23ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
In the 2015 seminal year for hydrogen breakthrough, ITM Power has
progressed on two fronts. New contracts for hydrogen refuelling stations
(HRS) with associated funding have been received, and the factory is already
building five under current contracts. The Company’s order book has now
lengthened to £9.97m and there is a further £5.79m in final negotiations. The
warning of slow trading given by ITM Power in its Interim Results statement
may have reflected timing issues which are now correcting. JCB’s investment
of £4.9m in ITM Power recognises another large scale opportunity for
hydrogen fuel in the construction industry.
In the power-to-gas market, ITM Power has just announced that it has won a
sales contract for £1.79m to build a 0.5MW plant for the European Marine
Energy Centre. A third reference plant for new customer RWE has also been
completed at Ibbenbüren in Germany. The Company’s new three stack 1MW
plant, with higher density and 50% more hydrogen, has been showcased at this
year’s Hannover Messe technology fair. The new plant represents a second
generation of ITM Power’s electrolyser technology.
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EPIC
ITM.L
Market
AIM
Sector
Alternative Energy
Share price (p)
12m high/low (p)
Issued shares (m)
Market cap (£m)
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36.25
36.45/18.00
ITM Power and its strategic partners have been awarded £1.89m to invest in two
new HRS in London. Grant funding will be provided by the Hydrogen Refuelling
Stations Infrastructure Grants Scheme and separately by the Office of Low
Emission Vehicles (OLEV). These are additional to five stations already under
construction, three for London and two for the State of California.
178.05
61.0
Zeus Capital
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This initiative stems from the UKH2Mobility project which envisages 65 HRS
operational in the UK by 2020. Parallel developments are scheduled across
Europe under an EU directive. This requires all member countries to have
national policy frameworks in place for alternative refuelling points by end-2016.
The state of California has a similar programme.
Product specifications are now increasingly standardised with attendant savings
in cost and time to final delivery (the RWE unit was achieved in ten weeks). More
rapid throughput has led ITM Power to expand its existing manufacturing and
testing facilities. Contract values for mid to large scale projects are upwards from
£1.5m, and £1.8m on the latest HRS.
COMPANY DESCRIPTION
Forecasts by the house broker, Zeus Capital, were scaled back after ITM
Power’s Interim Results warning of slow trading. Product sales for the current
year are estimated at £1.93m with a substantial upturn to £7.20m in 2016, a
marked increase in business for both HRS and power-to-gas applications.
ITM Power designs and manufactures systems
covering the production, storage, compression and
dispensing of high pressure hydrogen for clean
energy. The focus has now scaled up to 1MW
electrolyser stacks for the power-to-gas market (for
energy storage and grid balancing) and hydrogen
refuelling units for the mobility market. ITM Power
has contracts for both types of products.
On the balance of probabilities, there is likely to be increasing interest in ITM
Power from its strategic partners and also potential customers. The investment
by JCB is significant in being far-sighted and also recognising that the Company
has a leading technological edge. That is borne out by its ability to win contracts
by tender in the face of competition from much larger operators.
FINANCIAL CALENDAR
Next year end
30 April 2015
Final results (tbc)
29 July 2015
AGM
September 2015
Next half year end
31 October 2015
/
Year end
30 April
Revenues1
(£’000)
EBITDA
(£’000)
Loss
before tax
(£’000)
Loss per
share (p)
Cash/(debt)2
(£’000)
2013A
87
(7,063)
(6,168)
(4.8)
5,943
2014A
1,127
(8,587)
(7,793)
(4.8)
9,763
2015E3
1,927
(7,595)
(6,108)
(3.3)
7,652
7,200
(4,257)
(3,849)
(2.0)
5,107
2016E
3
1. Sales revenues only. 2. Cash and short-term deposits at year end. 3. Forecasts from Zeus Capital
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
INTRODUCTION
ITM Power’s strategy shift is a response
to market momentum
ITM Power’s strategy is now wholly focused on two key areas of hydrogen technology,
both offering large scale opportunities rather than niche market applications. This is in
response to market developments which have gathered momentum in the last twelve to
eighteen months. The power-to-gas market is well established in Germany due to the
proliferation of wind turbines and the consequent periodic surpluses of energy from
wind, and also in the State of California in the USA. Infrastructure requirements for
hydrogen powered fuel cell electric vehicles (FCEVs) is gaining momentum in the UK
as well as the EU, the latter under a new Directive, and also again in California. ITM
Power is now primarily focused on providing for both.
