Itm Power Regulatory News (ITM)

17 August 2023

ITM Power PLC

("ITM Power" or the "Company")

Preliminary results

Gaining traction - Our journey to volume manufacturing and rapid deployment

ITM Power (AIM:ITM) announces its final results for the year ended 30 April 2023

HIGHLIGHTS

Final results summary

· Revenue of £5.2m (FY22: £5.6m) significantly ahead of guidance of £2m

· Adjusted EBITDA loss of £94.2m (FY22: £39.8m)* in line with the £85m to £95m guidance

· Net cash at the year end of £283m (FY22: £366m) ahead of guidance of £245m to £270m

* Adjusted EBITDA is a non-statutory measure. The calculation methodology is set out in Note 4

The financial performance for the year is in line with, or ahead of, the expectations set at the year end trading update on 1 June 2023. Our 12-month plan, including stringent cash control in the second half of the year, led to higher revenue and a stronger balance sheet position compared to the revised guidance.

Strategic update: Good progress made against our 12-month priorities plan

· Product portfolio significantly simplified, concentrating on our core product suite, with mature engineering processes and robust product validation, preparing for manufacturing at scale

· A rigorous approach to capital allocation and cost management, including a significant reduction in headcount enabling us to reinvest faster to professionalise important areas such as engineering and manufacturing

· Debottlenecking fabrication and testing by incremental automation, expansion of our factory in Sheffield, and investment into ITM Power Germany

Financial guidance for FY24

· Revenue expected to increase to between £10m and £18m from commercial projects in execution

· Adjusted EBITDA loss improving with growing output/sales and expected to be in the range of £45m to £55m

· Net cash at year end expected to be in the range of £175m to £200m after significant capital investment in capacity expansion, including power supply upgrades

Commenting on the results, CEO Dennis Schulz said:

"I have been at ITM for just over half a year, joining the company at a time of challenging operational and financial performance, and it is encouraging to see the amount of progress we have been making against our 12-month plan laid out in January 2023. The implementation, which is moving at pace, will strengthen our operational and commercial capabilities, and steer a successful path to becoming a highly efficient and reliable volume manufacturing company.

Whilst some revenues related to product deployments have yet to be recognised at customer site acceptance testing, I am very proud that more products have left the ITM factory over the past six months than in the previous 22 years of its history. This is a testament to tangible progress on our transformation journey.

Our technology is state of the art and globally leading. We are deploying our electrolysers for some of the largest and most prominent green hydrogen projects under execution worldwide today. These projects will serve as important reference plants and play a crucial role in building confidence with customers for even larger deployments in the future.

The big demand for green hydrogen lies yet ahead, and ITM will be ready!"

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

There will be a presentation for investors at 0900h BST on the Investor Meet Company platform. Investors can sign up to Investor Meet Company for free and add to meet ITM POWER PLC via: https://www.investormeetcompany.com/itm-power-plc/register-investor.

About ITM Power PLC:

ITM Power was founded in 2000 and ITM Power PLC was admitted to the AIM market of the London

Stock Exchange in 2004. Headquartered in Sheffield, England, ITM Power designs and manufactures

electrolysers based on proton exchange membrane (PEM) technology to produce green hydrogen, the

only net zero energy gas, using renewable electricity and water.

STATEMENT FROM THE CHAIR OF THE BOARD

The past year has been one of significant change for the Company. Our new CEO, Dennis Schulz, joined us in December 2022, and he has brought a fresh perspective and a renewed focus, putting into place a 12-month plan which is laying strong foundations for our future growth aspirations.

Against a backdrop of an unacceptable operational and financial performance for the year as a whole, our results are above or in line with the guidance provided in January 2023 with a net cash position at the year end of £283m and our balance sheet in a healthy position.

Previously, we raised capital to pursue an expansion strategy and in doing so underestimated the competencies and capabilities required to scale up and to transition from an R&D company to a volume manufacturer. As a consequence, we had set unrealistic targets for project completion.

As a Board, we acted swiftly by appointing Dennis Schulz as our new CEO and he promptly developed a 12-month plan to address the underlying challenges of the Group. This included a three-step strategy to simplify our product portfolio, reduce our expenditure and debottleneck our manufacturing facilities. As part of this we completed a restructuring of our organisation including reducing our headcount. The re-sizing of our business was difficult, but necessary from an operational and financial perspective and the changes will support the long-term success of our business. Those colleagues who remain in the business today are extremely passionate about what they do. By having a clarity of purpose I know that together we will achieve great things in the future and the Board thanks our employees for their continued commitment and support.

The macro picture

The world is in a race to net zero emissions by 2050. This means that we need to reduce our greenhouse gas emissions to zero, or close to zero, in order to avoid the worst effects of climate change. Whilst the current global energy crisis poses a threat to near-term economic prospects, it has strengthened the economic case for accelerating the shift away from fossil fuels by driving investments in renewables, energy efficiency and other clean energy technologies.

