Morning, ladies and gentlemen, welcome to the ITM Power PLC Preliminary Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Please just simply type in your questions at any time and press send. Given the significant attendance on today's call, the company will not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform, where it's appropriate to do so. Before we begin, I would like to submit the following poll. If you could give that your kind attention, I'm sure the company would be most grateful.
I'd now like to hand over to the CEO, Dennis Schulz. Good morning.
Good morning. Thank you, and welcome everyone to our market update.
Good morning.
Morning.
We are pleased to share with you the vast progress we've been making over the last six months towards rapid deployment and volume manufacturing, as the headline should suggest, we have been gaining traction. We'll start with a quick market update. I will then hand over to Andy Allen to present our financial year results FY23 and guidance for FY24. Simon Bourne and I will then report on our 12-month plan implementation before we come to the most exciting part, which is our new product release, we will then close our presentation with the outlook. The market has broadly developed as predicted in our January update. Climate decarbonization and energy independence imperatives have continued to fuel the projected hydrogen demand. The now observed synchronized attempt to build up a worldwide hydrogen economy is underway at quite ambitious speed.
I think more ambitious and more speedy than we have seen any other industry ever growing in the world. This is opening vast demand opportunities for companies like ITM, though we have to say that the electrolyzer market itself is still quite immature. There are only very few technologies credited for commercial deployment today, and many companies have not yet been tested in the market. ITM now has the industry experience and capabilities to identify and execute what we would consider the real projects in the market.
We are confident that we can also conquer this market through robust and commercially proven products, reference plants that give customers the confidence to invest into large-scale projects, and credibility to manufacture at the necessary scale, quality, and very importantly, also on time, which will require not only professional processes and controls from us, but also semi-automation or automation, strong execution partners, like we have it with Linde, and very close collaboration with leading suppliers, as we have recently announced one or the other collaboration. We have been working very hard on these three areas with laser-sharp focus over the last six months and have made tremendous progress, which we want to share with you today. Today, ITM is the only PEM electrolyzer company in the world entrusted to deliver several commercial 100 megawatt plants.
When I say plants, I don't talk about just new announcements, but real physical plants being built. We are supplying into projects for industry leaders such as Linde, RWE, Shell, Yara, Infineon, and others, who all have very ambitious plans for the future. Due to recent development in energy prices, as we all know, and inflation, coupled with slow funding decisions by some governments, some customers have delayed their final investment decisions. As such, the big demand spike is yet to come, and ITM will be ready for that. We'll now hand over to Andy for our full year results.
Thank you, Dennis. I'm going to talk about the year-end results, also spotlight on revenue recognition for ITM Power, and the guidance, and particularly the EBITDA guidance for FY24. My first slide shows a typical ITM Power execution contract. This contract will, in terms of duration, will depend on exactly what the complexity and what product is being offered, but may typically last for 12 months. We structure a contract so that cash inflows, which is the top bar, happen incrementally with various milestones that are met throughout the execution. Revenue, however, is only recognized when we have fulfilled all of our obligations, that second line shows, we hit revenue much later than we get cash inflows. The revenue will either happen at factory acceptance test, FAT, or at site acceptance test.
For the pro-products that we are delivering right now, it is predominantly at site acceptance test. That can mean that we have received up to 95% of the cash and zero of the revenue in any given pro-product. The revenue therefore tracks behind the progress that we have in the factory. It also means that when we are recognizing revenue, we have fulfilled all of our obligations, and we've got operating plants, out, and with customers, and accepted by customers, having completed all of our obligations. This is really important, in, in understanding the financials for ITM, not just the year that we've just seen, but also the guidance, and we'll come back to that, later in the presentation.
In terms of summary financials, you can see that the revenue was GBP 5.2 million, with which GBP 4.1 million of that was product revenue, and that's against the guidance that we had in January of GBP 2 million. I think this is actually a really good result. It shows that we did more than we had expected to do in that short space of time, whilst also going through a reorganization and a restructure at the same time. In terms of cash, we had GBP 283 million at year-end against a guidance of GBP 245 million-GBP 270 million. This was again, ahead of expectations that we set in January.
It was very much to do with a series of one-off exercises, but also, increasing our, our, our capital discipline throughout the company. One of those was about improving how we organize our deliveries from suppliers so that we phase them to a closer to a just-in-time approach. Some of it was also about cash collection from customers. A really decent result there. In terms of EBITDA, the EBITDA was in line with the guidance that we set both in January and June, at a loss of GBP 94.2 million. We did a detailed review of the business in, in January, I looked at the causes of that GBP 94 million loss. Some of these causes are on the slide. Historically, ITM chased an aggressive expansion strategy, based on technology leadership.