DEVELOPMENTS
1. POWER-TO-GAS ENERGY STORAGE
New £1.79m sale contract for EMEC...
ITM power has announced, on 16 April, that it has won a competitive bid to build a new
0.5MW integrated hydrogen system for use at the Orkney-based European Marine
Energy Centre (EMEC) test site. EMEC, a not-for-profit private company will pay
£1.79m for the equipment and is exclusive of an additional maintenance contract
offered by ITM Power. The unit, incorporating a 220kg/24 hour electrolyser system
operating at up to 20 bar, will be used to absorb excess power from wind and wave and
convert this to hydrogen, initially for storage (up to 500kg) and for back-up power for
EMEC systems.
Follows sale of a second generation
power-to-gas system for RWE...
On 17 February, ITM Power announced delivery of a third rapid response electrolyser
system for power-to-gas application in Germany. The sale was made to RWE
Deutschland, based in Ibbenbüren, a party outside the Thϋga Group with whom ITM
Power made its initial entry into the German market. The system sold to RWE
comprises a 175kW plant (three module stack), uses a higher current density and
incorporates new AEG power conversion electronics. This provides a higher hydrogen
output per stack, faster response time and higher efficiency over the full operating
range. It was also delivered within ten weeks of the initial order (11 December),
demonstrating further improvement in standardising the production, assembly and
testing processes, enabling faster delivery to the customer.
...a third reference plant to support the
Garman European market drive
The plant should go into operation in H1 of 2015 with hydrogen produced injected
locally into the gas grid. It establishes a further reference plant for ITM Power’s
technology in Germany, additional to those in Frankfurt for the Thϋga Group and to the
University of Hamburg’s Energy Technology Campus. The units delivered have been of
varying scales (Thϋga uses a 360kW six stack unit and the German University a
smaller Pac40 unit) but the likelihood is that future power-to-gas units may be on the
mid-large scale size reflecting the fragmentation of the German gas utility network.
2
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
New 1MW electrolyser has been
launched offering superior performance
In fact, ITM Power has been adapting and enhancing its product range with an eye to
the Hannover Messe technology trade fair which took place from 13-17 April 2015. ITM
Power’s latest product development included the launch of a 1MW PEM three stack
electrolyser with higher current density incorporating 25% more cells per stack. With
each stack absorbing up to 350kW of power, the 1MW unit is able to produce 50%
more hydrogen than that previously manufactured, thus offering superior productivity
per unit of cost. In addition, a simplification of plant design is also achieved which, for
large multi-MW installations, enables them to occupy smaller sites. This is important on
challenging sites where space is at a premium, not only for power-to-gas applications
but also for hydrogen refuelling applications.
In California, initial energy storage
targets have been approved...
Progress has also been made in the US, but unequally by different states. Given the
growth in intermittent renewable energy projects - particularly solar - across the state,
California claims to have one of the greatest needs of any major grid system for energy
storage. The California Public Utilities Commission (CPUC) has spearheaded initiatives
in the state and set an early energy storage target of 1,325MW by 2020 for the state’s
big three utility companies, Southern California Edison (SCE), Pacific Gas and Electric
(PG&E) and San Diego Gas and Electric (SDG&E). Those installations are required to
be in place by no later than 2024.