One of the key technologies that will help us achieve net zero is green hydrogen which can replace traditional grey hydrogen in existing industrial applications in the near term as well as being a substitute for a variety of fuels and feedstocks in the long run.

Governments around the world are setting ambitious targets for decarbonisation, and hydrogen is seen as a key part of the solution. To address this, it is imperative that all of the components of the value chain are synchronised with the build-up of hydrogen supply and demand. It is clear that we are entering a period of significant growth for the hydrogen industry and the emergence of a global hydrogen marketplace is now inevitable.

We are well-positioned to capitalise on this growth opportunity. We have a strong team, a leading technology, and a clear vision for the future. We are confident that we can grow our business and make a significant contribution to the global effort to decarbonise the economy.

Environmental, social and governance (ESG) objectives

We are dedicated to delivering robust ESG performance out of a desire to uphold ethical standards. The fact that we kept our MSCI "AA" rating for a third consecutive year shows that the Company's ESG practices are well aligned with shareholder interests, and we are proud of this achievement. It also indicates that we are a business that is setting the standard for how our sector manages the biggest ESG risks and opportunities.

Board changes

Denise Cockrem was appointed as a Non-Executive Director from July 2022. Denise is Group Chief Financial Officer of Ecclesiastical Insurance Office plc, a specialist insurance provider that is part of the Benefact Group - a charity owned, international family of financial services companies that exist to donate profits to good causes. She joined Ecclesiastical Insurance Office plc in August 2018 from Good Energy Group plc, an AIM-listed renewable electricity company where she was Chief Financial Officer.

Helen Baker stepped down as Company Secretary in September 2022 and we welcomed Vicky Williams into her role in November 2022.

Dr Graham Cooley stepped down from his role as CEO after 13 years in the post in December 2022. Graham was responsible for leading the Company through a period of significant development and he remains a sizeable and very supportive shareholder.

Dennis Schulz joined as CEO in December 2022. He brings a wealth of experience from Linde Engineering which includes project execution, strategy and a period as Chief Financial Officer and Managing Director. More importantly, Dennis knows our senior management and technology very well, having been directly involved in our strategic relationship with Linde, and brings deep insight into the green hydrogen market and our customer base.

Dr Rachel Smith stepped down from the Board on 30 January 2023. With her knowledge, expertise and passion for the Company, Rachel was pivotal in the delivery of several key strategic projects for a number of years. On behalf of the Board, I would like to thank Rachel for her continued commitment to ITM as she works with the Company in her new role as Special Projects Director.

Katherine Roe has announced her intention not to seek re-election to the Board at the 2023 AGM. The Board wishes to express enormous gratitude to Katherine for her contribution over the last three years, particularly with the development of our ESG strategy and supporting the business during a period of significant change. Katherine has been a valued member of the team and the Board wishes her well in her future career. The Board will not be replacing Katherine at this juncture, thereby reducing the number of Non-Executive Directors from five to four. This is in line with the change made to the number of Executive Directors which reduced from four to three upon Dr Rachel Smith's departure from the Board in early 2023. The Board is confident the balance of executives to non-executives therefore remains appropriate for a company of our size.

Looking ahead

Following the significant changes which we have made to our business, we are confident that we are well-positioned to capitalise on the significant opportunities in the green hydrogen economy that lie ahead. We have a clear plan in place, a renewed focus and a dedicated team that is committed to delivering results. We will continue to invest in our core technology along with the automation of our manufacturing processes, which will allow us to stay ahead of the curve. The investments we are making today will ensure that we can grow into a profitable business in the future.

In closing, I would like to thank our shareholders, employees, and customers for their continued support and confidence in our business. We remain committed to delivering value to our shareholders and creating a sustainable future for our Company.

Sir Roger Bone

Chair of the Board

CHIEF EXECUTIVE OFFICER'S STATEMENT

I have been at ITM for just over half a year and it is encouraging to see the early progress we have been making against our 12-month priorities plan laid out in January 2023. The implementation, which is moving at pace, will strengthen our operational and commercial capabilities. When I chose to join as CEO, it was because I believe in ITM's core technology and in the important role green hydrogen will play in the energy transition. I welcomed the opportunity to help ITM steer a successful path from the development of first-of-a-kind technology to becoming a highly efficient and reliable technology and manufacturing company. I did not underestimate the challenge to transform ITM into a mature delivery organisation, but the majority of changes required are about basics such as the organisational structure, accountability, processes, controls and tools.