As such, there were processes within the business, particularly around engineering and manufacturing, that were not mature, and we see some of that reflected in the EBITDA position. I'm pleased to say that we see a number of those gaps closing very quickly as part of the 12-month priorities plan. Dennis and Simon will be talking more about that in the second half of the presentation. I'm also pleased to say that there have been no new surprises since we did that re- review in January. A thorough job done. Notwithstanding, the result itself is unacceptable and something that we can't repeat. The GBP 94 million had a number of one-off impacts, notably around stock, that had to either be reworked or upgraded as part of those design reviews.
We will talk a bit more about how that shape changes for FY24 in a couple of slides. In terms of cash, the table on the left shows our opening balance of GBP 366 million, and right at the bottom, our closing balance of GBP 283 million. A cash outflow for the year of GBP 83 million. If we start with our adjusted EBITDA of GBP 94 million of losses, there are a number of non-cash movements in the income statement to the tune of GBP 31 million. This is predominantly the movements in provisions, which was a result of that detailed review in January. So our warranty provisions went up for in-field plants by GBP 0.7 million.
The warranty for contracted, but not yet delivered products, is also included in those provisions and is included within the contract loss provision. We had nearly GBP 10 million of warranty provision against contracts that we are executing right now. Now, these numbers are a cautious approach based on best estimates of future products that have not had significant time in the field. It's based on mapping an older variation of the product and that performance to where we would expect to be going forwards. You will see from Simon and Dennis's slides, there are incremental improvements that are really looking to mitigate what the impact of this warranty cost is. We also had an increase to the contract loss provision, and the contracts costs were essentially underestimated for deployments of the plant that we had.
There have been a number of exercises to improve forecasting of contracts and also the governance around contract execution, not just in contract signature, but also throughout. We can see ways to mitigate that, and I can confirm that no projects will be sold without a positive contribution to market from now on-- margin from now on. 2023 was also a year in which we built both to stock and to projects, and we saw an increase, a net increase in inventories of GBP 27 million. If you think back to that revenue recognition slide at the start, we have seen cash inflows as part of those contracts that we are executing against, and that's the working capital improvements below. Those two numbers need to be taken in context.
Whilst there is a buildup of WIP, there's also cash being received, against the majority of that. We've also invested into factory automation and testing capacity to the tune of GBP 8.6 million, and into product development, to the tune of GBP 6.6 million in the year. This brings me to the guidance for FY24. On the left are the three pillars of the 12-month plan: the product portfolio, and the refinement of the products that we offer, and there'll be more from Simon on that, the capital discipline, and the debottlenecking. In the middle are the key activities that we are looking to execute in this financial year. First and foremost, it's about delivering against the projects that we have contracted.
It's also about continuing to invest, not only in maintaining the technology advantage that we have, but also enhancing our people capability, building in terms of investment on facilities, both in Sheffield and in Germany. Our revenue for the full year will be in the range of GBP 10 million-GBP 18 million, which is a 2-3 times increase based on the current year. That is quite a wide range. That, again, is back to the revenue recognition. Where we have site acceptance as part of our obligations, we have a certain amount of deliveries to sites, a number of dependencies when we are there, as we are one of a number of subcontractors bringing the site into operation.
I'll talk more about the EBITDA losses in a moment, the big number here is about CapEx. CapEx, we're spending between GBP 35 million and GBP 45 million. About 70% of that is on the facilities in Sheffield, expanding to a, a new unit, and also, the upgrade of the power supply to unlock capacity and capability, not only for product validation, but also for testing products as it goes out the door. The balance of that CapEx is again, about product development, and you'll see some of that in the slides to follow. All of that leads us to cash at year-end of between GBP 175 million and GBP 200 million. This will leave us with a strong balance sheet positioned for growth going forward. It looks like a similar cash outflow to the year FY23.
The balance is far more weighted to the future, and making sure that we are set up to deliver against the demand coming. Back to the EBITDA losses. We see EBITDA losses of between GBP 45 million and GBP 55 million in the year. In terms of project losses, there will be no cost, but also no contribution against project losses. We are executing against projects where we have already made provisions for the losses that we will make on those. I've always said that we will not sell another project that does not make a contribution. That's a very easy statement to make. Actually, it's very easy to say we will add margin. The very obvious question to follow is: Does that mean that we can still sell product?
As we've been more active in the market in the last few months, actually, there is clear evidence that even pricing with a margin, ITM remains incredibly competitive, and customers like what we have in terms of experience and product. We then have some costs around manufacturing scale-up. This is essentially the cost of quality, which is not just part components, but also extra people required, et cetera, et cetera, which will be costs that are pre-automation. As we fit out the new facilities in the next 12 to 24 months, we will see that reducing. We also have overheads not recovered, not recharged. Our gross overhead is above that figure that you see there, the GBP 30 million-GBP 35 million.