...and competitive bids invited
On the 6 January 2015, it was announced that the three utilities had received CPUC
approval for an aggregate of 119.3MW initial energy storage capacity, despite this
being less than the earlier initial interim target of 200MW. As now approved, they were
16.3MW for SCE, 74MW for PG&E and 29MW for SDG&E. Under California legislation,
the utilities are now required to issue energy storage ‘solicitations’ (bids by tender) in
order to achieve those targets. Competitive bids submitted in response to a solicitation
are evaluated on a ‘least-cost best-fit’ basis to give the highest value to ratepayers,
taking account of both the costs and the value of the energy and capacity to the utility.
Sites now to be identified in the UK
In the UK, progress has been slower. This is a simple reflection of the fact that wind
power is several years more advanced in Germany than in the UK. On the 18
December, ITM Power announced that it has secured a second commercial contract
from AMEC Foster Wheeler, a tier 1 supplier to National Grid, and National Grid itself,
to develop the business case for widespread deployment of power-to-gas energy
storage technology in the UK. National Grid and the parties to the agreement believe
that there are 200/300 multi-MW domestic opportunities making the UK a potentially
attractive market in the longer term. The contract follows an earlier favourable Phase 1
Feasibility Study funded by National Grid, and now seeks to identify specific gas
network sites for optimal deployment of ITM Power electrolyser plants for grid efficiency
and reduced energy losses. No time scale has been set on this second stage process.
3
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
DEVELOPMENTS
2. CLEAN FUEL
A wider European framework is in
place...
In the wider European context, the drive to bring forward alternative fuels for
sustainable mobility in Europe has also gathered pace to break the dependence of
European transport on carbon fuels. The European Commission cites transport in
Europe is 94% oil-dependent on oil with the bulk of that being imported with substantial
monetary and environmental costs. A press release of 29 September 2014 set out new
EU rules to be adopted from that date for all member countries. The aim was to ensure
adequate alternative refuelling points across Europe with common standards for their
design and use. Member states were given until end-2016 to establish national policy
frameworks and publicly communicated targets.
...and 2015 is a seminal year for clean
fuel in the mobility market...
In the development of the refuelling infrastructure in the form of hydrogen refuelling
stations (HRS), the UK is ahead of most of Europe, backed by various public/private in
initiatives and funding sources. In addition, infrastructure developments also have the
backing of the major automotive manufacturers committed to having fuel cell electric
vehicles (FCEVs) in ‘significant’ production by 2015 and, on larger scale, affordable,
mass-market production by 2017.
...and a start has already been made
with bus fleets...
A few refuelling stations are already dotted about the country. A dispenser, owned and
operated by Air Products, has been opened at the Hendon branch of Sainsbury and
there is also a publicly accessible dispenser at Heathrow. The number of fuelled fleets
in London is growing as well as some H2-powered buses and taxis on certain routes
and locations. Transport for London has a fleet of eight hydrogen fuel buses running
regularly between Covent Garden and Tower Gateway, but they also use electric and
diesel-electric hybrid buses.
...while hydrogen-fuelled cars are
already in operation
An ITM Power HRS, built to its standard HGas180 specification (700 bar and 80kW/day
capacity, is designed to produce enough hydrogen to completely refuel 16 FCEVs a
day. A demonstration vehicle, such as the Hyundai ix35 FCEV based at the Advanced
Manufacturing Park (AMP) in Rotherham, South Yorkshire, has an engine rating of
100kW (134 bhp) and a range of 369 miles on one full tank of hydrogen. The vehicle
makes regular demonstration runs to London.
ITM Power has five HRS in build with a
further two in the contract pipeline...
ITM Power is gearing up for a growing number of FCEVs. Five refuelling stations are
currently under construction by ITM Power, three for the UK valued at £4.65m and two
for the California market with a value in sterling of £2.51m. The table below includes the
two recently announced new refuelling stations planned for London, one of these in
conjunction with a major global fuel retailer with whom a Memorandum of
Understanding has been signed. That agreement could involve a further two stations for
the retailer and plans for these are under discussion. The two new stations have
already received notification of grant funding in a press release dated 27 March.