Whilst there is still a lot to accomplish at ITM, six months into our 12-month plan, we should not overlook the significant steps forward we have already made in such a short period of time. Operational excellence, what we strive for, is a consistent way of working that delivers on our goals, activating the entire organisation to continuously get better every day at achieving our purpose. It is about culture, about behaviours, mindsets, and daily practices that are intrinsically linked to our purpose and values as a company. By slowing down and focusing on doing things right the first time, essentially prioritising quality over quantity, we have already gained traction and speed. This shift in culture to become a professional and credible organisation ready for volume manufacturing has started taking effect. The transformation is evident in our day-to-day behaviours already, and it is imperative that we maintain this momentum. Whilst some revenues related to product deployments have yet to be recognised at customer site acceptance testing, I am very proud that more products have left the ITM factory over the past six months than in the previous 22 years of its history.

Our PEM technology is state of the art and globally leading, more on this later. We are deploying our electrolysers for some of the largest and most prominent green hydrogen plants under execution worldwide today such as for Linde in Leuna (24MW), for Yara in Porsgrunn (24MW), and for RWE in Lingen (2x 100MW). These projects will act as important reference plants and play a crucial role in building confidence with customers for even larger deployments in the future.

Over the past six months, we deliberately took a less active approach to bidding for new projects as we did not want to overload the Company at the same time as fixing important fundamentals which were holding us back from scaling. This has coincided with what we believe is a temporary slowdown of final investment decisions (FIDs) being taken by customers, which has given us breathing space to enact our 12-month plan without missing out on the growing market demand for electrolysers. Given our progress, we have now started to be more active in the market again, although we will continue to be selective to ensure that we can deliver a robust and reliable product on time and on budget, and that projects contribute positively to our margin.

The market for green hydrogen

Climate change, decarbonisation and energy independence imperatives continue to fuel the projected hydrogen demand. Collectively, societies worldwide have decided to decarbonise their industries, which, as one important pillar, requires the synchronised build-up of a hydrogen economy. This endeavour is underway in three dimensions and at very ambitious speed:

First, hydrogen production, preferably green based on renewable energy and electrolysis, or blue as a bridging technology to temporarily lower the carbon footprint of the installed capacity of fossil-based hydrogen production, before eventually transitioning to truly clean green hydrogen.

Second, hydrogen transport and storage infrastructure, mainly via pipelines and caverns, also to unlock the energy grid balancing potential of hydrogen.

Third, applications and use cases around combustion, reconversion to electricity, e.g. for grid balancing or the electrification of industrial processes, or onward processing to ammonia or methanol for example. This build-up requires a vast amount of capital to be deployed, and governments around the world are trying to create environments which are conducive to accelerated investment.

The International Energy Agency (IEA) sees an increased focus on renewables, now being 30% higher than forecasted just a year ago. This follows governments throwing additional policy weight behind renewables over the past 12 months. They estimate that renewables are set to account for more than 90% of global electricity expansion over the next five years.

In its latest World Energy Transition Outlook, the International Renewables Energy Agency (IRENA), stated that clean hydrogen production needs to rise to 518 million tonnes (mt) per annum by 2050 from the current level of 0.7mt per annum. To achieve this goal, IRENA estimates that the world would require 5,722GW of electrolyser capacity which compares to its latest estimated deployed capacity of just 0.5GW.

The European Green Deal is the EU's strategy for a climate-neutral, clean and circular economy by 2050, which recognises the need for transformative policies. The REPowerEU plan published in May 2022 foresees significant investment in renewables as well as clean technology manufacturing. The EU's ambition is to produce 10mt and to import 10mt of green hydrogen by 2030. In March 2023, the European Commission proposed the Net-Zero Industry Act to ramp up manufacturing of clean technologies, including green hydrogen. At the same time the Commission announced the new European Hydrogen Bank (EHB), which amongst other things will provide financing mechanisms to help create the domestic market for green hydrogen. In total, the EU estimates that investments of €335bn to €471bn are required to achieve 10mt of green hydrogen production.

In the UK, the Government's Hydrogen Strategy is aiming for 10GW of clean hydrogen production by 2030 with at least half of it being green hydrogen. The hydrogen net zero investment roadmap includes a number of elements, among them a Net Zero Hydrogen Fund, worth up to £240m to support the development and deployment of new low carbon hydrogen production, a Production Business Model to ensure long-term revenue support and a Low Carbon Hydrogen Standard to enable market access and certainty for end use.

In the US, the government has enacted two laws, the Infrastructure Investment Jobs Act (IIJA) of 2021 and the Inflation Reduction Act (IRA) of 2022, to boost infrastructure development. The IIJA has budgeted $1.2trn for infrastructure spending, of which $550bn are dedicated to creating new infrastructure, and the IRA has earmarked $370bn for energy-related spending. The IRA is a game changer aimed to support the decarbonisation of the US economy and to develop a domestic clean-technology supply chain.

But how do these huge numbers translate into real business scale-up? Looking at electrolyser manufacturers alone, growing by a factor higher than 100x in just a few years requires laser-sharp focus and discipline. It also requires our suppliers to scale with us. Every step of the value chain needs substantial investments and risk-taking to grow at this pace. Therefore, to take uncertainty out of the equation as much as possible, we require commercial projects to scale with as well as continued government support and funding, all of which are critical enablers, together with stable regulatory frameworks and quick grant decisions. Ultimately, only building real physical plants will make the hydrogen economy and energy transition real.