What we do is we recharge overhead based on product development, on project execution, and also on product build. So those overheads will be recharged to a greater extent as we gain volume in the market and accelerate from this point on. We then have some specific costs around the 12-month plan in the range of GBP 5 million-GBP 7 million, which will be one-off costs for this year. It's about transforming ITM's capability and laying the foundations for the future. For those who are looking to think about ITM, the manufacturing scale-up will reduce over the next 12-24 months. 12-month plan costs are a one-off this year. And we see those overheads not sort of being dependent on volume of products that we deploy out in the market. With that, I'll hand back to Dennis.
Thank you very much, Andy. Before we go into the details, a quick recap on our 12-month plan laid out in January. We are now 6 months in to solidifying our foundations and have made substantial progress in our 3 focus areas. First one being to concentrate on a standardized core product portfolio, which is an important basis for repeatable and reliable volume manufacturing. Second, improving capital discipline by a stringent cost reduction program, and by introducing professional processes which gear us up for the future. And last but not least, number 3, deep automating and scaling, both fabrication and testing, and of course, very importantly for us, investing into incremental automation. Of course, we also need and will continue to deliver against our project commitments, thereby completing very important reference plans. On that, I always like to keep it real and tangible. Here's some real-life project impressions.
On the left, you see our stacks and skids being packaged for shipment to Norway, where they were installed into the Cubes you see on the bottom left. Then on the right, you get an impression of how our delivery against the 100 MW project looks like, in this case, for Linde and RWE. Whenever I look at this picture, this is when I start to feel the heartbeat of the serial manufacturing company and, and what I want to see in ITM in the future. What is very important and a tangible sign of progress, in the last 6 months, more products have left the ITM factory than in the previous 22 years combined. This is definitely a testament to our progress as a company. Over to you, Simon, for an update on our product portfolio.
Thank you, Dennis. I'm going to talk to you about our products, which of course, are a significant component of our 12-month plan. I'd like to start off by reminding people of the very broad range of products that we were supporting across the business. This has now been substantially narrowed, and we are laser focused on the products highlighted in green, that are those necessary to support projects and execution. This rationalization has resulted in a significant positive impact on our efficiency for the teams and also myself personally. It's allowed me to give much more attention to the core activities within the business. At this point, I'd like to introduce you to the Harvey balls, the blue dots on the right-hand side of the screen. These are used throughout the presentation to represent progress that we're making.
As we're around halfway through our 12-month plan at this point, a half-filled ball represents progress that is broadly on track. A happy ball which is more filled, represents progress in excess of our plan. I can tell you now that there aren't any balls that are less than half filled. Now I'd like to talk about the product portfolio and the rationale. It's a busy slide. I'll guide you through it quite quickly. On the left-hand side is the stack skid, and that is our core product. That's 2 megawatts in size. It generates hydrogen at 30 bar pressure and is highly efficient. This is the bit where ITM adds the maximum value. This is where we want to build repetition and get slick at manufacturing as we scale the business.
Moving to the middle of the slide, we have three routes to execute projects in the field. At the top, we have our plug-and-play container. This is a standalone unit with the stacks included, but also all of the necessary systems to allow the plant to run in an autonomous fashion. We have over 20 MW of projects in execution right now based on that product platform. Moving down a level, we have the Cube. This is essentially a package stack skid that would be supplied to an integrator, where a number of these Cubes can be strung together to enable mid-sized projects to be addressed. We are executing over 50 MW of projects based on that product platform. At the bottom, we have the module, and this is an integrated building block.
The picture is an example of a 10-megawatt module that an EPC would produce, and the principle is to replicate these modules to be able to serve large-scale projects efficiently. On the right-hand side of the slide, I'll quickly run through the outlook for each of these projects. The plug-and-play container, we're already developing the second generation of that product based on design for manufacture, and we're engaging with potential assembly partners to bolster our manufacturing capacity to address the demand that we see coming. The Cube products will eventually be phased out in favor of the larger modular system, but of course, all of the learnings we have from real project execution and operation will be plowed back into our product development. Finally, and many of you will have seen the announcement this morning, we have defined and developed our own larger 20-megawatt module.
More on that is gonna be laid out later on in the presentation, along with some branding work that will make that whole product platform gel together. I'm now gonna focus on the stack. We have the most advanced stack technology on the market. I recognize that that's quite a bold statement, but I'm gonna give you some reasons to underpin that claim. There are 3 important metrics that are important to PEM stacks. The first is current density. The higher the current density, the more hydrogen you can make with a stack. We have the highest current density on the market. That means we can shrink the footprint and also reduce costs. The second is efficiency. We have leading efficiency at levelized current density.
