Good morning and welcome to the ITM Power plc Interim Results Analyst Meeting. Today's session will run for circa 30 minutes, and throughout this recorded presentation you'll be in listen only mode. Questions are encouraged and can be submitted anytime via the Q&A tab situated on the right-hand corner of your screen. Simply click Q&A, scroll to the bottom, type your question and press Send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where appropriate to do so. I'd also like to remind you that the recording of the meeting will be available on demand circa two hours post the close of the meeting. You'll also be notified when responses to the questions are published. These will all be available for your review on the Investor Meet Company platform.
I'd now like to hand you over to Dr. Graham Cooley, CEO, and Andy Allen, CFO. Good morning to you.
Good morning, everybody, and thank you very much for coming to this meeting. This will be a relatively short presentation. Looking forward to your questions at the end. Actually, it's a short presentation because it's only six weeks since we gave the trading update, which was in December. These are the interim results for the six months to the end of October 2021. And we were delighted to issue these results this morning, particularly as it includes a new 24 MW electrolyser sale, which we were very pleased to be able to announce. I'm gonna start, then I'm gonna hand over to Andy Allen, our Chief Financial Officer.
So, just very quickly, for completeness, as I'm sure you all know, ITM is a PEM electrolyzer manufacturer. We're scaling the manufacture of the electrolyzer modules, and our partner, Linde Engineering, is scaling the deployment. We have a roadmap to get to 5 GW per annum by the end of 2024. We are looking at a new, more highly automated factory in the U.K., and I'm gonna tell you a little bit more about that as we go on with the presentation. We raised GBP 250 million in a fundraise in October to be able to execute on that plan, and that's what we're doing. This period has been all about delivery and execution. The numbers, first of all, the year-on-year numbers based on megawatts.
You can see that our work in progress year on year is up 300%. The contract's backlog up 200%. The tender pipeline up 166%. A strong and positive growth at all levels of our backlog and our tendering. Just to put that graphically then, two of our metrics are largely unchanged, which is the overall backlog, which still stands at 499 MW, and the tender pipeline, which hasn't moved very much, basically because of the lack of activity over that six weeks in the run up and the run out of the Christmas and New Year period, as you can imagine. What has moved in a very strong trend is the work in progress.
We were delighted to announce, as I said, a new 24 MW electrolyzer project in the ammonia industry, which continues that very strong growth in the work in progress. In terms of that electrolyzer, it's actually in the ammonia market. The ammonia market, as I'm sure you all understand, is one of the largest markets for industrial hydrogen. Industrial hydrogen is broadly 70-75 million tons per annum. That's all grey hydrogen made using natural gas, the entry market for green hydrogen in replacing that grey hydrogen. Around half of that is in the production of ammonia.
We now have a very significant reference plant with a new partner who is as yet undisclosed in the ammonia industry, as well as a very significant reference plant in the refining industry. An important new project for us with an important industrial partner and a very significant reference plant for ITM and for Linde. In terms of driving technology and products forward, you'll note that the 24 MW size is a replica of Leuna. This drives plant standardization. It avoids additional non-recurring engineering costs. It drives standardization in the balance of plant. We don't need standardization at the level of the modules because of course they are standard 2 MW modules already. It reduces costs in the balance of plant by using replication.
It also helps us bid more rapidly. We can bid 24 MW units now because they're standard and the terms would be standard. Of course, for Linde Engineering, it achieves the first major reference plant in ammonia, a green hydrogen reference plant in ammonia. In terms of engineering and international compliance in the ammonia industry, again, an important move forward. I've shown you this diagram before, but you know, the levelized cost of hydrogen relates to three things. Primarily, it relates to production costs. That means the cost of the renewable power and also the performance of the electrolyzer.
The full system price, and of course, this new project and the replication drives down the full system price and gives us a firm price within the ammonia market. We're also working very hard in the area of operational excellence. Looking at driving down the levelized cost of hydrogen for all of our customers, it is very, very important. The macro market has changed pretty significantly over the last year. A number of things have happened in the macro market which has continued to strengthen the green hydrogen proposition. The first is price. You will have seen the volatility and the increased price in the natural gas industry. Many parts of the world now, green hydrogen has parity with blue hydrogen, certainly, but actually grey hydrogen as well.