4
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
...plus another close to commissioning
at the Rotherham AMP
As shown below, ITM Power also owns and operates one 80kg/350 bar HRS at the
AMP in Rotherham which is currently under construction but expected to be operational
by the end of April 2015. It will form part of a Hydrogen Mini Grid System (HMGS)
comprising a 225kW wind turbine and energy storage system (220kg of hydrogen).
Another smaller HRS operates at Ventnor, Isle of Wight. This 15kg/350 bar serves as a
marine refuelling station for boats and is part of the Island Hydrogen project.
ITM Power Refuelling Stations
Project
Location
Specification
Nottingham
Univ. of Nott.
Funding
Value (£'000)
Ownership
Status
5kg/day 350 bar
Innovate UK**
275
Univ. of Nott.
Operating
Island Hydrogen
Rotherham AMP
Isle of Wight
15kg/day 350 bar
Innovate UK**
326
ITM Power
Operating
M1, junction 33
80kg/day 350 bar*
Innovate UK**
1,200
ITM Power
In build<
HyFive
London near A313
80kg/day 700 bar
FCH JU #
1,550
ITM Power
In build
HyFive
London near the A40
80kg/day 700 bar
FCH JU #
1,550
ITM Power
In build
HyFive
London site
80kg/day 700 bar
FCH JU #
1,550
ITM Power
In build
Hyundai Chino <
Chino, California
100kg/day 700 bar
CEC ~
812
Hyundai
In build
Riverside
Riverside, California
33kg/day 700 bar
CEC ~
1,700
ITM Power
In build
UKH2Mobility
London site
80kg/day 700 bar
OLEV/FCH JU
1,800
ITM Power
Contracts
UKH2Mobility
Fuel retailer site
80kg/day 700 bar
OLEV/FCH JU
1,800
ITM Power
Contracts
*
The Rotherham HRS is shown at its original 350 bar specification but will be upgraded to 700 bar. This unit has been delivered to site and its testing has been
completed. The HRS is expected to be operational by the end of April 2015.
** Innovate UK is the new name for the Technology Strategy Board, a government agency for grant funding innovative technologies.
# FCH JU is the Fuel Cells and Hydrogen Joint Undertaking is a Europe-wide public private partnership supporting fuel cell and Hydrogen energy R&D.
~ CEC is the California Energy Commission.
< The apparent and relatively low value attached to the Chino unit reflects only the part for which ITM Power was responsible and not the whole station.
Source: ITM Power - March 2015 Presentation updated to include the recently announced 2 HRS for London for which grant funding from OLEV and separately from the
FCH JU has been announced in a press release of 27 March 2015.
Pan-European infrastructure network of
HRS envisaged...
Hydrogen fuel mobility initiatives are currently in place in the UK and across Europe to
accommodate the potential deployment of up to 110 FCEVs, the number originally
mentioned. In any case, a network of hydrogen refuelling stations will be required and
various initiatives with funding attached are now in place.
...three now under construction for
London...
HyFive: The Hydrogen for Innovative Vehicles project is Europe-wide with funding
provided by the Fuel Cell and Hydrogen Joint Undertaking (FCH JU). This is backed by
fifteen participants including the major vehicle OEMs, other corporate organisations,
ITM Power and consultancy organisations. Specifically, under HyFive auspices, three
stations in London are under construction by ITM Power. The same organisation and
funding programme also extends to stations in Europe, Denmark and Austria being
cited.
...with at least one to be operational in
Q3 2015
For the first two HyFive London sites, successful planning applications have already
been made, one adjacent to the A313 and the other near to the A40. A site for the third
station has not yet been announced. At least one of the London stations will be
operational for public use by Q3 2015. An extensive roll-out programme was envisaged
under the original UKH2Mobility project with 65 HRS in operation by 2020.