Efficiency represents the amount of energy consumed to generate the hydrogen. Clearly, reducing the energy consumption reduces operational costs for the end user. The third is precious metal loading. We have the lowest precious metal loading reported. That, of course, directly leads to a reduction in cost. I also want to give you some numbers to further support and underpin what I've just described. The table at the bottom shows both EU targets for 2030 on those three metrics. Also the performance from ITM stacks that we're producing and testing today. Firstly, current density. The target for the end of the decade is 2.5 A per cm². We are operating at 3.3, which is clearly much higher. Efficiency of 2.5 A per cm², measured in kWh/kg.
Again, the target is 50, we are achieving that today. Finally, on precious metal loading, a target of 0.4 milligrams per watt. We're already at that level, and we have been for some time. Having already reduced our precious metal loading by over 80% over the last 10 years. Now, ITM has developed and retained a high level of competence, competence in the core technology area. In order to maintain our leading position, we're collaborating with key suppliers. We've announced some examples recently, including Gore and Mott. In this way, we're gearing our own capability with that of leading players that have the capacity to scale with us as we grow the business. Now I hand back to Dennis.
Thank you, Simon. Let's move on to capital discipline and start with an update on the restructuring and rightsizing we announced in January. We have successfully completed the restructure of our organization and achieved a leaner and flatter hierarchy, and a new structure reflecting now the nature of our business as a serial manufacturing company. We have strengthened technology and especially also engineering and product validation focus, which was one of the weak areas, I found when I joined ITM in December last year. We have funded our customer interface from sales to delivery into one organization, very much closely integrated manufacturing and procurement, which is important, and we have increased oversight and governance of company processes. We had announced in January that we will reduce our headcount costs by 30%. We have achieved 33% and around GBP 10 million.
Also, in our January update, we showed you this slide, listing improvement potentials to mitigate future inventory losses and project cost overruns, as ITM had experienced those in the first half of our financial year. Again, the Harvey balls indicate our progress 6 months into our 12-month plan. As you can see, there's real progress happening in our company. Appreciate we don't have time to cover every point in detail today, let me reiterate, all these things are solvable. Of course, they need proper working, too. To pick only one for today, design was previously at the root of many of the challenges we faced. This is now fixed. We have professionalized our engineering in terms of capabilities. We have brought in a new head of engineering. We have worked on our processes and improved them significantly.
One of them was the introduction of a design freeze, which was one of the main reasons for inventory losses in the past for ITM. We have enacted a very stringent management of change. We have also strengthened compliance and validation with a veto and sign-off right to challenge the engineering status prior to formal release for procurement and fabrication, and of course, also prior to release for selling. The area we are still working on, and that's the reason why the Harvey ball is not yet full, is that we are still working on our tool landscape, process automation tool landscape, to further improve that. As you see, there's not a single Harvey ball, which is less than half full, two of them three-quarters, which means that we are very well on track. Let me again show you some very tangible progress now.
Spotlight on our stack production and the improvements we have made to them and the effect this has had. When I joined, we were faced with a rate of stacks not passing factory acceptance testing, short FAT, that was far too high. What did we do to tackle that? First, we performed a very detailed Design FMEA , Failure Mode and Effects Analysis, and implemented the results into our product design. We have incrementally automated or semi-automated various production steps, such as the assembly now being added by laser scanning and advanced camera and sensor technology, which makes a big difference for us. You will see more on the topic automation later.
We have also introduced a very stringent quality over quantity policy, which means that whenever we found an issue during testing of one of our stacks, which we did not understand immediately, which was not a known failure cause, we stopped production. We took apart the stack, we analyzed the failure mode, we did proper design changes or adjusted our manufacturing process, and then only restarted manufacturing. This has led to a little bit on/off in our fabrication, you will see the effect this has had in a minute. Why is that important? Why do we need to focus on how we produce stacks, and why do we need to increase pass rates?
This, in the first, first place, leads to lower retesting costs. As you can imagine, testing stacks at full load consumes a lot of energy, so it's one means to lower our cost. It's also debottlenecking our test facilities if we don't have to retest stacks. Certainly, also fewer interruptions to serial manufacturing, on the one hand, because on/off, and on the other hand, because we can avoid stack reassembly. It also leads to higher predictability of production and project schedules, and certainly, we can also reduce material storage. Now let me reveal the substantial impact this has had on our stack output and rework required. Oops. Yeah. What you see here is real factory data from March this year onwards. The black line represents the stacks produced, and the green, the stacks that passed factory acceptance testing.
