Itm Power Regulatory News (ITM)

3 October 2019

ITM Power plc

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

Final Results

ITM Power (AIM: ITM), the energy storage and clean fuel company is pleased to announce its final results for the year ended 30 April 2019. What follows is a preliminary announcement; the full annual report and financial statements will be available shortly.

HIGHLIGHTS

FINANCIAL:

·; Total Revenue & Grant Funding of £17.5m (2018: £14.1m) up 25%, comprising:

o Sales revenue - £4.6m (2018: £3.3m) up 40%

o Grant income recognised on the income statement - £7.2m (2018: £4.1m) up 75%

o Grant income recognised on the balance sheet - £5.7m (2018: £6.7m), down 14%

·; Loss from operations £9.3m (2018: £6.5m) increased 44%, EBITDA loss of £7.5m (2018: £4.8m) increased 56% as the Group invests to significantly scale up facilities, resources and production capacity

·; Available cash balance of £5.2m at year-end (2018: £20.4m)

·; £52m minimum equity fundraising announced today, subject to shareholder approval, including a:

- £38m cornerstone investment from new strategic partner Linde Engineering (part of Linde AG)

- £14m firm placing with certain existing and new institutional investors

- Open offer of up to approximately £6.8m

COMMERCIAL:

·; Formation of worldwide joint venture to market, tender and sell green electrolytic hydrogen projects with Linde Engineering - part of Linde AG, a world leading supplier of industrial, process and specialty gases

·; Agreement to lease new premises in Sheffield for global manufacturing headquarters with an electrolyser manufacturing capacity of up to 1GW (1,000MW) per annum, the largest in the world

·; Non-contracted tender opportunity pipeline increased to over £379m (September 2017: £200m), illustrating the growth in the global hydrogen economy

·; German presence expanded, first sales in Australia

CORPORATE:

·; Martin Green appointed as non-executive director, joining the board on 16 September 2019

·; Lord Roger Freeman announces resignation as non-executive director with effect from the publication of these financial results

·; Appointment of Nicola Ham Edmonds, Head of Legal, as Company Secretary on 16 September 2019

Clean Fuel

·; 15 wholly owned Hydrogen Refuelling Station (HRS) assets in ITM Power's portfolio:

- eight fully open to the public, seven in various stages of construction

·; Awarded further £1.8m by OLEV to deliver another refuelling station, part of a larger grant to put 57 new hydrogen cars on the road in the next 12 months.

·; UK refuelling collaboration agreement with Shell extended to 2024 and to all hydrogen vehicle types

·; Hydrogen fuel contracts now 33 in total (2018: 20) with fuel sales increased to 32 tonnes for the period (2018: 16 tonnes), up 100%

·; Two bus refuelling stations - Birmingham and Pau in France - due to open this financial year

Power-to-Gas

·; Committee on Climate Change recommended a central role for green hydrogen based power storage in its report to the UK government

·; Official opening of BIG HIT (Building Innovative Green Hydrogen Systems in an Isolated Territory) in Orkney provided a reference blueprint for renewable hydrogen deployment for island systems

·; Undertaking a feasibility study (Centurion) to deploy 100MW Power-to-Gas (P2G) energy storage in Cheshire

·; Part of consortium awarded £14.9m over four years by Ofgem to fund two decarbonised domestic heating trials in the north of England (HyDeploy and HyDeploy 2) in the largest gas Network Innovation Competition (NIC) project ever and the first to inject green hydrogen into a UK gas grid

Industrial

·; EU 10MW refinery project with Shell in Germany is on schedule and progressing well

·; Opportunity pipeline contains a growing number of industrial projects as organisations seek to cut their carbon footprint - focus is on refineries and steel making

·; Won BEIS competition to demonstrate delivery of bulk, low-cost and zero carbon hydrogen through gigawatt scale PEM electrolysis in partnership with Orsted

Graham Cooley, CEO, commented, "ITM Power continues to deliver strong growth with revenues up 25% year on year. The Group has benefited from the lessons learned in deploying units above 1MW for the first time, including in harsh environments and difficult operating conditions. This delivers significant competitive advantage for future deployments as we scale up and standardise our products. We've also been learning how to maximise value from our growing portfolio of revenue generating assets in the shape of the first real hydrogen refuelling network in the UK."