5
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
Standardised HGas180 specification for
HRS...
The three London Hyfive stations are of more or less identical construction, conforming
to ITM Power’s HGas180 standard with 700 bar pressure and 80kg capacity. The
Rotherham HRS, originally with a 350 bar pressure, is to be upgraded to 700 bar which
is the standard set for refuelling under the UKH2mobility initiative in order to give a
driving experience similar to that of the petrol/diesel vehicles. The lower 350 bar
pressure is for bus refuelling and other applications. Future units for sale in both the UK
and the US will be built to the same specification to provide production efficiencies.
...capable of refuelling up 16 FCEVs per
day
The HRS stations built by ITM Power will be sufficient for filling up to 16 vehicles per
day, assuming that each car on average is fully fuelled with 5kg of hydrogen. The
Hyundai-owned Chino HRS provides limited access to a fleet of 3-5 Hyundai and Kia
FCVs while the Riverside HRS is capable of filling ten vehicles per day. Large stations
will have adequate storage capacity in tanks for hydrogen to be fed into the dispensers.
The following table gives the following representative HRS characteristics.
Hydrogen refuelling station characteristics
Station daily capacity
Filling pressure
Av. refuelling time
Vehicle type
Av. quantity per fill
(kg/day)
(bar)
(minutes)
Up to 200 kg
350
3
Fork lift
1
200 kg
350
20
Bus
30-40
50-100 kg
700
3
Car
5
(kg)
Grant funding provides c.59% of the
HyFive London HRS contract value
The contract value for each of the three London refuelling stations is £1.55m, and each
is being grant funded under the Hydrogen Refuelling Station (HRS) Infrastructure
Grants Scheme administered by the Office for Low Emission Vehicles (OLEV). OLEV
has a total of £7.5m available under the scheme, £3.5m for the HRS roll-out, £2m for
HRS upgrades and £2m for further development of FCEVs. ITM Power has indicated
that, within the HyFive agreement, it would receive grant funding of £2.75m towards the
London based HRS building programme by the London Hydrogen Partnership (LHP).
With the £4.65m contract value of the three units (3 times £1.55m), the £2.75m grant
award covers 59%, although receipt of funds may not be entirely in phase with building.
Up to new three new London HRS units
are to be built...
For the two new London stations referred to previously, ITM Power will receive £1.89m
of grant funding from OLEV. Agreement on the siting of the stations will be after
collaboration with ITM Power’s strategic partners. It has already been indicated that one
of the two will be built on the forecourt of a major global fuel retailer with whom ITM
Power has signed a Memorandum of Understanding to build up to three HRS units. If a
third unit is to be built, the Company has indicated that funding support will be sought.
...with grant funding in similar
proportion
The grant funding already announced by OLEV should cover a similar proportion of the
cost of the new units, i.e. ~£0.95m/£1.55m, as that for the HyFive units. The proportion
of grant funding to total project income as shown in ITM Power’s latest March 2015
presentation is reproduced in the chart below.
6
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
Source – ITM Power presentation March 2015
£1m of grant funding is in place for
upgrading
Under the OLEV HRS Infrastructure Grants Scheme, ITM Power will receive funding of
£1m to ‘upgrade’ four of ITM Power’s HRS units under construction, the three HyFive
London stations plus the one in the Advanced Manufacturing Park, Rotherham. The
upgrading of the London stations does not affect their gas production capability, but
Rotherham will be upgraded from 350 bar to 700 bar pressure. Future upgrades will be
considered in the light of customer experience after the stations become operational.
California leading the way in the US
Outside the UK, ITM Power’s main platform for its refuelling units is in the state of
California, USA. Here, the commissioning of HRS is part of a ten year roll-out
programme, with two units currently under construction at ITM Power’s factory.