There are, however, a number of obstacles which have delayed customer projects reaching a Final Investment Decision (FID). These obstacles comprise current peak electricity prices, with electricity cost being the key determinator for the production cost of green hydrogen, inflation leading to rising project and capital cost, and uncertainty regarding regulatory frameworks which are partly still evolving, as well as delayed funding decisions by governments due to bureaucratic hurdles. As a result, projects are piling up, as industries continue to face increasing carbon taxation and ever tighter regulatory limits for carbon emissions. For ITM, this slowdown of investments, which we believe is temporary, came at the right time to give us the breathing space required to focus on implementing our 12-month plan to solidify our foundations as a company, while integrating closer with and advancing our supply chain, all of which is required for true upscaling of volumes and global expansion.

In summary, the global green hydrogen market and electrolyser demand are expected to see strong growth in the coming years, driven by the need to decarbonise, favourable government policies, increasing investments, and use cases in a wide range of industries. It is now certain that green hydrogen will play a significant role in the energy mix of the future, and we expect to see continued momentum in this market in the years to come.

Update on our 12-month priorities plan

As ITM is transitioning to a volume manufacturer, we are now six months into our 12-month plan announced in January 2023 to solidify our foundations and have made substantial progress in our three focus areas:

1. concentrate on a standardised core product suite for repeatable and reliable volume manufacturing;

2. improve capital discipline by a stringent cost reduction programme in the short-term, and by introducing professional processes for the future; and

3. debottleneck and ramp up fabrication and testing, and invest into incremental automation.

In parallel, we are delivering against our project commitments, thereby completing important reference plants.

Products

When I joined, ITM had a product portfolio that was too wide and the services we provided to support older generation technologies were disruptive to our manufacturing process and became too costly.

We have now rationalised our portfolio so that we can concentrate our efforts on our core products, namely our state-of-the-art MEP30 stack platform and our Plug & Play containers. We have discontinued design work for older product iterations, and limited our activities to fulfilling remaining contractual commitments and warranty obligations. This takes account of the fact that we deem our MEP30 stack to be the most advanced PEM technology on the market today.

Let me pick just three of various features which make our technology superior. First, our stack is operating at by far the highest current density in the market, which reduces material use, size and ultimately cost substantially. ITM has already exceeded the EU's 2030 target of 2.5 A/cm2 in 2019. Second, our technology has market-leading conversion efficiency at levelised current densities to any competitor, which reduces operational cost for the end customer. This is because there is an inverse relationship between current density and conversion efficiency. Third, our technology has the lowest reported precious metal loading, which reduces cost and relieves potential future supply chain constraints. Over the last 10 years, ITM have already been able to reduce precious metal loading by 80%, and we are continuing to reduce it even further. Since 2019, we have been meeting the EU's 2030 target of 0.4mg/W.

Today, once a product design is signed off, there will be no ongoing iterations to that design and the product will be manufactured to the exact design specifications, with standardised engineering processes and will be delivered to our customers as per contractual agreements.

Research and development will continue to play a crucial role in ITM's future but any new product generation will only be deployed once it has gone through strict design, engineering, assembly, testing and validation processes.

Capital discipline and cost reduction

One of the first actions I took after assuming office in December 2022 was to tighten control over ITM's capital spend. Decisions on the use of our shareholders' capital have to align with our strategy and be scrutinised for appropriateness and effectiveness.

The headcount reduction that we announced in January 2023 was successfully completed before year end, with the outcome greater than the 25% FTE reduction we had originally planned. This allowed us to reinvest the incremental cost savings back into the business and to selectively rehire for qualification and experience. We were able to continue business operations without disruption whilst also providing adequate care and support for all employees placed at risk during the restructure process.

One core element of our 12-month priorities plan is a very detailed list of process, control and tool improvements spanning the entire organisation, to professionalise our operations and make us a highly focused delivery company. By implementing these improvements, we will avoid inventory and project losses as experienced during FY23. Among various improvements, this includes the following which we have already achieved.

We have effectively professionalised our engineering capabilities and processes. Following a structured design Failure Mode and Effects Analysis (FMEA), the engineering is now completed and frozen. Changes are properly controlled and only released in well-managed versions for procurement and manufacturing, and only after robust validation. Our strengthened compliance and validation team plays an important role in challenging and accompanying this process.

The right selection of reliable and high-quality suppliers, and close integration with them, are important enablers to scale our operations. Previously, at times, procured components and parts were not of sufficient quality. We have therefore been tightening our purchasing specifications, have strengthened our standard terms and conditions, and are improving supplier oversight, quality assurance and control.