Red is the cumulative number of stacks that required rework. You can easily recognize the effect our quality first and on-off approach and the introduction of new machines had on that timeline. What a tremendous and tangible improvement, which we will further accelerate. This is what debottlenecking is all about. It's about finding bottlenecks or weaknesses, understanding them, fixing them, and then scaling up volumes. Whilst we are already on it, let's continue talking about debottlenecking our operations for scaling, because there's more we are doing. First, facilities expansion. As announced, we are currently expanding our Sheffield, Bessemer Park facilities, which is well underway. By that, we are at the same time making more space for product R&D and validation, including new science labs and more testing facilities for first-of-a-kind products, which is very important for new generations.
It also allows us to improve our factory layout for stacks, from a layout factory design, which has evolved over time, to one that is highly optimized for serial product automation. Also, we will gear up for higher stack volumes by that, and we will take over the new facility in November 2023, for interior fit-out, and we will start production the second half of next calendar year. To keep it real again, this is how it looked like one month ago. We are very well on track. Likewise, we are very well on track with our German entity, which we are about to open in the city of Linden, which is very central to Germany, north of Frankfurt, and also very central to the European Union.
Official opening will be in October 2023 already, our new facilities will host various business functions, which are critically enablers for ITM's accelerated growth going forward. Like, for example, our new global business development function or our new global data and IoT team. At the same time, ITM Power Germany will act as the main after-sales hub for Europe, given its location. We will have facilities to store and quickly deploy spare stacks from there, we will also have field engineers to service the plants we are currently building in Europe. Of course, we are also gearing up for an increase of local content creation in the European Union. Next is testing and power supply. In our January update, we had announced a phased approach to increase test capacity to satisfy project needs, which required more than a doubling in 12 months.
We have now successfully increased our electricity supply already by 50% to 7.5 MVA, and we have already signed a contract and secured a further increase to 30 MVA for the second half of 2024. Also here, we're ahead of plan. Next is automation, one of the key improvement fields for ITM. Also here, we have made very good progress, and as you have seen in our stack, output graph, these improvements are already affecting cycle times and build quality and gearing us up for serious volume growth. We are only incrementally deploying new automation and machines into our fabrication after robust product and manufacturing staff validation. We experienced supply delays for 2 equipments, but these were very well managed by our ITM team.
Overall, we are very, very good on track. You will see some more of that in a minute. I would say enough words for now. Let's now come to more visible proof of the progress we have been making on automation. Let's come to our new product release. Exceeding expectations, that's what we are here for.
After 23 years of research and development and pioneering innovation, ITM Power is offering the most advanced PEM electrolyzer technology in the market today, and now we are becoming a high-volume quality manufacturer. We have implemented new processes across the business, each of which is a substantial improvement and a step closer to achieving our automated manufacturing ambitions. Some of these processes include a customized press, capable of operation at 20 tons of pressure with a micron level of accuracy. Precision laser scanning, allowing us to inspect every electrode structure. A resistance welding machine developed in-house to assemble stack components with highest precision. Automated catalyst ink mixing, producing consistent pastes for our catalyst-coated membranes, applied by a state-of-the-art screen printing technology. Project sizes continue to scale. ITM is responding with a new product release. Meet Poseidon.
Incorporating our learnings from commercial projects, Poseidon is our new cutting-edge 20 MW core electrolysis process module. It is based on our state-of-the-art Trident stack platform, and consists of skid-mounted units, which can be pre-fabricated and pre-tested. Poseidon enables efficient integration of the core electrolysis process into the balance of plant. This leads to shorter deployment times and lower project costs. Poseidon is set to turn the tide on electrolyzer deployment as we dive headfirst into the race to net zero.
Well, this is what I call progress. This is definitely a game changer for the industry. Let me repeat some of the key statements around Poseidon. Poseidon is our new standardized 20-megawatt core electrolysis process module with a very optimized footprint. It is replicated for scaling up for large projects and suitable for both indoor and outdoor installation. It consists of skid-mounted units, which can be pre-fabricated and pre-tested, and which are ready for road transport without additional permits. By that, we can achieve reduced deployment lead times and lower construction costs, and also de-risk customer projects. Poseidon has been engineered by ITM, incorporating real-world lessons learned from commercial projects. Let me put it like that: If we didn't build all of these first reference plants and large projects we have been currently building, we could not design this model.