This is an incredibly important dynamic, particularly across Europe. Price volatility is minimal with green hydrogen if you link an electrolyzer to a PPA. In fact, you get a solid unchanging price for the duration of the power purchase agreement, which means that green hydrogen has very low price volatility. You're also making your own hydrogen from your own renewable power, so it improves fuel security and also national balance of payments because you're not importing energy gases. Of course, there's a lot of geopolitics at the moment driving the current price increases. One other important area is carbon pricing. Carbon prices, of course, have been going up. We're at somewhere between EUR 80 and EUR 100 per ton of CO2.
With green hydrogen, not only are we at parity with other forms of hydrogen derived from fossil fuels, we also have a lower price volatility, better energy security, and also, of course, it's net zero, and so, you're avoiding carbon pricing. Okay. Perhaps now I can hand over to Andy Allen, our Chief Financial Officer, to talk you through some of the results. Andy?
Thanks, Graham. Morning, all. I will take you through the interim results, some guidance for the full year, and show you a little bit about the next U.K. factory. In terms of interim results, this slide is very similar to our trading update in December. Total revenue of GBP 4.2 million versus GBP 0.2 million for the same period the year before. We had an adjusted EBITDA loss of just under GBP 13 million, which is an increased loss compared to GBP 10.4 million the year before. Some of that loss is to do with the fact that we are ramping up. We've got Bessemer Park up and running, and we're ready to address demand as it comes through.
We've really got the capacity in place now. In terms of the balance sheet, the cash balance at the end of the period was just shy of GBP 167 million. That excludes the money raised from the fundraise, which hit our accounts in November. Today's cash balance is circa GBP 390 million. Cash burn for the first half of the year, about GBP 11.8 million, and I'll show you how that might change in the second half of the year as well. In terms of the guidance, completed products production volume of between 30-50 MW, and I can say that we're steering towards the middle of that range.
In terms of the core stack modules, which can go into a number of different products, we will still be building in excess of 55 MW. In terms of revenue, we've always said that the revenue is heavily weighted to the second half of the year, and now it's looking at Q4 2022. Revenue recognition for our standard products is based on a point in time, and that point in time is when we've completed all of our obligations against a contract, which, if it's for a standard product, at the factory gate includes factory testing. The project that is close to year-end is the Leuna standard product, which is 24 MW, which we're due to conclude in late April.
In terms of overheads and cash burn, you've seen what it looks like for the first half of the year. With the fundraise, we are actually accelerating some of our R&D spend and increasing our overheads slightly in the second half of the year. The same for cash burn. There will be other two more dynamics for cash burn. The first one is that we are gonna be building to stock, and secondly, that we will potentially be paying for the land for the second U.K. Gigafactory in this period. That land is called Aviation Park. So what you see here is the first designs for that factory. It's 265,000 sq ft, so it's twice the size of Bessemer Park .
We have a 1.5 GW capacity, and we'll be opening in Q4 2023. More details to follow. We'll be continuing to update and we're expecting spades in the ground in the second half of this calendar year. Graham, over to you.
Sorry, let me take myself off mute. Great. Thanks very much, Andy, for that. Just a quick summary from me then. Delighted to be able to announce this morning a very important project for us, which is the 24 MW electrolyzer in the ammonia industry. We have a very strong balance sheet. We have a strong market and policy momentum in our industry. I think it's an incredible time to be an electrolyzer manufacturer with this world-leading position, both in terms of technology, in terms of manufacturing, partnerships, and reference plants. The outlook then for the year, I think you can expect spades in the ground for the second U.K. gigafactory of 1.5 GW in size.
You'll see pipeline developments and developments in the sales, and you'll also see some continued strategic recruitment as we continue to bring into ITM Power some great skills and experience across British industry. Thank you very much for your time, and looking forward to your questions.
Thank you very much indeed, Dr. Cooley. Andy, thank you for that. Ladies and gentlemen, do please continue to submit your questions. Just click on that Q&A tab, scroll to the bottom, type in your question, and press send. Just while the team take a few moments to review those questions submitted today, I'd like to remind you the recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard on your Investor Meet Company platform. You'll be notified once they're ready for your review. I'd now like to hand you over to Simon Bourne to pose questions to the ITM Power team where appropriate to do so. Simon, good morning.
Morning, Paul. First question's from Arthur at Morgan Stanley. What share of the 33-50 MW 2022 product objective is already secured, i.e., what percentage of that is confirmed?
Perhaps I can take that one, Graham. Under contract, as of this morning, we've got 86 MW. That's the first line in the table that appears at the top of our trading updates and results announcements. You can see that we've got more than we are producing in this financial year, because this financial year's already been about ramp up. And we've started to fill the hopper for the next year as well.
