Itm Power Regulatory News (ITM)

30 July 2014

ITM Power plc

("ITM Power" or the "Company")

Results for the year ended 30 April 2014

ITM Power (AIM: ITM), the energy storage and clean fuel company, announces its audited results for the year ended 30 April 2014. The Company currently has £6.550m of projects under contract.

Summary

Commercial Progress in year

· £5.140m of projects under contract at year end

· Won £2.800m contract to supply three refuelling stations in London

· A total of £2.000m refueller build contracts won with Californian Energy Commission

· Thüga Group's Power-to-Gas plant officially commissioned and operational on schedule

· Successful injection of hydrogen into the German gas grid

· Participation in the UK, US, Swiss and French Hydrogen Infrastructure Programmes

· Optimisation of standard product platforms and reduction in standard product cost

· Partnership with NRM, Germany for Power-to-Gas projects

· Gas network optimisation contract with AMEC and National Grid

Commercial Progress since year end

· A further £1.330m of products under contract secured since year end

· £3.010m of contracts in final stages of negotiation

· Repeat sales of Electrolyser plant to a UK government agency

Key Financial Results For the year ended 30 April 2014

· Total revenue and Grant Funding of £3.077m (2013: £1.44m) up 114%, comprising:

o Revenue £1.127m (2013: £0.087m) up £1.040m

o Grant income £1.370m (2013: £1.358m)

o Grants receivable for capital projects £0.580m (2013: £nil)

· Increase in fixed assets to £1.755m from £1.463m, up 20%

· Loss from operations £7.978m (2013: £6.518m)

· Cash burn*, £7.568m (2013: £6.063m)

· Cash balance £9.763m (2013: £5.943m)

· Two placings creating proceeds of £12.0m before expenses

*Cash burn is a non-statutory measure and is defined underneath the Cash Flow Statement

Corporate Development

· Incorporation of ITM Power ApS in Denmark

· ITM Power Inc. joins Californian Hydrogen Business Council Hydrogen Energy Storage (HES) Program

· ITM Power GmbH Joins German Energy Agency's Power-to-Gas Strategy Platform

Corporate Development post year end

· Sir Roger Bone joins the board as a Non-Executive Director

Graham Cooley, CEO, commented: "This has been a very productive period for us with solid progress in technology, sales, partnerships and project income. We built, CE marked, commissioned and consented the world's largest PEM electrolyser and have proved the Company's technology and project management ability. We now have a major reference plant with the Thüga Group, the largest utility grouping in the world. This solid progress directly reflects the achievements of our highly talented team."

Roger Putnam, Chairman, added: "Our staff, through their hard work and dedication, have developed ITM Power's technology platforms into a broad product offering. ITM Power is today firmly established as a world leader in PEM electrolysis."

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

About ITM Power

The principal activity of ITM Power is the design, manufacture and sale of hydrogen energy systems for energy storage and clean fuel production.

ITM Power plc was admitted to the AIM market of the London Stock Exchange in 2004 and raised its initial funding of £10m gross in its IPO. Further funding rounds of £28.5m in 2006, £5.4m in 2012, £2m in 2013 and £10m in 2014 have been completed. The Company has now made the transition from a research and development company to a product manufacturer and technology provider. The Company has both a strong base of intellectual property and engineering expertise for providing complete hydrogen solutions.

STRATEGIC REPORT

Business Model

Summary

ITM Power designs and manufactures hydrogen energy systems for energy storage and clean fuel production. At the heart of all these systems is a proton exchange membrane/polymer electrolyte membrane ('PEM') electrolyser built from ITM Power's own electrolyser stacks. These stacks, at pressure, take excess energy from the electricity grid or directly from a renewable energy source and convert it into hydrogen which can then be stored for deployment in a range of applications.

The ITM Power business model is about developing innovative products, which utilise this technology to meet the growing demand for clean fuel. The two main applications for ITM Power's electrolyser hydrogen systems are Power-to-Gas and Clean Fuel production for National Mobility Programmes.