The design of the module is ready for integration into the balance of plant, which is enabling flexible execution prospects for large-scale projects. Let me emphasize again, this is not just a nice render graphic. Poseidon is now commercially available, and we have started bidding into actual commercial projects with it already last week. Our products are designed to outperform. From today, this is our new product branding. Our stack and skid platform, based on our leading PEM electrolyzer stack technology, will be called Trident. Our 2 MW autonomous plug-and-play electrolyzer for small to mid-sized projects will be called Neptune, and we just talked about our new cutting-edge 20 MW module called Poseidon. Coming to the outlook. I've been at ITM for just over half a year now, joining the company at the time of challenging operational and financial performance.
Being the first company to win large-scale commercial project, ITM had also experienced growing pains first. As our competitors are experiencing similar challenges today, we will also be the first to have fixed them. Today, ITM already looks fundamentally different from ITM six months ago. We are well on track to solidify our foundations, and we'll continue to focus on project delivery, which is very important for our customers and us alike. Of course, still getting our house in order. We are now six months into our 12-month plan, as said, this means there are remaining six months for us to implement and improve what's needed to be improved. We will keep doing so. We will stay with existing and new commercial contracts. Of course, we are actively bidding for ever larger commercial projects.
I think there's not one credible project out in the market where ITM is not involved today. Just recently, we announced contract for the procurement of long-lead items for another 100-megawatt project in Germany. We are very confident that we will further cement our position as the leading PEM player for real projects in Europe. Last but not least, we will unlock new territories, which is next strategic important step for us. With that, I would like to close, and thank you very much for your attention.
That's great. Dennis, Andy, Simon, thank you very much indeed for updating investors. I will bring up your camera now. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated on the right-hand corner of your screen. Just while the company take a few moments to review the questions submitted already, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your Investor Meet Company dashboard. If I may, you've received a number of questions throughout today's presentation, so thank you to everybody for your engagement. I'd like to hand over to Justin, who will now moderate the Q&A. Over to you, Justin. Thank you.
Thank you, Mark, and good morning, all. We have a number of questions. We'll try and get through as many as we can in the timeframe. We'll kick off with the first question. Can you add any color or information regarding Gigastack and/or Ørsted and Phillips 66 decision yesterday not to enter the high emission allocation round in the UK?
Sure. Okay. We have made the decision to focus very heavily on projects that are in execution right now. There is much potential in front of us, but the right decision for us was to make sure that we are putting our effort in the places that gave the biggest impact to projects that we're delivering and committed to today. From an ITM perspective, we have opportunities for further development of our stack platform, which I've not covered today, but our focus right now is on the projects that are right in front of us, and there are a lot of them. That feels like the right balance for me.
Thank you. Question number 2. The high cost of electricity is making electrolytic hydrogen expensive, and this is holding up the market. Does ITM having plans to produce steam electrolyzers that reduce the electricity costs?
No. Let's keep it short. No, we don't.
Next question. What is the current monthly production quantity and more importantly, are the bottlenecks facing the company over the next 6-12 months?
We don't disclose our production quantities. As I had said last time, our capital market update in January as well, we are scaling with our projects, and we have been doing that, and we will keep doing that. With growth of demand and with growth of signed contracts, we will scale our fabrication accordingly. We don't see any bottlenecks at this point in time.
Next question: Could you provide more color on the processes that need to happen to successfully conclude an SAT?
Sure. Maybe I take that. Site acceptance testing normally happens when a complete plant is being built and commissioned. This means that the whole electrolyzer plant, and sometimes even broader units, sometimes it be a refueling station, sometimes a tank farm. A whole electrolyzer plant can look very different and take very different form and shape. Site acceptance testing normally includes that the whole plant is more or less ready to power the electrolyzer system, so that you can check how it interlinks with other elements. Site acceptance testing is oftentimes heavily dependent on the EPC partner and the end customer being ready for site acceptance testing. This is not so much an ITM hence, that's why we have a dependency which we need to work on.
I can tell you in future contracts, and our last contracts are now reflecting that as well, we have deemed acceptance clauses in, which basically state that after a certain period of time, after clearing products ready for shipment and factory acceptance test, if site acceptance test is delayed for reasons not in scope of ITM, then we can deem acceptance, recognized revenue and start warranty period.
Regarding Poseidon, you mentioned that these would be pre-tested. Does that mean there will be no SAT? Please, could you explain that as well?
Oh, that's something else. I mean, we are also pre-testing our stacks in our factory, which is factory acceptance testing, but the electrolyzer still, the, the whole system still needs testing on site for SAT. Also for Poseidon, pre-testing units after they have been manufactured offsite, is a risk mitigation so that you don't ship a product to site which hasn't been validated that it's functioning, and then you find it out on site and have to ship it back. It's basically about risk mitigation and speeding up the fabrication and the product process.
Next question. Thank you. Could you update us on the EU plans to restrict the use of PFAS?
