effect of Covid-19 reducing revenues by approximately GBP1.2m due
to the fact that income is recognised upon completion of on-site
work, and certain programmes due to complete in the year suffered
Covid-related site closures.
Grant revenue was GBP4.0m (GBP14.3m), down 70 per cent. This
reflects the challenges experienced in obtaining new grant funding
from the EU post-2016 and increasingly the ongoing strategy of
focusing on commercial sales rather than grants. The Company does
expect grant income to continue to play a role in the business in
the future and this will predominantly come from appropriate
funding calls from the UK Government.
The adjusted EBITDA(2) (unaudited) loss from operations of
approximately GBP17.5m (GBP6.7m) is in line with expectations. The
increased EBITDA loss is a reflection of the Group's transition
into a pure manufacturing business as the Company closes out legacy
projects and invests in production skills and product improvements.
The principal component of the EBITDA loss stems from the
installation of product at the Refhyne site, not from the build
(manufacture) phases of projects. In closing out the legacy
projects, the Company has realised a gross loss of GBP4.8m in the
2020 financial year, of which GBP3.5m is attributable to the
world's largest PEM electrolyser system at the Wesseling Shell
refinery through the Refhyne project in Germany. The transformative
joint venture and close collaboration with Linde will in future
mitigate such losses through large-scale installations as it will
allow ITM Power to focus solely on the production of modules and
standard products, rather than project execution on-site, which
will be quoted and executed by Linde.
(2) EBITDA includes grant income recognised on the income
statement
Total financial assets at the year-end were approximately
GBP50.7m (GBP19.8m as at 30 April 2019), comprising GBP39.9m
(GBP5.2m) of cash, GBP1.1m (GBP1.7m) of cash on guarantee and
deployed working capital (debtors less creditors) of GBP9.7m
(GBP12.9m).
Effect of the Covid-19 Pandemic
The health and safety of our employees and their families,
suppliers and customers is paramount. Consequently, in accordance
with government guidelines, all non-essential work was stopped at
ITM Power locations and on customer sites from 17 March 2020.
However, the Group's Hydrogen Refuelling Stations "HRS" were deemed
by the Met Police as an essential service and have continued to
operate in accordance with government guidelines throughout the
lockdown.
All seven customer sites where ITM Power is working to install
equipment have been closed, delaying site acceptance testing which
has impacted revenue recognition for these contracts. The Company
is working with partners to get back on site as soon as it is
possible and expects to recover the majority of delays. ITM Power
currently employs 190 staff with recent recruitment focused on the
areas of production, standard product design, commissioning and
after sales support. At the peak of the Covid-19 related lockdown,
the Company had 28 staff furloughed, but expects all staff back
from furlough by the end of June. The Company is operating remotely
where possible.
Bessemer Park
Progress on Bessemer park pre the Covid-19 pandemic was on
schedule with a target completion date in mid-August. Work
continues on-site, but with reduced capacity in order to comply
with social distancing. The principal contractor has now advised
that the revised target completion date is in Q4 2020 and progress
from now will continue to be carefully monitored. The site will
have an annual capacity of 300MW per annum from opening, which will
expand to 1GW (1,000MW) per annum by 2024.
While the move will provide significantly more production space,
emphasis is on processes, semi-automation and efficiency to support
repeat build of standard products and modules. As part of the move,
ITM Power will be adopting dedicated production cells, improved
in-line testing together with line-side feed of materials and data
capture. The investments made in new machinery to automate
repetitive processes will unlock stack production capacity while
ensuring precise quality control. The site also benefits from a 5MW
grid connection enabling two 2MW systems to be tested in parallel
or one 5MW module at any one time. Factory Acceptance Testing is an
important stage in the production cycle and one which has suffered
from constraints in the Company's current facility.
The Company has spent two years developing the new manufacturing
process for the factory, which includes semi-automation, a new
process for stack manufacture and process layout to achieve a 1GW
manufacturing capacity. This blueprint can now be replicated so
that capacity expansion in other territories could be very
effectively achieved.
