Itm Power Regulatory News (ITM)

13 August 2018

ITM Power plc

("ITM Power", the "Company" or the "Group")

Final Results for the Year to 30 April 2018

ITM Power (AIM: ITM), the energy storage and clean fuel group, announces preliminary results for the year ended 30 April 2018, during which time activity levels significantly increased. To support this level of activity, the Company successfully raised £29.4m (gross) of working capital via a placing and open offer. The Group currently has £24.1m under contract and a further £6.5m in the final stages of negotiation, constituting a total pipeline of £30.6m having recognised £9.7m of income in H2 2018.

FINANCIAL:

· Total Revenue & Grant Funding of £14.1m (2017: £9.2m) up 53%, comprising:

o Product revenue - £3.3m (2017: £2.4m) up 36%

o Grant income recognised on the income statement - £4.1m (2017: £4.2m) down 0.5%

o Grant income recognised on the balance sheet - £6.7m (2017: £2.7m) up 152%

· Loss from operations £6.5m (2017: £3.6m) up 83%, including £0.9m of one-off items

· EBITDA loss of £4.8m (2017: £2.3m) up 109%

· Available cash balance of £20.4m at year-end (2017: £1.6m) post the December 2017 fund raise

· Net current assets excluding stock of £30.1m (2017: £7.4m)

COMMERCIAL:

Hydrogen Fuel:

· £8.8m OLEV funding as part of the delivery of the largest expansion of hydrogen refuelling station (HRS) infrastructure in the UK, of which £4.9m is granted to ITM Power

· 14 wholly owned HRS assets in ITM Power's portfolio:

o six are open to the public

o three are already under construction and due to open Q3 2018

o five further stations now fully funded and in the planning stages due to open Q2 2019

· UK Electrolyser HRS Generating Capacity to hit 3 Tonne/day, 1k Tonne/year

· Fuel contract with the Met Police and others to refuel 200 new FCEVs

· New hydrogen refuelling station opened at Shell Beaconsfield on the M40

· Hydrogen fuel contracts are now 20 in total

· Fuel sales increased to 16 tonnes for the period, up 672% which expected to grow further as more stations come on stream and fleets expand

Power-to-Gas (P2G):

· Completed large-scale P2G Deployment Study with Northern Gas

· Grant to undertake a multi-MW P2G feasibility study for the Massachusetts region

· Grant to evaluate P2G in British Columbia with BC Hydro, Chiyoda and Mitsui

Renewable Chemistry:

· 10MW refinery hydrogen project with Shell to build the world's largest PEM electrolyser at the Rhineland refinery, Germany

CORPORATE:

· New factory premises identified and heads of terms agreed, detailed space planning underway. Terms are expected to be signed in Q4 of this calendar year

· Significant investment in expansion of the manufacturing and after sales support teams

· Creation of Australian subsidiary, ITM Power Pty Ltd, and appointment of Dr Neil Thompson as MD

· Appointment of Andy Allen as Financial Director

· Working Capital Funding Round successfully raising £29.4m gross via a placing and open offer

· The Group currently has £24.1m under contract and a further £6.5m in the final stages of negotiation, constituting a total pipeline of £30.6m having recognised £9.7m of income in H2 2018

· Non-contracted tender opportunity pipeline increased to over £250m (September 2017: £200m), illustrating the growth in the hydrogen economy

SINCE YEAR END:

· Strategic Partnership Agreement with Sumitomo Corporation for product sales in Japan and other territories

Graham Cooley, CEO, commented, "This financial year has been a period of significant development for ITM Power. With revenue increasing by 53%, the Company has been focussed on the expansion of staff and the planning of the new, larger production facilities. We've also been learning how to maximise a growing portfolio of revenue generating assets in the shape of the first real hydrogen refuelling network in the UK. Finally, Power-to-Gas is now demonstrating real traction around the world and we remain very well placed to benefit from this development with our long-running reference plant in Germany."

Roger Putnam, Chairman, added, "I was delighted to report earlier in the year that ITM Power had raised £29.4m of working capital. Our plans for expansion of staff and production capacity are on track and I am delighted to note the significant increase in our top line result. As always, I would like to thank the staff for another year of hard work and enthusiastic dedication to our business ambition to help decarbonise the world's energy markets."