Roger Putnam, Chairman, added, "I am pleased to report our plans for expansion of staff and production capacity are on track. The next year will be a period in which we transition to our much larger new factory. We welcome the Committee for Climate Change report's aspirations to make the UK zero emissions by 2050 and its recognition that PEM electrolysis will be an integral part of the new energy mix. As always, I would like to thank our 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 plc designs and manufactures integrated hydrogen energy systems for grid balancing, energy storage and the production of green hydrogen for transport, renewable heat and chemicals. ITM Power plc was admitted to the AIM market of the London Stock Exchange in 2004. In September 2017, the Company announced the completion of a £29.4m working capital fundraise. The Company signed a forecourt siting agreement with Shell for hydrogen refuelling stations in September 2015, which was extended in May 2019 to include buses, trucks, trains and ships, and subsequently a deal to deploy a 10MW electrolyser at Shell's Rhineland refinery. The Company entered into a Strategic Partnership Agreement with Sumitomo Corporation in July 2018 for the development of multi-megawatt projects in Japan. Additional customers and partners include Ørsted, National Grid, Cadent, Northern Gas Networks, Gasunie, RWE, Engie, BOC Linde, Toyota, Honda, Hyundai, Anglo American among others.

CORPORATE UPDATE

ITM Power - Building a Global Presence

ITM Power has worked hard to build relationships globally by adding anchor points outside of the UK market. This effort will put the Company in a good position to service markets internationally both now and in the future.

Expansion of Presence in the German Market

In December, the Group moved its German subsidiary, ITM Power GmbH, into new larger premises in Hungen, north of Frankfurt to accommodate both business development staff and a growing after sales and technical support team. Key to operations in Germany will be a store of strategic spares for projects in Germany and throughout Europe.

The technical sales and project management teams in Sheffield have also recruited German personnel to optimise customer support to the German speaking market and to streamline the tendering process and design team liaison with Germany.

First Four Sales in Australia

January 2019 saw the sale of four 250kW electrolyser systems totalling 1MW to three different customers across Australia. In March 2019, the Group announced that one customer was Toyota Australia who aim to couple their 0.25MW rapid-response PEM electrolyser with renewable energy to generate hydrogen on-site at Toyota's facilities in Altona, Melbourne for refuelling fuel cell electric vehicles, including the Toyota Mirai.

The territory throws up new challenges for compliance and operation in extreme thermal environments but these deployments represent an important step in entering this significant new territory and will serve as reference plants for ITM Power technology in both the mobility and industrial hydrogen sectors in Australia.

BESSEMER PARK - Global Manufacturing HQ, Sheffield

In July 2019, the Company announced that it has signed an agreement to lease new premises in Sheffield for its global manufacturing headquarters. The manufacturing facility will have an electrolyser manufacturing capacity of up to 1GW (1,000MW) per annum, the largest in the world.

PLP Bessemer Park is a strategic location next to junction 34 of the M1 and in close proximity to the Company's existing facilities. ITM Power expects to occupy the building from Spring 2020 and complete its own technical and industrial fit out and transition the majority of its operations into PLP Bessemer Park by Summer 2020.

The requirement to expand production capacity has been led by the continued growth in the Company's order pipeline. The new headquarters will see ITM Power locate into a single building and gain access to a five-fold increase in production space. Key to the selection of the building was the proximity of the grid connection to provide the substantial power supply required for ITM Power's needs, using existing infrastructure near to the location.

BUSINESS ENVIRONMENT AND ANNUAL REVIEW OF THE BUSINESS

Power-to-Gas

Emissions reduction targets set out in the COP21 Paris Agreement on climate change, as well as reports such as that of the Committee for Climate Change from May 2019 have contributed to an increasing proportion of power from renewables in electricity generation. The ability to match this unscheduled intermittent supply with demand becomes increasingly problematic. In fact, at the point when deployment meets or exceeds 20% capacity, as already experienced in many countries, grid balancing issues become more acute, often leading to the curtailment of wind.