Cool. Next one's from Adam at Longspur. The balance sheet shows a doubling in inventory since April. Obviously, that's business as usual, but is there an element of deliberate inventory build to deal with supply chain issues?
I think the answer is in the question. Yes, it is. We're building stacks to inventory, and you can see that we're building more stacks than we're building finished product, as we start to unlock that, but also be ready to address the demand coming. It's not necessarily just about supply chain issues. Graham, do you have anything else to add?
No, that's perfect, Andy. Thanks.
Okay. A couple of, well, actually three questions from Lacey at Permian. Let's start with manufacturing capacity is being ramped up quickly, but in the statement, there was a suggestion that there could be a potential lag in testing capability. Is that fair to assume?
They're trying to unpick our numbers now. I mean, I think in the past, we have provided a very significant amount of information, and we have to be very cautious now because everybody's watching ITM Power in the industry and trying to interpret what we're doing based on our numbers. I wouldn't want to unpack that number anymore.
Okay. Finally, from Lacey. What are you hoping for or expecting from the U.K. government's response, following the hydrogen consultation in terms of volume and price support for green hydrogen?
Yeah. I think there will be a separate CFD for green hydrogen. There's certainly the GBP 240 million allocated for the next grant scheme, which is a capital grant for incentivizing some large builds of electrolyser equipment in the U.K . That's not the key thing. Actually, the key thing is supporting with an RTFO in transport and also a CFD for industrial hydrogen. You know, Lacey, what we are seeing as well is all of industry acknowledging that the price of grey hydrogen going forward may be far higher than it was before.
Quick clarification point from Gurwinder. On the 24 MW ammonia related project announced today, is that separate from the delivery target of 33-50 MW?
It is separate, yeah.
Yeah, just to add. The 24 MW plant announced today is for delivery in Q4 calendar year 2022, rather than financial year 2022, which I think is perhaps where the confusion may have been.
Okay. Question from
Yeah.
from Will.
Mm-hmm.
Please could you tell us something about input costs? Clearly increasing costs are being flagged by your peer group. Is this something we can expect later in 2022 or 2023?
Yeah, you will know more about what our peer group is saying than we will, of course, because you interact with them. I think we're not changing our guidance on any of those things. I mean, we feel very, very confident in the supply market because of the amount of work that we've done in the supply market, in terms of reducing the materials we use, in terms of increasing the effectiveness of what we do. As I said before, we believe we derive very significant competitive advantage from our prior work in that area.
A question from Ed at Citi. What probability would you put on full revenue recognition for Leuna not happening in FY 2022?
Yeah. Okay. I mean, we haven't changed our guidance. We're confident about our guidance and that's why we've given it.
Okay. Follow up from Ed. What still needs to be done before the 100 MW electrolyzer unit, Wesseling planned by Shell is officially confirmed?
Yeah, as we said in the announcement, we're going through the pre-engineering. That pre-engineering is required by any refinery before full investment decision. This is absolutely standard in a process like this. You know, we have a great relationship with Linde Engineering and with Shell. This is absolutely standard form in the petrochemicals industry. You do the pre-engineering first.
Thanks. Question from Chris. Could you please give some color on why the value of the backlog and pipeline has reduced by 15% since December? The megawatts in the pipeline has only gone down by 2%.
Yeah. That's all about product mix and about cost reduction. You know, we're driving forward cost reduction to increase volume. Product mix is all about moving from a mix that included smaller units to a mix that now includes more and more standard modules without the balance of plant you get with smaller units. In a nutshell, it's about cost reduction, which we're driving forward very hard because that's the way you become a world leader. It's because of product mix, because the market is buying larger and larger systems.
Question from Patrick. Can you give an update on the 5 MW stack development and when do you realistically expect to see regular manufacturing of 5 MW stacks?
The 5 MW stack, if just so for everyone's knowledge, I mean, I'll hand over to Andy for the more detailed timeline. In terms of, for everyone listening, the 5 MW stack is sometimes referred to, and it is in the announcement as the Gigastack. We also refer to it internally as the GEP. That 5 MW unit is one that we're already bidding into projects. In fact, we will be driving forward the assembly of that in the new factory. Andy, do you wanna run through
No, I think that's right. Timings for regular semi-automated production will align with the next U.K. factory, which is due to conclude in Q4 2023. We could if pushed do limited production runs in Bessemer Park , but actually it makes things a lot cleaner to have a MegaStack production facility and a Gigastack production facility. That's the current plan.