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

About ITM Power plc

ITM Power manufactures integrated hydrogen energy solutions which are rapid response and high pressure that meet the requirements for grid balancing and energy storage services, and for the production of clean fuel for transport, renewable heat and chemicals. ITM Power plc was admitted to the AIM market of the London Stock Exchange in 2004. The Company received £4.9m as a strategic investment from JCB in March 2015. The Company signed a forecourt siting agreement with Shell in September 2015.

STRATEGIC REPORT

STATEMENT OF SCOPE

The purpose of the Strategic report is to inform the members as to how the directors have performed in their duty to promote the success of the Group.

The Strategic Report contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

This Strategic Report has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to ITM Power and its subsidiary undertakings when viewed as a whole.

BUSINESS MODEL

Summary

ITM Power designs and manufactures integrated hydrogen energy systems for energy storage, clean fuel production and renewable chemistry.

The Group has a suite of product platforms based on Proton Exchange Membrane (PEM) technology. The Group has a product offering that is scalable above 100MW in size. Of particular importance is the ability to respond rapidly and to generate hydrogen at a pressure, flow rate and purity appropriate to its application. 

The overarching principle is the capacity to take excess energy from the power network, convert it into hydrogen and use it in one of three broad applications.

Power-to-Gas (P2G)

Demand for energy storage solutions is being driven by the increasing proportion of power from renewables in electricity generation in many countries. This, in turn, is being driven by emissions reduction targets set out most recently in the COP21 Paris Agreement on climate change. We believe that the simplest and most cost effective solution to address the need to store intermittent renewable power is electrolysis with the hydrogen produced then used either as clean fuel or injected into a gas grid.

The P2G model is a commercial proposition which offers utility companies energy storage options of a scale and duration relevant to the challenges presented by the growing deployment of renewable power generation. The equipment provides grid balancing services which consumes excess energy in the power network converting it to hydrogen for injection into the gas network.

Clean Fuels

The refuelling model is one that incorporates the work of national hydrogen infrastructure initiatives to support the growth of hydrogen as a transport fuel, both for use in cars and buses initially, and with further transport applications in the future. The roll-out of Fuel Cell Electric Vehicles (FCEVs) is underway, led by Toyota and closely followed by Hyundai, and Honda. A hydrogen station produces hydrogen on site via ITM Power's rapid response electrolyser system, and can refuel a FCEV in minutes. A growth market is in bus refuelling. Inner city air quality is a major new driving force for Fuel Cell Electric Bus (FCEB) deployment, as air pollution is a major contributor to poor health in the UK.

Renewable Chemistry

Refineries currently use hydrogen to improve the quality of fractional distillation products and most of this hydrogen is produced from steam-reforming. 15% of the total CO2 emissions from the European refinery sector can be attributed to hydrogen production. In order to comply with stringent legislation and avoid fines, refineries need a cost effective green hydrogen solution that reduces carbon emissions while allowing them to maintain output.

In addition, natural gas reformers have long start-up times. With their rapid start up times, ITM Power's PEM electrolysers could provide an immediate backup solution to prevent production downtime and preserve security of hydrogen supply.

Finally, in steel making, iron ore requires chemical reduction before being used to produce steel; this is currently achieved through the use of carbon, in the form of coal or coke. When oxidised, this leads to emissions of about 2.2 tonnes of CO2 for each tonne of liquid steel produced. The substitution of hydrogen for carbon has the potential to significantly reduce CO2 emissions, because hydrogen is an excellent reducing agent and produces only water as a by-product.

Revenue Streams for the Group

As well as having potential revenue streams from three large application markets, opportunities exist globally for ITM Power. The Group has a model of locating agents in key territories to position ITM Power as a world leading developer and supplier of electrolyser products. There are a variety of ways in which the Company can generate revenue:

- Sales of Systems

ITM Power positions itself as the provider of hydrogen systems solutions and can sell electrolysers and full systems to customers globally. The Group offers both standard systems and modules as well as bespoke offerings based around standard core stack modules in order to meet customer specifications.

- Design and Consultancy Revenue

Many system contracts that are bespoke are preceded by a design study or a Front End Engineering Design (FEED) contract that defines solutions to customer-specific specifications.

- Maintenance Revenue

ITM Power Plc offers warranties on systems, which are valid alongside ITM Power Plc maintenance contracts and thus the Group expects to manage a growing income stream as system deployments continue.

- Fuel Sales Revenue (Own and Operate model)

The Group has been the beneficiary of funding from EU bodies, which has helped accelerate research activity as well as infrastructure development.