Power-to-Gas can meet the demand for long-term, large-scale energy storage, converting surplus renewable energy into hydrogen gas by rapid response electrolysis and subsequently injecting it into the gas distribution network. These grid balancing services can be an important source of revenue for operators and ITM Power's rapid response Proton Exchange Membrane (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 Power-to-Gas electrolyser in 2014, and continues to engage in a number of industry-leading strategic projects, which include HyDeploy, Big Hit, and Centurion.

Clean Fuels

The transport sector is one of the largest users of fuel in the world, and currently it is dependent on fossil fuels, which are highly polluting and are becoming ever more scarce and expensive.

Hydrogen is light and can be stored under pressure, making it suitable for many vehicle types as it does not add further weight, or use further energy when on board. Hydrogen can be made from just water and renewable energy using an electrolyser, splitting the water into hydrogen and oxygen, when used, the hydrogen returns to water vapour.

A hydrogen station produces hydrogen on site via ITM Power's rapid response electrolyser system, and can refuel a fuel cell electric vehicle in minutes. Inner city air quality is a driving force for Fuel Cell Electric Bus (FCEB) deployment, as air pollution is a major contributor to poor health in the UK. Extension of hydrogen refuelling for use in trains and boats is also gaining traction.

On 11 September 2018 at the 'Zero Emission Vehicle Summit' in Birmingham, Prime Minister Theresa May outlined the UK Government's "Road to Zero Strategy" which includes funding of £1.5 billion for ultra-low-emission vehicles by 2020. At the event, the Prime Minister also announced more than £100 million of funding for innovators in ultra-low-emission vehicles and hydrogen technology. The Road to Zero Strategy is the most comprehensive plan globally - mapping out in detail how the UK will reach its target for all new cars and vans to be, effectively, zero emission by 2040 - and for every car and van to be zero emission by 2050.

ITM Power has won contracts to supply on-site hydrogen generation equipment for refuelling in the UK, France and the US. It is currently rolling out a network of 14 hydrogen refuelling stations in the UK of which seven are now fully open for public access. In the year, the Group dispensed 32 tonnes of hydrogen from its refuelling stations (2018: 16 tonnes).

Car Refuelling

In September 2018, the Group opened its seventh public access hydrogen refuelling station (HRS) located at Johnson Matthey, Swindon on the M4 corridor. The opening was supported by Toyota, Hyundai and Honda. The station uses electricity via a renewable energy contract and water to generate hydrogen on-site with no need for deliveries. It is now open for public and private fleets operating fuel cell electric vehicles 

As the refuelling network continues to grow alongside growth in deployment of vehicles, ITM Power has designed a mobile app which lets users of our stations know where their nearest hydrogen refuelling station is located, provides directions and other details on how to refuel all from the convenience of their mobile phone. A video has also been published which shows customers how to refuel a Fuel Cell Electric Vehicle (FCEV). The video outlines the full refuelling process, which is standardised from one station to the next and takes you step by step, how to refuel at both 350bar and 700bar hydrogen.

During the year, ITM Power became a partner in a €26 million pan-European initiative, the ZEFER (Zero Emission Fleet vehicles for European Roll-out) project. It will deploy 180 hydrogen fuel cell electric vehicles as taxis, private-hire vehicles and police cars in Paris, Brussels and London.

For ITM Power, the existence of this scheme will help to ensure high utilisation of its early networks of hydrogen refuelling stations. This improves the economics of operating the stations and hence helps accelerate the commercialisation of hydrogen as a zero-emission fuel.

Larger vehicle refuelling

ITM Power will deploy bus refuellers in Birmingham and Pau next year. 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 other large schemes are likely to follow, for applications such as heavy logistics, trains and ships.

Industrial

Refineries currently use hydrogen to improve the quality of fractional distillation products and most of this hydrogen is produced from steam-reforming but 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.

The Company's flagship EU 10MW refinery project with Shell is progressing well. The Group has established a dedicated project office and ring-fenced staff to work exclusively on this ground-breaking project. The initial design work has been completed for the planning permit application submission in Q4 2018.