California has been at the forefront of hydrogen refuelling station developments to
support the expansion of FCEVs. California Energy Commission (CEC) provides
funding of US$29m per annum, available for five years, and up to US$3m per station on
a 65% grant. The two HRS are being built to ITM Power’s standard specification but
with different capacities.
...with two HRS contracts in place and
stations under construction...
The first HRS is to be deployed at the Californian Fuel Cell Technical Centre of Hyundai
Motor Corporation in Chino, and the second at the city of Riverside. The contract values
of ITM Power’s HRS totalled US$3.425m (US$1.3m for Chino and US$2.125m for
Riverside) but half of the Chino consideration has already been recognised. The 100kg
Chino unit is close to completion and will be delivered in June or July this year, Q1 of
ITM Power’s financial year. The smaller 33kg Riverside unit, with an initial contract
value of US$2.125m (£1.7m) is expected to be commissioned in October 2015.
...with monthly billings of the grant
funding
These US contracts were structured so that ITM Power was paid according to monthly
billings rather than with upfront payments, so that the negative cash flow impact was
eased. Importantly, these two deals have garnered valuable experience in marketing as
well as production and it is reasonable to expect ITM Power to achieve more business
in California if the first two reference stations prove successful.
7
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
A possible extension to off-road
construction vehicles
While attention has hitherto been on the major manufacturers’ FCEVs for mobility, the
recent injection of £4.9m by JCB has shifted the focus towards the construction industry
and the possibility of other off-road potential clean fuel users. JCB is applauded for
being far-sighted, recognising that diesel fuel as required for all its construction fleet, is
potentially at risk under the clean fuel initiatives across Europe. Diesel generates more
pollutants than petrol and some public authorities, such as the mayor of Paris, have
called for a ban on diesel vehicles in that City by 2020, while some MPs in the UK have
mooted the idea of a scrappage scheme for diesel. JCB’s investment in ITM Power
recognises the possibility of such constraints being extended to the construction
industry, a major user of diesel fuel throughout.
Markets already exist for other hydrogen
fuel applications
In any case, JCB is only one among the global construction machinery makers which
include US-based Caterpillar and CNH, Komatsu (Japan) and Volvo (Sweden). Other
applications already include aviation fuel for unmanned aerial vehicles (UAVs for
reconnaissance purposes), materials handling in powered pallet trucks (PPTs or forklifts) and other uses. In general, it has been shown that performance in productivity
terms has been improved using hydrogen compared with alternatives. ITM Power has
been involved in these other applications, but is unlikely to divert management attention
away from its two major markets.
THE ECONOMICS
The key points for ITM Power from a financial point of view are:
Current contracts in excess of £8.0m
with £5.8m in final negotiation
1.
Production: Five HRS units currently in production with stated contract values
aggregating £8.05m with other smaller works on top. The five HRS units currently
in build should be operational in calendar 2015. In a press release dated 16 April
2015, ITM Power states that overall, and including power-to-gas units, the
Company now has signed contracts worth £9.97m with a further £5.79m in final
negotiation.
HRS contract values have risen
2.
Contract values: Total contract values for HRS units have increased, the latest
being £1.8m compared with £1.55m for the HyFive London units and £1.7m for
those in the US. HRS units are higher valued than power-to-gas because they
require dispensers. As well as the production cost, the values include elements for
data analytics, project management and operating and maintenance costs.
Profit margin only on units sold to an
end user
3.
Gross profit margin: Profits are only earned on projects which are sold to an end
user. Only general indications have been given about the latter and a minimum of
20% has now been surmised. Some variability will occur depending on the size of
the contract. Zeus assumes a 33% gross margin in its 2016 profit forecast.
Expansion of capacity and testing
facilities already provided
4.
Capacity: To increase throughput, ITM Power has stepped up its production
capacity in the Sheffield factory by 20%, with upgrades that included a 1MW
substation. In addition, new test bays to speed up completion times enable
multiple units to undergo functional and compliance testing simultaneously as
several stacks may be under construction at any time. At present, five are under
construction with three more in the near term pipeline. Lead times have shortened
to around ten weeks to delivery although assembly and site-specific issues may
add to the time before operation.