- Grant Funding for Innovation and scale up

The Group utilises funding from grant bodies to contribute towards the technical advancement of the electrolyser product through offering greater efficiencies which manifest as cost reduction of the ITM Power systems.

Events after the Balance Sheet Date

There are no material events that have occurred after the balance sheet date.

REVIEW OF THE BUSINESS

Business environment

Today ITM Power is a globally recognised expert in hydrogen technologies with applications in clean fuel for transport, energy storage and industry. We believe that all of these markets will grow significantly over the next few years based on the increasing drive for improved air quality worldwide, and exacerbated by the growth of planted renewables in the energy mix and the need to decarbonise industrial processes.

P2G

Proposals during the year from the EU include energy storage involving the conversion of electricity to another energy carrier, such as hydrogen. Ongoing work includes investigating hydrogen/methane blends and establishing admissible concentration levels for hydrogen in natural gas grids across Europe. These developments will enable Europe-wide deployment of P2G plants for injecting hydrogen into the gas grid while offering balancing services to the electricity grid. These balancing services can be an important source of revenue for operators and ITM Power's rapid response PEM technology allows units to be turned on and off in under one second making them eligible for the UK National Grid's Enhanced Frequency Response Payments.

ITM Power enjoys a unique position having supplied the world's first PEM P2G electrolyser in 2014, with the project concluding in the year in review, having injected hydrogen into the German gas distribution network for over three years. The Group also contracted with National Grid as part of the HyDeploy project for a 0.5MW electrolyser to inject into a UK gas network for deployment later in the calendar year 2018.

Clean Fuel

ITM Power has won contracts to supply on-site hydrogen generation equipment for refuelling in the UK and the US, and to France, and is currently rolling out a network of 13 hydrogen refuelling stations in the UK of which five are now open for public access. In the year, the Group dispensed 16 tonnes of hydrogen from its refuelling stations.

Having won its first bus refuelling station in the year ended April 2017, ITM Power Plc will deploy this station in Birmingham in the year ending April 2019, and will start to receive a fuel revenue in that period. This will prove that ITM Power systems are now at a scale where a fleet of buses can be supported by one electrolyser on a return to base principle and large schemes are now being envisaged, for applications such as heavy logistics, trains and ships.

Renewable Chemistry

In the year, ITM Power won a 10MW renewable chemistry contract with Shell, which was in the design phases in the financial year in review. This plant will serve as reference plant for future bids into the industry. The scale of hydrogen production capacity required in the renewable chemistry market means that this market will likely adopt the larger scale, multi-MW systems.

ITM Power showcased a series of large scale electrolyser designs up to 50MW in size at Las Vegas in September 2017 attracting significant interest from potential customers worldwide.

Financial performance

ITM Power continues to be first and foremost a manufacturer, with the majority of revenue coming from construction contracts to build full hydrogen systems. Revenues in the year were mainly generated across five build projects to provide electrolysers in each of our three target markets.

Meanwhile, consultancy income reduced. This is likely to be cyclical as consultancy services are often procured with a view to sourcing units in competitive tenders. A new revenue stream has been recognised in the accounts this year for fuel sales, as our refuelling stations begin to attract greater volumes of customers and sales.

Total collaborative project funding recognised in the year was £10.82m of which £4.14m is recognised on the income statement (2017: £6.81m, of which £4.16m was recognised on the income statement). This increase in asset builds supported through project funding has allowed ITM Power to develop a suite of hydrogen generation equipment that it will own and operate as part of the collaborative projects, with data and knowhow to be incorporated into new generations of electrolysers. 

The pre-tax loss for the year under review increased to £6.48m (2017: £3.55m). The increase in loss in the year being reported can be attributed to three major factors; firstly, the impact of producing first of a kind plant and the non-recurring engineering costs associated with these builds; secondly, inefficiencies associated with testing large plant at ITM Power's existing facilities; and finally increased costs of recruitment in the year as the Group seeks to prepare for delivery of ITM Power's future order book, both contracted and speculative. In each of these cases, these costs represent one-off expenses that will not be expected to be replicated once the new factory that has been identified is completed.