We have also made good progress on the way we manufacture our products following the design FMEA, our progress on automation, which I elaborate more on later, and driven by an unambiguous "quality over quantity" culture. These improvements have already led to significantly higher pass rates in factory testing which in turn lowers retesting costs, supports the debottlenecking of our test facilities, and causes fewer interruptions to serial manufacturing due to avoided stack re-assembly. Also, consequentially, our production and project delivery schedules become more predictable.

Sales and project execution governance has been strengthened around the focus on standard products as opposed to customised solutions, which was one of the reasons for previous cost and schedule underestimation and resulting project overruns. We have reviewed and concluded on acceptable contract terms, liability and warranty profiles. Furthermore, we are working on improving our cost estimation, scheduling and risk management processes and capabilities. We are also continuing to enhance our competencies by hiring senior industry professionals in areas critical for project delivery.

By having signed the Heads of Terms for the sale of Motive, we aim to complete the transaction still within this calendar year. This will free up £28m of pre-committed capital investment to be re-purposed to our core business.

Debottlenecking

We have made good progress in this area in a short space of time. In March, we announced the expansion of our testing capacity at Bessemer Park, initially by 50% from 5.0 to 7.5 megavolt-amperes (MVA) which is already available. This will be followed by a further fourfold increase to 30 MVA by the end of 2024.

In April, we announced the decision to expand our facilities at Bessemer Park in Sheffield, to make space for R&D and product validation including science labs and first-of-a-kind product testing facilities. This will also allow us to optimise our factory layout for stack fabrication from a layout which evolved over time to one that is geared up for automation and serial production. It also provides increased fabrication space for higher stack volumes, allowing ITM to grow output in line with commercial projects. We plan to take over our new facilities in Q4 2023 for interior fit-out.

We also announced a significant expansion in Germany. ITM Power Germany will officially open its doors in Linden, north of Frankfurt, in October 2023. This expansion further strengthens our position as a leading manufacturer of large-scale electrolysers for projects in Germany and wider Europe. In its initial fit-out, our facilities will have sizable office space, and a warehouse with special equipment for storing our stacks in lightweight skids ready for quick deployment as aftersales spares. This allows us to minimise response time to customers, in turn maximising value from the use of our products. It will also house facilities for repair and maintenance, as well as for training of customers and partners. This expansion will not only support responsive aftersales in the heart of the EU as our core market today, but will also be home for various business functions that are enablers for ITM's accelerated growth, including our global business development function, our industrial Internet of Things (IoT) team, various engineering disciplines, aftersales technicians, field engineers, procurement and other functions. As we are scaling our operations, this is a major step in gearing up for an increasing degree of local content creation in the EU.

Manufacturing automation plays an important role in reducing human error, improving precision, optimising build quality and consistency, reducing manufacturing costs, accelerating output and reducing delivery lead times. We have made good progress against our automation roadmap and are incrementally introducing automation in a controlled way, after new equipment and new processes have been validated.

Over recent months we have automated or semi-automated a number of manufacturing processes. Among them a customised press, capable of operation at 20 tonnes of pressure, with micron-level accuracy. This enables the thickness of critical components to be measured under compression and for precision build. Advanced laser scanning now allows us to inspect every electrode structure for surface conditions at micron level. We developed a resistance welding machine in-house to assemble stack components with the highest precision. Our new automated catalyst ink mixing produces consistent pastes for our catalyst coated membranes, increasing both quality and volume. Another improvement is our new use of fully integrated guided stack assembly which supports our technicians to avoid rework and increase productivity. This advanced sensor, laser-scanning projection and camera system provides build oversight and documents each step so that we can quickly identify, diagnose and remediate potential build errors. Our automation roadmap foresees many further improvements, which will continue to drive down build time and improve build quality and consistency. As we continue to implement these advancements, we are entering a new era of manufacturing at ITM.

Outlook

We are well on track to deliver our 12-month priorities plan which will lay strong foundations for ITM's continued growth. The green hydrogen market is still in its early stage, but evolving rapidly.

With vastly increased confidence with regards to our capability to deliver products at volume, we are now taking a much more active approach to sales. For this purpose, we are currently building up a new global business development function in our new Linden facilities of ITM Power Germany right in the heart of our core market, the EU.

As ITM is increasingly deploying stacks into the field in commercial projects today, a rapidly growing amount of real-world performance data will enable us to drive advancements in the areas of core technology and product improvements, development of new business models around remote monitoring/operations and predictive maintenance, as well as commercial certainty around tightened system performance guarantees. These activities will be led by our Data and Industrial IoT team which we are now building up.

Whilst we will retain our strong presence in Sheffield, ITM will expand towards an increasingly global footprint, thereby tapping into important growth markets and unlocking access to new talent pools.

The big demand for green hydrogen lies yet ahead, and ITM will be ready!