Okay. Personally, I think that that is unlikely and not practical. The broad definition that PFAS covers a whole range of chemicals, and the materials that are used in PEM stacks are long-lasting, do not leach out any chemicals that are of concern in this description. We're working with industry bodies to provide evidence of this to the EU to help provide argumentation to support use of the materials that do not present risk.
Probably one for you, Andy. Could you maybe explain or elaborate on some of the mix of the revenue guidance range for FY24?
Yeah, sure. The guidance range of 10 million-18 million GBP in all of those contracts, there is a dependency on site acceptance. Within there, there is a mix of Cube products, i.e., modules and containerized products, predominantly going into the EU.
Next question. Regarding automation initiatives, what more do you think needs to be done over the course of the next 12 to 18 months?
Yeah. I showed you the roadmap that we had, which was progressing quite well. By implementing the roadmap within the 12-month plan, I would say we probably have then automated or semi-automated our four-stack fabrication by probably around 80%. The last remaining piece, which will not be fully automated until then, is the actual last assembly step of the stacks, which we are also looking forward to automate, probably around 18-month timeframe.
With the IRA in the U.S., this seems to be a long-term driver for growth for electrolyzer equipment manufacturers. How is ITM specifically addressing this opportunity?
Right now, the IRA does not require us to have a factory in the U.S. Of course, it could make sense at a certain point to, to locate our fabrication there, but right now, this is not a must. We have checked that also from a legal viewpoint and from a funding viewpoint. Projects will not be disadvantaged if we deliver stacks from the U.K. We do have strong partners already, like Linde, with a very big footprint in the U.S. For ITM, when I, when I was talking about unlocking new territories, obviously I was also thinking about the U.S.
You provided three KPIs regarding ITM stack technology versus EU targets. Where do you see ITM by 2030 in this regard?
Well, I don't want to give any concrete forward-looking statements on that. I think what I would say is that I am confident and proud of the core technology competency that we've developed in the organization. That, combined with the partnerships that we've developed, means that we are in a leading position, I would say, to make continued improvements to the stack platform.
Given the imminent opening of the facility in Germany, will ITM have any plans to manufacture in Germany?
If we had plans like that, we would have disclosed them at this point. I mean, what I said today in terms of our German entity is what we are currently implementing. If we decide to implement more in the European Union, we will let you know.
On the very interesting slide for FAT, is it possible to comment on the % of production that is fouled within the data?
This is the stacks passing versus the stacks failing. I guess Simon might answer some of this, but our starting rate was based on low volume, and the failure rate was pretty high and certainly not sustainable for serial manufacturing. We were above 30%. We've seen that decline dramatically as we have improved the processes. We've also got a very clear policy that upon any failure, there is a clear investigation into what's happened, and we stop and we refresh. We're learning lessons incrementally in real time. The other point here is, when that stack fails, that doesn't mean they're thrown in the bin. A significant amount of the components can be reused, rebuilt. That graph shows first time passes, and that's very different to things just getting scrapped.
Yes.
Simon, I don't know if there's anything else.
I think we're good.
Okay. Yeah. Regarding Poseidon, could you talk about some of the advantages that customers would benefit from by adopting Poseidon into their projects?
Yes. I mean, I think we laid that out actually, when we, when we showed the video and when I explained on the slide about Poseidon. It's about, it's about proper scale-up of, of, of, of modules that you can then repeat for large-scale deployments. It's about lowering costs by repetition, speeding up project timelines. It's about de-risking in terms of being all the units being prefabricated and pre-tested prior to arrival on site. As I said, it enables ITM to work closely and in a very flexible way with implementation partners.
Do you have any update on the Whitelee project?
We don't comment on specific sales projects.
Regarding the 12-month priorities plan, what do you believe are the key deliverables over the course of the next 6 months, and what are the biggest challenges you think you'll face?
Should we maybe each answer by our area?
Okay.
Do you want me to go first?
Go on, okay. Yeah. Within the year, ITM implemented a new ERP system, and there is work to really get all the full benefits from that system. We've got something that looks like the minimum viable product, product in January. I'm not afraid to say, and we've been incrementally improving that. As we improve that ERP system, we also improve the controls we have around spend, and going forward. From a finance and governance perspective, a lot of what my team are looking at is how we have the systems to support the controls that we're introducing. I think in engineering, the focus is around making sure that we have the best tools and modeling equipment to support the development activity.
That's something I think Dennis touched on earlier in the, in the presentation. Also, ensuring that we maintain rigor in stringent design freezes and control over product introduction.