The Power-to-Gas model is a commercial proposition and our first product was delivered to site near Frankfurt in the year. This takes excess energy from the grid and converts it into hydrogen to put back into the gas grid, thereby enabling supply to better match demand.

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 refuelling modules for ITM Power will be showcased first in California later in the current calendar year. In the US, the opportunities for ITM Power have developed significantly through legislative direction stating that 33% of all refuelled hydrogen in California is required to be from renewable sources.

A developing tertiary application for the technology is through the use of producing fertiliser through renewable energy to decarbonise the production of fertiliser. Collaborative work in this field has begun and an integration programme within a system will be delivered during 2015.

Enabling Funding

ITM Power utilises funding from grant bodies to enable technological advancement and realisation of technologies held within ITM Power's patent suites. The funding received from the Technology Strategy Board and EU has enabled an acceleration of development to drive the company's innovative technology in to these rapidly growing markets.

Global Markets

Markets for hydrogen electrolysis as an infrastructure solution are developing in the UK, as showcased by the Island Hydrogen (formerly, Ecolsland) project and through the UKH2Mobility initiative, as well as in France, Denmark, Germany, Japan and the US. ITM has a model of locating agents in key territories to position ITM Power as a world leading global technology developer. Initial market opportunities usually begin with collaborative projects with blue chip companies before leading to sales and maintenance contracts of established, CE marked units. ITM Power has five business development personnel 'in the field', and has also used the expertise of existing personnel to form the backbone of a fieldwork commissioning and maintenance team.

Profitability

ITM Power sees its route to product and maintenance sales and profitability through the increasing deployment of its products in the key power to gas energy storage and clean fuel sectors. The Company is well represented in these commercial sectors and territories where market growth is now accelerating. The Company is now undertaking a program of product scale up and product cost reduction through both design improvements and supply chain efficiencies.

REVIEW OF THE BUSINESS

Business environment

The year under review has seen increasing acknowledgement of the importance of hydrogen for future energy markets. Major national initiatives in Europe and the US to adopt hydrogen technologies, supported at the highest political level, are now regular events. ITM Power continues to develop strong relationships with large multinational companies, as well as with the governments of the pioneer countries as a result of these initiatives. Consequently, we are very well placed to offer our expertise and products and are increasingly being consulted as a leading expert in energy storage solutions and clean fuel.

Outside Europe, we have established strong relationships in California through our US subsidiary, and have successfully tendered for a further project in the Chino area, and the city of Riverside.

This year has seen clear momentum from the previous year, resulting in increased enquiries, and pipeline. ITM Power is well positioned to address commercial opportunities within the energy storage and clean fuel generation from renewable power markets.

ITM Power has built on key relationships and become a member of new initiatives around the world as the hydrogen industry's growth accelerates. We have won consecutive tenders with the California Energy commission, and have received repeat order from a UK government agency. As the technology on offer matures and is proven in the field, key customer relationships are strengthened.

ITM Power is now seen as a credible supplier of hydrogen systems into our chosen markets by major international customers

Key financials

A summary of the key financial results is set out in the table below and discussed in this section.

*Cash burn is defined as the underlying cash outflow after adjusting for movements on short term deposit balances and fund raising activities. It is calculated on the cash flow page.

Financial performance

The pre-tax loss for the year under review increased to £7.950m (2013: £6.170m) and net cash burn before fund raise increased to £7.568m (2013: £6.063m).

The loss can be attributed to three major factors - the losses incurred in delivering the Thüga unit to demanding timescales, the increase in business development activity and provisions for contracts and stock that are considered to have lower net realisable values than their purchase price. The cash burn increase is a result of similar factors, with the increase in components held being the other driver for this.

Increased business development costs have occurred as ITM Power ramps up its representation and coverage of key geographical areas and business segments. This increased representation has led to improved collaborative projects, such as the follow-on awards of a project in the California refuelling markets, and the opportunity to showcase the plant in Frankfurt as a world-class reference plant.