Dennis Schulz

Chief Executive Officer

CHIEF FINANCIAL OFFICER'S REVIEW

The financial outcome in FY23 was not as we had originally expected. Following the arrival of Dennis Schulz as our new CEO, a detailed review of the business was undertaken which resulted in the announcement of our 12-month priorities plan in January. One of the three components of the plan was the focus around our cost and capital discipline and we announced our intention to stop the excessive financial outflows through a stringent short-term cost reduction programme which addressed the key costs, together with a more rigorous approach to capital investment.

The first step was the headcount reduction which was completed before the end of the financial year. We have also undertaken a detailed review of other cost areas which culminated in provisions being taken for inventory and contract losses, reflecting both actual costs to incur and uncertainty in project execution. In addition, we undertook a detailed review of our warranty provision policy on first-of-a-kind (FOAK) technology deployed in the field.

Today, we are in a much better place. Our overheads have been right-sized for the business needs of today, we have greater clarity regarding our costs, and our balance sheet remains strong. However, there remains more to do in the months ahead.

During the year we introduced a new Enterprise Resource Planning (ERP) system, which includes the ongoing adoption of Microsoft Dynamics into our financial processes replacing a number of legacy systems. Having begun to lay the foundations for growth, we will continue to advance our competencies and capabilities across the Company and ensure that controls across all areas of the business continue to be reviewed and improved. This in turn will further enhance our cost management and capital disciplines.

Key financials

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

1 Adjusted EBITDA in a non-statutory measure. The calculation method is shown in Note 4.

Non-financial key performance indicators (KPIs)

We also use certain non-financial performance indicators to consider our performance over time. During the year, MW in WIP increased to 285MW (FY22: 75MW). Revenue was recognised against 5MW of deliveries (FY22: 11MW). The Board also regularly reviews other non-financial performance criteria including production throughput, testing and validation performance and labour utilisation. As the Group matures to a volume manufacturer, it is likely that we will refresh our non-financial KPIs to reflect the evolved business.

Financial performance

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

Revenue

Revenue for the period was £5.2m (FY22: £5.6m). This consists of a partially delivered cube project, a Plug & Play project which was accelerated ahead of guidance, as well as maintenance and consultancy revenue. 

Gross margin

The gross loss was £79.1m (FY22: £23.5m) reflecting increased losses on inventory and customer contracts, and an assessment of warranty commitments.

Costs recognised in the period relating to inventory were £22.6m, constituting a £7.5m write-off, and a provision movement of £15.1m. The losses originate from continued iterations of product designs during manufacturing, together with some manufactured products being considered obsolete.

Contract loss provisions relate to a number of factors including acceleration measures for delayed projects, additional on-site engineering works, increased energy and labour costs due to under-estimated stack testing times and future costings updated for inflation. Net contract loss provisions increased by £30.1m, with £44.8m created and £14.7m utilised in the period. The total contract loss provision at the period end stood at £42.6m.

The warranty provision increased by a net £0.9m in the period with £3.2m created during the year, offset by the utilisation of £2.3m. The balance at period end was £3.9m. This includes all projects delivered at period end but excludes those not yet delivered. The warranty costs of projects not yet delivered are presented as contract loss provision.

Operating costs

Operating costs rose by 20% to £26.2m (FY22: £21.8m). Within this, staff and employment costs rose from £4.3m to £11.4m, reflecting an increase in use of contractor resources and a reduction in recovery of labour costs from inventory. The headcount reduction which was announced in January 2023 was completed by the end of the period, and the benefit of this will be reflected in the FY24 accounts.

Consultancy and consumable costs fell by 54% to £5.1m (FY22: £11.2m), whilst depreciation and amortisation was relatively stable at £4.0m (FY22: £3.2m).

The impairment charge of £4.5m (FY22: £nil) relates to the write off of discontinued product development (£3.1m) and tangible assets in relation to discontinued site expansion plans (£1.4m) where activities ceased as part of the 12-month priorities plan.

Government grants which constitute claims against individual projects or research and development (R&D) claims totalled £1.6m (FY22: £0.6m), with £1.4m receivable in relation to R&D tax reclaims (FY22: £0.3m).

Adjusted EBITDA1

The Company posted an adjusted EBITDA loss of £94.2m (FY22: £39.8m) for the period. Adjusted EBITDA is a non-statutory measure and is detailed in Note 4. The loss before tax was £101.2m (FY22: £46.7m) and the basic and diluted loss per share was 16.5p (FY22: 8.1p).

1.Adjusted EBITDA is a primary measure used across the business to provide a consistent measure of trading performance. The adjustment to EBITDA removes certain non-cash items, such as share-based payments, to provide a key metric to the users of the financial statements as it represents a useful milestone that is reflective of the performance of the business resulting from movements in revenue, gross margin and the cash costs of the business. We have set out below how we calculate adjusted EBITDA (see also Note 4 for more information).