Technology
As a vertically integrated company, ITM Power continues to place
strategic focus on the development of its technology. The
technology roadmap is driven by the business plan and targeted at
reducing cost, increasing performance and expanding production
capacity. Over the course of the last 12 months, using the
Company's extensive testing facilities, ITM Power has completed
verification work on a number of machines which will bring
semi-automation to stack production. This has been an important
development and is central to achieving a step change in future
production capacity while also bringing important cost
reductions.
ITM Power has achieved further improvements to stack efficiency
through incremental advances within the laboratory. As per standard
process, such improvements are to be integrated into the commercial
offering after verification testing. The knowledge of processes
within high performance PEM stacks that ITM Power has developed is
deep and extensive and will continue to drive improvements at the
stack level.
Projects
In addition to its arrangement with Linde, the Company currently
has a portfolio of 34 projects and a team of 10 dedicated project
managers, including Italian, French and German speakers, who work
closely with clients to support the delivery of projects and
products to time and budget. They are now working towards getting
back on to the customer sites that were closed due to Covid-19.
The 10MW Shell Refhyne programme is progressing well and has
provided the Company with valuable 'first of a kind' lessons. ITM
Power's manufacture of the 10MW electrolysis plant is ongoing, with
all five 2MW modules now built and these have completed the first
stage of Factory Acceptance Testing (up to 85% load). Site works in
the Rhineland Refinery are progressing but delays are now
anticipated due to Covid-19 restrictions affecting suppliers and
the testing and build phases. Cost overruns are anticipated for the
project due to higher than anticipated EPC costs, primarily
installation and commissioning costs for key components. The
Company is working with Shell to seek to minimise anticipated cost
overruns, currently forecast to be GBP3.5m, in line with previous
guidance.
The ITM Power 1MW Big Hit electrolyser on the Orkney Islands is
now generating hydrogen from excess wind, following a successful
coupling to the onsite wind turbine. The project continues for a
further two years collecting data and evaluating performance and
the business case for island hydrogen systems.
Hydeploy has continued to undertake hydrogen blending tests in
the Keele gas grid using the ITM Power 0.5MW electrolyser and
delivered the longest period of continuous blending operation to
date in March 2020 supplying gas for domestic heat and cooking.
Whilst the Hydeploy site is currently shut down, blending testing
will continue once UK Government restrictions are lifted.
The ITM Power 1MW electrolyser at the EnergyStock site in the
Netherlands successfully filled tube trailers during March and
April and the hydrogen gas produced by the ITM Power electrolyser
was used to provide fuel for the first hydrogen train in the
Netherlands, on its maiden voyage.
The ITM Power 0.5MW electrolyser central to the Pau bus refueler
project in France was put into operation and enabled the launch of
Pau City's Hydrogen Bus Fleet in December 2019. Since then over
nine tonnes of hydrogen have been produced and used by the buses in
seven days per week refuelling, prior to the site shutting down in
March as a result of Covid-19 restrictions.
A number of other projects are in the final stages of
commissioning but are currently on hold due to Covid-19
restrictions, The Company's Project Managers continue to work with
customers and suppliers to mitigate delays and prepare for returns
to site. This is expected to have an impact on revenues in the
current financial year but the impact is currently too uncertain to
quantify.
The Company was pleased to announce the award of phase two of
the Gigastack project from the UK's Department for Business, Energy
and Industrial Strategy in February 2020. Following an earlier
feasibility study, this project will support the development of a
5MW stack module. Carrying over proven technology and processes
from the Company's current stack generation, the development will
represent an increase of 150 per cent in module capacity. The
Gigastack project also includes a FEED study with Orsted and
Phillips 66 for a 100MW electrolyser system at the Phillips 66
refinery in Humberside.
Corporate
The company recently appointed Katherine Roe as non-executive
director of the company. Katherine had a 14 year plus career in
investment banking and corporate finance, initially with Morgan
Stanley and subsequently with Panmure Gordon where she was a
Director within Investment Banking and headed up the energy team
from 2010 to 2014. Her knowledge and experience of investment
markets and the energy industry will add a directly relevant skill
set to the governance and strategic direction of the Company.