The deployment of the Thüga unit which absorbed, as part of the cost of sales, a series of non-recurring engineering costs led to a gross loss. The build cost for the unit was in line with expectations. However, as a result of it being 'first of type', site commissioning costs exceeding those estimated as the original technical signoff target was met. Operationally, the deployment of the unit on time took ITM Power through a steep learning curve that has enabled us to bid more competitively and with a track record of delivering within much shorter timescales than can be quoted by our competitors.

There will be an element of non-recurring engineering costs in every first-of-kind build, as the company enters new geographical markets and industries. The electrolyser system supplied to Thüga represented a step change in technology, being the first deployment of the Company's large product platform and its first power to gas installation. ITM Power chose to fully support the system integration as part of a commercial decision to build a comprehensive knowledge base surrounding the product, the application and the rigorous compliance requirements. Whilst this has meant ITM Power has recognized a gross loss in the current financial year, the Company has accrued significant knowledge and expertise which will benefit all subsequent deployments. Furthermore, the Company delivered the world's first PEM power to gas system in a strategic territory within the largest grouping of utility companies in Germany. The system is serving as an important reference plant to potential customers from all over the world and generating data to underpin the fundamental benefits of ITM Power's integrated PEM electrolyser technology. Subsequent deployments of the same system would not incur the same costs and all potential sales are being bid with positive margins.

Total collaborative project funding recognised in the period was £1.960m of which £1.370m is recognised on the income statement (2013: £1.36m, all of which was on the income statement). The strength of many of the projects ITM Power is now working on is the key invaluable partnerships created through the ventures. ITM Power is proud to lead consortia to deliver innovative, cutting edge solutions to applications whilst relying on and developing our core stack technology.

Commentary on the year's revenue

The measure that management and the Board had previously focussed on is Sales order book, and at the year end this stood at £0.80m (2013: £0.90 million and 2012: £66,000). The drop in the Sales order book is symptomatic of the nature of the projects under contract currently, and most notably two large refuelling construction projects totalling four refuelling stations, contributing to £9.25m of projects under contract and in negotiation. Projects under contract represents the value of contracted Revenue and Grant Funding yet to be recognised by ITM Power in the future, and the board find this a more accurate reflection of the increase in activity the company has experienced in the year. 

Projects under contract is seen as a more definitive measure of growth, as ITM Power develops some collaborative contracts as ways to manufacture assets whilst retaining ownership and providing an income stream through sales of hydrogen. Examples of this are the Island Hydrogen and HyFive projects which have a period of operation as part of the project (12 and 36 months respectively).

Whilst projects under contract continue to accelerate ITM Power's growth and products in the market, the board is aware of the continued potential for revenue volatility (as experienced in 2013) as projects grow in size and complexity. Revenue volatility will continue to decrease as the business matures and grows, and as ITM Power realises opportunities in large markets.

This is the first financial year in which ITM Power has entered into contracts which have been required to be accounted for as construction contracts. This is due to the increased size and output of each project leading to a need to treat projects individually. The only revenue project at the year end that was in build was the California refuelling station to be delivered to Chino later in the calendar year. The Island Hydrogen rigs were also in build as ITM develops a portfolio of assets.

Financial position

At year end, ITM Power had £9.8m (2013: £5.9m) of funds in the bank, and trade and other receivables of £1.2m (2013: £1.5m), which predominantly relate to grant income debtors. Recognising the need to be lean with working capital, ITM Power structures quotes to include upfront payment with orders so that working capital is not impacted adversely by increased activity.

ITM Power has seen an increase in fixed assets to £1.76m from £1.46m in the prior year as the company engages in projects that create assets for the future. This is a policy that will continue, especially with the completion of the Island Hydrogen and HyFive projects.

STRATEGY AND OBJECTIVES

Strategies

ITM Power is now firmly focused on large scale solutions. The current strategy is to use the existing, operational Thüga project as a reference plant for Power-to-Gas sales.