The Project Manager, Dr John Newton (formerly CIO at RWE npower), is working closely with Shell and their chemical process engineering sub-contractor in preparation for the detailed design phase, to ensure the plant will conform with the stringent safety and compliance requirements of a major refinery.

The project team are attending regular joint technical review meetings at the refinery and will be hosting Shell and their sub-contractor partners, for similar meetings in the dedicated project office in Sheffield. The Refhyne consortium has recently produced an information video, available at: https://www.youtube.com/watch?v=tpPS62RTKd0

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 four build projects, providing electrolysers in each of our three target markets. This year's revenue figures have been affected by a transitional adjustment to the new IFRS 15 "Revenue from contracts with Customers" (resulting in an increase of £0.638m). See Notes 2 and 3.

Meanwhile, consultancy income reduced from £0.14m in 2018 to £0.07m. This is likely to be cyclical as consultancy services are often procured with a view to sourcing units in competitive tenders.

Fuel sales continue to increase from £0.16m in 2018 to £0.37m as our refuelling stations begin to attract greater volumes of customers and sales.

Total collaborative project funding recognised in the year was £12.97m of which £7.23m is recognised on the income statement (2018: £10.82m, of which £4.14m was recognised on the income statement). Project funding has supported ITM Power in developing 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 £9.32m (2018: £6.48m). This can be attributed to similar factors as last year; firstly, the impact of producing first-of-a-kind large scale plant then installing it in new and varied situations; secondly, increased costs of recruitment in the year as the Group continued to grow in preparation for delivery of ITM Power's future order book. The Company also recognised an impairment relating to a historic prepayment having reached a commercial agreement with the supplier. These costs will not be expected to recur once the move to the new factory is completed as additional space and upgraded power will allow for more rigorous factory testing of our larger scale products prior to site delivery.

Net cash burn increased to £15.23m (2018: £9.55m before fundraise). 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 up front expenditures required on our build projects (including grant funded projects) in order to secure timely deliveries of long lead-time components. This figure was particularly high at the year-end given our focus on larger systems and the timing of their design completion, procurement and commencement of build.

Financial position

In the year, the Group capitalised development costs of £0.38m (2018: £0.07m). This was for product developments that will continue to keep the Group at the forefront of PEM electrolysis as well as the design of standard products and internal procedures that will facilitate our offering to the markets. The directors see continued product development as key to building commercial traction.

There was also an increase in fixed assets to £5.7m from £4.5m in the prior year, which relates to assets under construction and 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. The total book value of refuelling assets was £4.1m (2018:£2.5m).

At year end, ITM Power had current assets totalling £39.0m (2018: £39.6m). Funds in the bank amounted to £6.9m (2018: £22.0m), of which amounts on guarantee totalled £1.7m (2018: £1.6m). The Group has previously been required to place amounts on guarantee as cash cover, which limits working capital available to the Group mid-contract. ITM Power continues to structure quotes to include upfront payment with orders to limit the adverse impact of increased activity on working capital.

Total receivables excluding restricted cash amounts have increased from £16.9m (2018) to £30.2m. This movement is dominated by pro forma and early stage payments made to suppliers for stock items required in the next wave of units through production. As systems in production become larger and more sophisticated, the need to find new suppliers who can meet our requirements for parts means that we are faced with higher volumes of staged or up-front payments until a trading history can be developed to assist our credit rating. Prepayments and accrued income was £22.5m in 2019 (2018: £11.2m), up 102%.

Trade debtors at the end of years 2018 and 2019 predominantly relate to grant income debtors.

Creditors have increased from £7.9m (2018) to £17.6m. This movement is primarily a result of an increase in accruals and deferred income from £6.4m to £13.9m, which reflects both money received up front for construction contracts and grant income receivable against payment of pro forma invoices. This latter income is generated as grant claims are made against defrayed costs, including any stage payments to suppliers. The income would normally sit against the costs of the build to which it relates. However, until the parts arrive and become incorporated in that build, the grant income sits unmatched on the balance sheet.

At year end, the Group had trade creditors of £3.4m against a prior year balance of £1.4m. This number has predominantly increased due to the size and stage of progress on contracts.