Net cash burn before fund raise increased to £9.50m (2017: £5.85m). Cash burn is a non-statutory measure the directors use to monitor the Group, and is calculated by deducting from the cash flow the effects of any equity fund raise. The cash burn increase is a result of delayed grant receipts on high outlay projects. The timing of grant receipts is often not aligned in the same period as the expenditure. This cash outflow, which is significantly greater than the losses in the year, shows the continued commitment of ITM Power to being a refuelling system owner and operator as the industry grows in the UK in order to gain market share and improve opportunities for FCEV adoption.

Financial position

In the year, the Group capitalised development costs of £0.07m (2017: £0.15m). This is for product developments that will continue to keep the Group at the forefront of PEM electrolysis, but also towards the design of standard products that will facilitate our offering to the markets. The directors see continued product development as key to building commercial traction.

ITM Power has seen a slight reduction in fixed assets to £4.454m from £4.519m in the prior year. The impact of depreciation just exceeding the effect of continuing to build and then open refuelling stations under the H2ME and H2ME2 projects that will supply a growing hydrogen fuel sales market in the UK. The total value of refuelling assets was £2.5m (2017: £2.3m). In previous years, there had been an impairment against one refuelling asset that was a result of future discounted net cash flows being lower than the holding value. The previous impairment was reversed in the year as new income streams became available for that specific system.

At year end, ITM Power had current assets totalling £39.558m (2017: £14.846m). Funds in the bank amounted to £21.975m (2017: £3.004m), of which amounts on guarantee totalled £1.57m (2017: £1.45m). Presently, the Group is required to place amounts on guarantee as cash cover, which limits working capital available to the company mid-contract. ITM Power continues to structure quotes to include upfront payment with orders so that working capital is not impacted adversely by increased activity.

Trade and other receivables excluding restricted cash amounts have increased from £11.08m to £16.9m at the year ends in 2017 and 2018 respectively. This movement is dominated by delayed trade debtors and stage payments made to suppliers for stock items required in the next wave of units through production and equipment for refuelling stations. The trade debtors at the end of the year under review predominantly relate to grant income debtors (while 2017 was predominantly trade debtors). Prepayments and accrued income was £11.15m in 2018, up £2.38m in the year (2017: £8.77m).

Creditors have increased from £6.67m to £7.93m at the year ends in 2017 and 2018 respectively. This movement is a result of an increase in accruals and deferred income from £5.6m to £6.4m, which reflects both money received up front for construction contracts and also accruals for goods received that have not yet been invoiced. At year end, the Group had trade creditors of £1.4m against a prior year balance of £0.92m. This number has predominantly increased due to the size and stage of progress on contracts in the pipeline.

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 STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED BALANCE SHEET

In the prior year, amounts relating to cash held on guarantee for construction contracts were included as cash equivalents amounting to £1,446,000. These have been reclassified to other receivables as they are not considered to be highly liquid and therefore do not meet the definition of a cash or cash equivalent.

CONSOLIDATED CASH FLOW STATEMENT

In the prior year, amounts relating to cash held on guarantee for construction contracts were included as cash equivalents amounting to £1,446,000. These have been reclassified to other receivables as they are not considered to be highly liquid and therefore do not meet the definition of a cash or cash equivalent.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 22 Atlas Way, Sheffield, South Yorkshire S4 7QQ. The entity is a parent and the nature of the Group's operations and its principal activities are disclosed in the Directors' Report of the full financial statements.

This financial information is presented in pounds sterling which is also the functional currency because that is the currency of the primary economic environment in which the Group operates.

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 2018, 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 2018 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 2017 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 2017 have been delivered to the Registrar of Companies. The 30 April 2018 accounts were approved by the directors on 10 August 2018, but have not yet been delivered to the Registrar of Companies.

2. adoption of new and revised standards

Amendments to IFRSs that are mandatorily effective for the current year

In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2017. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements.

New and revised IFRSs in issue but not yet effective

At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRSs that have been issued but are not yet effective and had not yet been adopted by the EU:

3. 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.

4. CASH AND CASH EQUIVALENTS

In the prior year, amounts relating to cash held on guarantee for construction contracts were included as cash equivalents amounting to £1,446,000. These have been reclassified to other receivables.

Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less. The directors consider that the carrying amount of these assets approximates to their fair value.

5. CALLED UP SHARE CAPITAL AND RESERVES

During the year the Company issued 73,396,221 ordinary shares of 5p each for a consideration of £29,358,000.

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

The effect on the share premium account is shown below:

The merger reserve arose on the acquisition of ITM Power (Research) Ltd 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.

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

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