Using the same initial platform, the company will also be able to show demonstrable success in the near future of hydrogen refuelling, using the Island Hydrogen and HyFive stations, which will be used as reference plant for refuelling stations

In the medium term, the national mobility programmes, in which ITM Power has positioned itself as a key partner for refuelling through electrolysis, will drive initial refuelling station sales.

Objectives

ITM Power has immediate objectives in terms of product development and in particular scale up of our proven electrolysis equipment. This will allow penetration of larger markets, and is a direct response to market demand from sales enquiries and trade fairs and events.

Cash flow remains a key measure for the Board, with the other key objective for ITM Power being the achievement of a positive cash flow in the shortest possible time.

Strategies for achieving our objectives

Product development, and in particular upscaling of product offering, will be achieved through securing and utilising project funding. This serves the dual purpose of reducing cash outflow and creating strong key partnerships within industry.

Short term cash flow is aided by ITM Power quoting for sales with upfront payments which reduces reliance on working capital. Cash outflow is minimised through working with support from partners on the development of technology whilst we are continuing to build a contract pipeline. Historically, it has taken two years for potential customers to move through a learning curve and to reach the point of purchasing equipment, and it is with this in mind that we are creating a larger pipeline.

NON-FINANCIAL KEY PERFORMANCE INDICATORS

\* The efficiency of our electrolyser stack is a measure of the electrical energy input against the chemical energy content of the hydrogen produced.

The Company has achieved an overall efficiency improvement to its rapid response stack platform, to greater than 80% (2013: 77%). This was recorded from plant in the field and represents a real-world reference which can be showcased and repeated. This will provide further significant benefit to end users and will produce a positive impact on the economics of both hydrogen refuelling and power to gas applications.

The level of knowledge gained within stack development has increased with longevity testing and cyclic testing all contributing to a total of 750,000 hours assembled knowledge. This testing has enabled rapid scale up to date as demonstrated by the largest stack capacity compared with that of prior years.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended 30 April 2014

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

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 30 April 2014

CONSOLIDATED BALANCE SHEET

30 April 2014

CONSOLIDATED CASH FLOW STATEMENT

Year ended 30 April 2014

Non-statutory measures

Cash burn

Cash burn is a measure used by key management personnel to monitor the performance of the business.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Year ended 30 April 2014

1. BASIS OF ACCOUNTING

The preliminary announcement is based on the financial statements which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Group expects to publish full financial statements that comply with IFRS in July 2014.

Going concern

The directors have prepared a cash flow forecast for the period ending 31 December 2015. This forecast indicates that the company and group will be able to sustain current levels of activity without the requirement for further funding, for a period of at least 12 months from the date of approval of these financial statements. The forecast includes certain assumptions about the amount and timing of cash inflows and outflows, which are inherently uncertain; notwithstanding these uncertainties, the directors have a reasonable expectation that the company and group will be able to meet their obligations as they fall due, for the foreseeable future.

However, the directors also acknowledge that additional funding will be required beyond the next 12 months in order to enable them to execute their business plans.

Accordingly, the financial statements have been prepared on a going concern basis.

The financial information is prepared on the basis of the accounting policies as shown on the Company's website, www.itm-power.com 

Copies of the financial statements/annual report will be available on the Company's web site and for collection from the Company's registered office at 22 Atlas Way, Sheffield, S4 7QQ.

2. notes to the cash flow statement

3. FINANCIAL INFORMATION

The financial information set out in this announcement does not constitute statutory financial statements for the years ended 30 April 2013 or 30 April 2014, but is derived from these statutory accounts, which have been reported on by the Group's auditor. Statutory accounts for the year ended 30 April 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the Group's Annual General Meeting. The financial statements were approved by the Board of Directors on 30 July 2014. The auditor has reported on those accounts; their reports were unqualified and did not draw attention to any matters by way of emphasis and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

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