Yes, maybe adding to that, ITM is now transitioning from what I always called an R&D and technology mindset company to a professional delivery organization, which is trying to produce at scale. This always comes with a culture change, obviously. It's not only about implementing new processes and controls and systems, it's also about our day-to-day behaviors and how we build these processes. I think the culture change element of that, the whole change management around that, is quite time intensive right now for us, but this will be our main focus for the next 6 months, to make sure that we actually walk the talk. Whenever we've introduced new processes, everybody's sticking to them with discipline and high focus and without getting distracted. I can tell you, the system is already changing quite significantly.
Thank you. Andy, you mentioned in one of your slides, overheads not being absorbed. Could you elaborate on more exactly what this means?
Yes, absolutely. At the moment, we are charging, we have all of our personnel costs, for instance, within our overhead line. As we do activity, we recharge those into various areas. I think you covered it, but essentially, we have all of our personnel costs within the overheads, and then we are charging both into product, product development, and into project execution. They move either into cost of sales or into the balance sheet. That overhead number that we were putting in the guidance was our net overhead.
It's very normal for growing businesses, if I may add to that. It's very normal for growing businesses to have, let's say, overhang in overheads until volumes have crossed a certain minimum thresholds, upon which then there's a positive margin contribution from producing and selling more products.
Thank you. Which new territories are you referring to at the end of the presentation?
As I said, I mean, we are very strong right now in Europe. I think the most important markets to get a foot in the door is the U.S. for us. Of course, there could also be other attractive markets, but I would say the U.S. is ranking quite, quite highly right now.
Regarding Poseidon, could you give us some idea of when ITM would be ready to produce and install the new module?
Yes, as I said, Poseidon is now commercially being bid into actual projects. How would it work from here? I mean, we are talking about large-scale projects, right? Large-scale project would require that the customer is normally concluding a FEED first, so the front-end engineering design, which is giving the, the whole investment of the plant, a engineering design process, which you can then base a cost estimate, the schedule, and on, and then you can also acquire suppliers for lead times. For Poseidon, depending on the work split with the implementation partners, we would, for example, most likely buy the power supply units through our books, some vessels. Piping could potentially be done by an EPC partner. We would have to define the detailed work split for that on a project-by-project basis.
As I said, it's now commercially matured to a point where we are bidding the module into real projects as of today.
Thank you. With regard to the contract loss provisions that you took in FY23, are these expected to be recognized on SAT of projects they relate to?
The, the contract loss for any given project, if it's loss-making, is recognized at the point you recognize it's loss-making. That comprises of two parts. It comprises of the cost to execute the delivery and then the warranty. What you'll see is all our contract loss provision will sweep out upon SAT, the warranty provision will then move into the warranty provision line on the balance sheet. Yes, as we execute the projects, we'll see our contract loss provision going down.
Thank you, Andy. Could you please elaborate on any supply chain risks related to manufacturing ramp-up?
Yeah, I mean, in principle, this is what I said, right? If we scale by a factor of more than 100, which is basically what we are doing right now, right? Something between 100 and 500 in terms of scale-up factor. This means that every part of our supply chain needs to scale with us at exactly the same speed. This requires significant investment, and risk-taking by every party involved. That is why you need to be very closely integrated and very closely collaborating with your key suppliers of critical components. That is why the recent announcements we have been putting out in the market for collaboration with key critical suppliers are so important for us to actually build a platform for real growth.
Because as long as you don't work with and closely integrated with your supply chain, if you don't do that, then everything else is just mere announcements. If you want to come to real growth, then you have to work with your suppliers, and this is what we are doing. Do I see any, any bottlenecks? At this point, no, because we are working very closely with our suppliers, but of course, it depends then on how far we grow, right? Later in the future, there could come bottlenecks than we have today seen. Right now, I think we are, we are very well on track working with our suppliers.
Thank you, Dennis. That for now is the amount of time we have for questions today. Thank you for your time. Any questions that you have outstanding, please send them through and then we'll ask them as soon as we can. Thank you very much for your time.
That's great, Justin. Thank you very much indeed for moderating the Q&A. Dennis, I'll shortly redirect investors on the call to give you their thoughts and their expectations for us and feedback. Before doing so, I wondered if I may just ask you for a few closing comments, and then I'll redirect investors.
Of course. Thank you very much. Thank you for dialing in, and I hope we were able to convey the progress we have been making over the last six months, which we found quite impressive, I have to say. We are gearing up for serious scaling of our manufacturing operations and deploying products to customers, which is what we are here for. Thank you.
That's great. Thank you, Dennis, Simon and Andy, for updating investors this morning. Could I please ask investors now to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of ITM Power PLC, I'd like to thank you for attending today's presentation and wish you all a very pleasant morning.