Okay. Andy, I think another one for you, from Alex. Can you provide some additional commentary on the decrease in the average selling price down 17% since December? Could you highlight the drivers in this change? Is it simply the change in product mix and reduction in costs? Given the downward trajectory in costs making you more competitive, are you still confident of maintaining margins?
I just to say, I think I just answered that question. Anyway, Andy, sorry, I didn't mean to interrupt you.
No, that's fine. I think the significant change in that short period is product mix. As you've seen throughout 2021, we started to quote that Gigastack product, that we've just been talking about, which again, changes the average price, lower.
Okay. Question from James: Do you have any concerns around raw material costs, in particular PGMs?
Well, as I said earlier, our view is that any volatility in the supply market actually is a competitive advantage for ITM Power. As you know, many of the same components are used by other PEM electrolyzer manufacturers and of course, alkaline electrolyzer manufacturers. We've done a very significant amount of work in that area. I get concerns. I think it's a competitive advantage, as I said.
Okay. A couple of questions on what you're seeing in the market, one from Annabel at Stifel and another one from Arthur at Morgan Stanley. Given the importance of storage and energy security, are you seeing any straws in the wind for hydrogen storage projects in the U.K. and globally? On a similar tack from Arthur, have you had any clients coming to you for green hydrogen supply, which has been triggered as a result of the recent increases in gas prices impacting grey hydrogen economics?
Yeah. That's about four questions there, and I think the answer yes can be used for all of them, actually. Let me go to the storage one first of all. Intense interest in Germany about salt cavern storage for hydrogen, and also putting hydrogen into the gas grid, and also the use of hydrogen in industry and replacing grey quickly. So all of those things, including a very strong interest in what you might refer to as a new market which is the market for green hydrogen in steel and making sponge using green hydrogen and then melting in arc furnaces. So you're using both net zero molecules and net zero electrons.
I think the salt cavern storage dynamic is strong in Germany because of course they have the geology to do that. We have that geology in the U.K. as well. You know, if you look around the Runcorn area and slightly north of Runcorn, you'll know that the salt caverns there owned by Storengy, which is part of ENGIE group . Yes, we are seeing a lot of interest in storage. In terms of customers and their renewed interest in green hydrogen because of the cost of natural gas, a very strong dynamic, yes. I mean, a dynamic that I tried to bring out in one of my slides.
I mean, as an example, CF Fertilizers in the U.K. that run the only two ammonia plants in the U.K., actually closed down one of their sites. And they ended up getting U.K. government support for those sites, because of the criticality of using them. We've seen that dynamic now. It started our first announcement of that dynamic resulted in a front-page article in The Times. A lot of activity, yes.
I think we've only got time for one more question. We've just cruised through the half an hour time limit. This is a question from Gurwinder. Regarding the contract backlog that's under negotiation, what percentage of that is from larger projects, either greater than 20 MW or greater than 40 MW?
Yeah. I mean, the detail of that one is probably for Andy. Look, if you go back to December, we had a significant increase in the backlog, and that was a 200 MW increase in the backlog. That's large scale projects. The dynamic in the market, and I think we unpacked this in the trading update announcement and the announcement before that, the dynamic in the market is for larger scale projects. Certainly, the tender pipeline and then those projects coming through into the backlog associated with 2 MW module get ganged together in EPCs up to 80 MW in size and then those above 80 MW. A large percentage. I don't know, Andy, if you've got an exact number.
No, I think that covers it, Graham. I would just like to stress that obviously this plays well to the strategy we've got, which is to build standard modularized product to scale quickly.
Yeah. I mean, what we can't do in the market right now is give more and more details about our backlog, because if we do that, we are giving away very sensitive commercial information. You're gonna see as we go forward that we're gonna have to protect the commerciality of the company.
Okay. Thanks, Graham. And I think that's it for questions now. I'm conscious that there are a number of questions we haven't got to, but we will get to them post this presentation. Paul, if you could,
Thank you, Simon. Simon, thank you very much indeed for that. Just to remind all the attendees, of course, a recording will be available for two hours post the end of the presentation this morning, along with the Q&A responses, which you'll get notified of as well. I'd like to thank Simon, Dr. Cooley, Andy for updating analysts today. On behalf of the management team of ITM Power plc, we'd like to thank you for attending today's presentation. Thank you and good morning to you all.
Bye. Thank you.
Thanks all.