CONSOLIDATED INCOME STATEMENT AND OTHER COMPREHENSIVE INCOME - UNAUDITED

for the year ended 30 April 2019

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

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - UNAUDITED

CONSOLIDATED BALANCE SHEET - UNAUDITED

CONSOLIDATED CASH FLOW STATEMENT -UNAUDITED

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 22 Atlas Way, Sheffield, South Yorkshire S4 7QQ.

These financial statements are 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 unaudited summary accounts set out above do not constitute statutory accounts as defined by Section 434 of the UK Companies Act 2006..

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 the following 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 2018.

Revenue Recognition under new financial standard IFRS 15 'Revenue from Contracts with Customers'

In May 2014, the International Accounting Standards Board (IASB) jointly with US Financial Accounting Standards Board (FASB) published IFRS 15 'Revenue from Contracts with Customers' to replace IAS 11 'Construction Contracts' for annual reporting periods commencing on or after January 2018. IFRS 15 provides a single, principles based 5-step model to be applied to all sales contracts. It is based on the transfer of control of goods and services to customers and replaces the separate models for goods, services and construction contracts previously included in IAS 11 Construction Contracts and IAS 18 Revenue. The Group has adopted the new standard using the modified retrospective method, with the cumulative effect of initial application recognised as an adjustment to the opening balance of retained earnings at 1 May 2018.

As ITM Power Plc's projects are complex, long-term construction contracts, Management consider that the new standard is likely to have a material impact on the presentation of its revenues in future periods but the timing of such an impact is uncertain and can only be judged in the nearer term once contracts are known. A detailed description of how our contracts are treated under the new rules can be found in Note 3 to the financial statements.

A comparison of this year's revenues under old and new rules can be seen below. To clarify, the income in 2019 under both standards would have been similar but the financial statements as prepared include income of £638,000 in both the 2018 and 2019 years.

The potential impact has been limited in the current year due to the Group being in a phase of developing technology and markets, where many of our contracts continue to be "first-of-a-kind" bespoke projects. However, as more repeat business or similar projects are undertaken, revenue recognition is likely to become further aligned with recognition upon transfer.

The Group see a particular sensitivity around the timings of a transfer of ownership to a customer, in that the amount of revenue recognised may differ significantly between two financial periods depending on how many performance obligations are fulfilled before the end of each financial period. This will require extra disclosure year on year to enable appropriate comparison between financial years.

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of accounting

The annual accounts have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union.

The financial statements 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 ending 31 October 2020. This forecast indicates that the Group and parent company would not 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.

The Group and parent company has commenced a fundraise and has to date received subscription agreements of £52m which indicates that this will be successful. The Group and parent company cannot issue the shares and formally raise the funds until the fund raise is approved at the forthcoming EGM on 22 October 2019. The directors are very confident that approval will be received. The funds raised are expected to be sufficient to enable the Group and parent company to continue to trade in line with its forecasts. Until the fund raise is complete, this represents a material uncertainty.

The existence of a material uncertainty may cast significant doubt about the Group and parent company's ability to continue as a going concern. Notwithstanding this material uncertainty, the directors have a reasonable expectation that the Group and parent company are a going concern. The financial statements do not include the adjustments that would result if the Group and parent company was unable to continue as a going concern.

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

Revenue recognition

Product sales

ITM Power Plc undertakes product sales that involve the manufacture, installation and commissioning of an electrolyser system over a period of several months. Such systems are usually quoted to a customer as a single value but may be split into agreed payment milestones in order to facilitate cash flow. Any ancillary requests will be treated as separate performance obligations if costs can be separately identified and the revenue value is also quoted separately, but the main objective, to provide a working system for use in a specific application, is viewed as a single performance obligation.

Under IFRS15, a performance obligation is satisfied over time if one of the following criteria is met:

a) the customer simultaneously receives and consumes the benefits provided by the seller's performance as the seller performs;

b) the seller's performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or

c) the seller's performance does not create an asset with an alternative use to the seller and the seller has an enforceable right to payment for performance completed to date.

4. 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.

5. CALLED UP SHARE CAPITAL AND RESERVES

-ends-