The Company also recently appointed Duncan Yellen as Managing
Director of ITM Motive, the division of ITM Power responsible for
the UK build, own and operate portfolio of hydrogen refuelling
stations. ITM Motive will be established as a separate, wholly
owned subsidiary for the management of the Company's refuelling
assets, and will own and operate a network of 11 publicly
accessible hydrogen refuelling station by the end of 2020.
The Company also announced the formation of the H2OzBus Project
and the signing of a memorandum of understanding with strategic
partners. The Consortium will undertake a project to deploy an
initial 100 hydrogen fuel cell electric buses in cities across
Australia in Phase 1, with the intention to use this as a seed for
more widespread roll-out. The H2OzBus Project partners are Ballard
Power Systems, BOC Limited, Transit Systems, Palisade Investment
Partners and ITM Power.
Outlook
Governments are increasingly recognising the role of green
hydrogen as a decarbonisation tool. The U.K. government has
introduced an overarching net zero target and placed an early focus
on decarbonising industrial clusters that will lead to
progressively larger deployments of electrolysers. In the
Netherlands, the Dutch government has recently presented its green
hydrogen vision for achieving a sustainable energy system that is
reliable, clean and affordable. A total of three European
governments have now stated explicit electrolyser targets for 2030:
Germany 5GW, Holland 3-4GW and Portugal 2GW.
The EC has recently established a Clean Hydrogen Alliance to
accelerate the decarbonisation of EU industry. In addition, it is
about to introduce a Renewable Energy Directive II, which will
facilitate green hydrogen adoption by refineries and introduce a
Smart Sectoral Integration Package which is widely expected to set
targets for hydrogen admixtures in the gas grid. These emerging
policy frameworks will have a major impact on the scale of the
European electrolysis market.
The German government announced in its stimulus package of 3
June 2020 that it will present a national hydrogen strategy in the
short term. Accordingly, a programme for the development of
hydrogen production plants will be developed to demonstrate
industrial-scale production of up to 5GW total output in Germany,
operational by 2030. For the period up to 2035, but until 2040 at
the latest, an additional 5 GW will be added if possible. To
implement all these measures, the German government will invest
EUR7bn.
Alongside the predicted growth trajectory for electrolysis, the
cost outlook for green hydrogen is also positive. The Hydrogen
Council expects green hydrogen to become cost competitive with grey
hydrogen by 2025 assuming a EUR50 per ton CO2 price. An 80GW
electrolyser target for Europe by 2030 has been proposed, where
electrolysers feed into a hydrogen transmission network that
interconnects the renewable energy resources of the North Sea,
Morocco and Ukraine with the demand centres of Europe. Further
afield, Australia is actively pursuing opportunities to export
green hydrogen and has estimated that 69 per cent of the 2025
global market for hydrogen will lie in its four target markets of
China, Japan, Korea and Singapore.
Against this encouraging market backdrop ITM Power has made good
progress in the period. The near term outlook is well underpinned
by the record contract backlog, which does not yet reflect the
benefit of substantial opportunities being bid through the ILE
joint venture, and highly qualified tender opportunity
pipeline.
-ends-
About ITM Power plc
ITM Power plc 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. In October 2019, the Company announced the completion of a
GBP58.8 million fundraising, including a subscription by Linde of
GBP38 million, together with the formation of a joint-venture with
Linde to focus on delivering renewable hydrogen to large scale
industrial projects worldwide. ITM Power 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 in January 2018 a 'first of a kind' project
to deploy a 10MW electrolyser at Shell's Rhineland refinery. ITM
Power announced the lease of the world's largest electrolyser
factory in Sheffield with a capacity of 1GW (1,000MW) per annum in
July 2019. Customers and partners include Sumitomo, Ørsted,
Phillips 66, National Grid, Cadent, Northern Gas Networks, Gasunie,
RWE, Engie, BOC Linde, Toyota, Honda, Hyundai and Anglo American
among others.
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END
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