Capital expenditure

Capital expenditure totalled £15.1m in the period (FY22: £11.3m), with £8.6m invested in capital projects (FY22: £4.2m), namely Bessemer Park improvements and machinery, and £6.5m (FY22: £6.9m) in intangible assets primarily in respect of continued product development.

Working capital

The working capital outflow during the year was £8.9m (FY22: £6.9m outflow), with inventories increasing by £26.6m, offset by both a reduction in receivables of £5.9m and an increase in payables of £11.8m.

Cash

Net cash at the year end was £283m (FY22: £366m) benefitting later in the year from the rigorous approach to costs and capital disciplines which was announced at the time of our interim results in January.

Financial position: positioned for the future

Current assets decreased to £362.9m (FY22: £423.6m) principally reflecting a reduction in year-end net cash of £83.3m with year-end cash of £282.6m (FY22: £365.9m), partly offset by an increase in inventories to £58.8m (FY22: £32.2m) as the Group stocked up on raw materials to deliver its order pipeline and saw work-in-progress increase ahead of the delivery of the Leuna, Yara and other projects.

Trade and other receivables were £19.7m (FY22: £25.5m) reflecting a £4.1m decrease in prepayments, primarily in relation to prepayments for inventory on the balance sheet. Trade and other payables increased to £46.1m (FY22: £34.3m), driven by an increase of £14.1m in deferred sales income principally in relation to the timings of payments from customers on projects to be delivered.

Fixed assets increased to £39.5m (FY22: £34.5m) reflecting a £4.9m rise in property, plant and equipment and £2.4m of additional intangible assets. Investments in associates and joint ventures reduced to £0.4m (FY22: £1.7m), reflecting the booking of losses in these associates and joint ventures against their holding value.

Events after the balance sheet date

At the time of our interim results update, we stated that we were exploring options for the future of our joint venture Motive Fuels Ltd. We have now signed Heads of Terms for the sale of the company. The 50/50 JV between ITM and Vitol was established in March 2022 to develop and roll out hydrogen refuelling stations in the UK. The vision of the JV partners was one of building a significant UK refuelling business, with £30m committed by each party as seed funding. However, one of the three priorities of our 12-month plan is increased cost and capital discipline.

The planned transaction will allow ITM to redirect £28m of pre-committed cash to our core business, and to focus on becoming a volume manufacturer of state-of-the-art electrolysers. Motive Fuels Ltd, via ITM, was the recipient of grant funding to support the rollout of refuelling stations in the UK. As part of the transaction, a contingent liability may materialise for ITM in the future against the performance obligations in the grants.

Outlook and financial guidance for FY24

We start the new financial year in a strong financial position and, whilst our near-term focus is on the completion of our 12-month plan, we expect good sales momentum, with investment in our people, our processes and our assets. The guidance for FY24 is:

Revenue in the range of £10m to £18m

Revenue will be largely impacted by sales of Plug & Play containers which have a shortened sales and deployment timeline compared to larger plant projects. Under our revenue recognition policy, there is a dependency on site readiness for our larger projects as these are recognised on site acceptance testing (SAT).

Adjusted EBITDA loss of £45m to £55m

We expect to realise the benefits of improved testing times and improved first time pass through rates during factory acceptance testing. Close and prudent management of our in-flight projects and control of inventory will be required to ensure that the unacceptable project and inventory losses experienced during FY23 are not repeated. Our route to reducing losses further will be built on profitable sales and volume growth.

Net cash at year end between £175m and £200m

Continued investment in the capability of the organisation will be needed as we transition into a volume manufacturer. Investments of £24-30m will be made to expand our facilities in Sheffield as well as the previously announced upgrade to our power supply to support increased testing capacity. 

We will also invest into the development of our technology, supporting our automation roadmap which will drive efficiencies into our manufacturing processes.

Andy Allen

Chief Financial Officer

CONSOLIDATED INCOME STATEMENT AND OTHER COMPREHENSIVE INCOME

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

In the prior year, Operating costs previously presented as Research and development, Production and engineering, Sales and marketing, Administration expenses and Expected credit loss have been aggregated into Administrative expenses to present costs by function.

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

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 2 Bessemer Park, Sheffield, South Yorkshire S9 1DZ.

The summary accounts set out above do not constitute statutory accounts as defined by Section 434 of the UK Companies Act 2006. The summarised consolidated balance sheet at 30 April 2023, 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 2023 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 2022 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 2022 have been delivered to the Registrar of Companies. The 30 April 2023 accounts were approved by the directors on 16 August 2023 but have not yet been delivered to the Registrar of Companies.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of accounting

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

They have been prepared on the historical cost basis except for the remeasurement of certain financial instruments to fair value. The principal accounting policies adopted are the same as those set out in Note 3 to the consolidated financial statements except as noted below.

Going Concern

The Directors have prepared a cash flow forecast for the period from the balance sheet date until 31 August 2024. This forecast indicates that the Group would expect to remain cash positive without the requirement for further fundraising based on delivering the existing pipeline.

By the end of the period analysed, the Group is forecast to hold significant cash reserves. This should give the business sufficient funds to trade for the going concern period if the business continues according to its medium-term business plan.

The business continues in a cash outflow position, using funding generated from previous fundraises. As such, this cash flow forecast was stress-tested, both for a worst-case scenario of no receipts and inflationary pressures on utilities and purchases. In all the scenarios tested, the business would remain cash positive for the 12 months from the date of approval of these financial statements.

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

3. Revenue, OPERATING SEGMENTS AND INCOME FROM GOVERNMENT GRANTS

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

At 30 April 2023, the aggregate amount of the transaction price allocated to remaining performance obligations of continuing build contracts was £87.7m (2022: £42.0m). The Group expects to recognise 32% of this within one year, with the remaining 68% expected the following year.

Segment information

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

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

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

The Other category contained a large consultancy project in the prior year, involving design and FEED studies for larger scale product manufacture. This consultancy embarked on a new phase in the current year.

Geographical analysis

The United Kingdom is the Group's country of domicile but the Group also has subsidiary companies in the United States, Germany and Australia. All non-current tangible assets were domiciled in the United Kingdom (NBV: £20.5m) or Germany (NBV: £0.02m). All intangible assets were domiciled in the United Kingdom. Revenues have been generated as follows:

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

Except where extended warranties have been purchased and treated as separate performance obligations for the purpose of IFRS 15 Revenue from Contracts with Customers, warranty commitments are disclosed in Note 6.

4. CALCULATION OF ADJUSTED EBITDA

In reporting EBITDA, Management uses the metric of adjusted EBITDA, removing the effect of non-repeating costs that are not directly linked to the trading performance of the business in the year under review:

The exceptional costs of restructure refer to redundancy costs that largely sit within the staff costs in administrative expenses. Management removed these in the adjusted EBITDA calculation due to their one-off nature that would otherwise distort the true operational figures.

5. LOSS PER SHARE

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

The loss per ordinary share and diluted loss per share are equal because share options are only included in the calculation of diluted earnings per share if their issue would decrease the net profit per share. The number of potentially dilutive shares not included in the calculation above due to being anti-dilutive in the years presented was 5,999,019 (2022: 45,064,658).

6. provisions

The leasehold property provision represents management's best estimate for the dilapidations work that may be required to return our leased buildings to the landlords at the end of the lease term. In a prior year we recognised a dilapidations provision for the present value of the cost of works quoted by our Employer's Agent for stripping Bessemer Park back to the original condition at handover from the landlords. The discounting will continue to amortise over the remaining 12 years of the lease.

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

The provision for contract losses is created when it becomes known that a commercial contract has become onerous. Project Managers provide rolling spend forecasts, updating these as quotes are obtained. They also maintain risk registers that highlight the impact of delays and circumstances on the potential cost of a project. The provision is therefore based on best estimates and information known at the time to ensure the expected losses are recognised immediately through profit and loss. The effects of discounting on non-current balances were not deemed to be material. The increase on the provision in the current year is due to a number of factors including changes of scope to projects, additional on-site engineering works, increased energy and labour costs due to extended stack testing times and updating costs for the effects of inflation since the original quote to the customer. The increase in the year is allocated against 13 projects. This provision will be used to offset the costs of the project as it reaches completion in future periods. Contract loss provisions are recognised as greater than one year based on the expected completion of the contract. Work in progress is only assigned to a contract at the point of delivery as products are generally fungible until that point.

Provision is also made at the point when project forecasts suggest that the contractual clauses for liquidated damages might be triggered. The other provisions category relates to potential liquidated damages for overruns on contracts with customers. It also includes amounts payable to contracted parties for potential non-performance on contracts.

There is a provision for Employer's NIC due on share options as they exercise.

7. CALLED UP SHARE CAPITAL AND RESERVES

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

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

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

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

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

8. notes to the cash flow statement

9 . POST BALANCE SHEET EVENTS

At the time of our interim results update, we stated that we were exploring options for the future of our joint venture Motive Fuels Ltd. We have now signed Heads of Terms for the sale of the company. The 50/50 JV between ITM and Vitol was established in March 2022 to develop and roll out hydrogen refuelling stations in the UK. The vision of the JV partners was one of building a significant UK refuelling business, with £30m committed by each party as seed funding. However, one of the three priorities of our 12-month plan is increased cost and capital discipline. The planned transaction will allow ITM to redirect £28m of pre-committed cash to our core business, and to focus on becoming a volume manufacturer of state-of-the-art electrolysers. Motive Fuels Ltd, via ITM, was the recipient of grant funding to support the rollout of refuelling stations in the UK. As part of the transaction, a contingent liability may materialise for ITM in the future against the performance obligations in the grants.