8
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
Substantial upfront payment on contract
provides working capital
5.
Working capital: Working capital requirements have been a matter of concern in
the past when an order might take 12 weeks to complete and absorb. Part of the
solution to this has been to enlarge the initial down payment to a minimum of 50%
of the contract value. It was higher than this at 65% in the case of the RWE
contract because ITM Power was required to give specific performance
guarantees.
Production costs may now be on a
declining trend...
6.
Costs: Labour and material costs to produce have declined as has the time period
from start of production to delivery, ten weeks in the case of the power-to-gas unit
for RWE. Despite a significant increase in sales and marketing costs, a tight
control of staff costs has been achieved with a stable headcount. Staff costs at
home and abroad (the US, Germany and elsewhere) remained broadly constant in
the last year compared with 2013 at c.£4m. Cost savings have been achieved for
the benefit of profits as in general such savings are not being passed on.
...and not wholly due to the volume of
production
7.
Scale economies: Economies of scale in production are already kicking in now
that standardisation of the main product platform has been achieved. Earlier ITM
Power estimated that taking production of a 1MW stack up would reduce its cost
by c.18% from the then applicable £1.7m to £1.4m on a run of ten units and the
Company considers they may have done better than this even with fewer units
produced. This is because cost savings have been achieved not on the volume of
production per se but by standardising components and speeding up
manufacturing through improved sequencing of processes.
Tender prices higher for HRS than
power-to-gas units...
8.
Prices at tender: Tender prices were bid by ITM Power for the power-to-gas units
sold to the Thϋga Group and RWE. Hyundai purchased its HRS for Chino and a
smaller electrolyser unit has been sold to the University of Nottingham. Other
things being equal, tender prices for HRS will be higher to reflect incorporation of a
dispenser.
...and prices may need to reflect more
than scale
9.
Pricing structure: With ITM Power’s product range so far varying mainly in terms
of efficiency and size, adjusted for individual customer requirements, pricing has
not had to take account of much more than kW capacity. With the latest product
launch indicating a further development of the technology, ITM Power may
develop a pricing structure spanning its product range.
Grants amount to c.50% of the contract
value in the UK
10. Grants: Awards have been received from different sources and, for any one
project, may come from more than one source. In the UK, the main source was the
Technology Strategy Board (TSB) now renamed Innovate UK. The two latest
London HRS are being funded by both the OLEV and the FCH JU, the latter being
more generous and making quarterly payments. Grants amount to c.50% of the
agreed contract value. In the US, two HRS have been grant funded by the
California Energy Commission and paid in monthly instalments.
Net revenue also from sales of
dispensed hydrogen
11. Maintenance contracts: With all power-to-gas units supplied, including the latest
for EMEC, and also for all HRS units, ITM Power bids a maintenance contract
worth 5% of the original plant costs for a period of three years. This could bring in
post-sale revenue of.c.£75,000 per annum on a large project of c.£1.5m, and
therefore material.
9
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
Revenue will accrue to ITM Power from
sales of hydrogen dispensed
12. Hydrogen sales: In the case of HRS, other than the units sold to the University of
Nottingham and to Hyundai at Chino, ITM Power retains ownership and all
revenues from the sale of hydrogen. It has not been disclosed what this amounts
to. An early paper by ITM Power (July 2013) gave a cost per 1kg of hydrogen of
£4.19 based on cost of generation and including a ten year period for amortisation
of plant and equipment. In that analysis, a 5% maintenance charge was also
assumed plus input costs for water and electricity to power the plant. This cost of
production excluded delivery and dispensing. With electrolyser production cost
falling, the H2 cost per kg should also be lower, but no recent estimate has been
provided. Consumers would bear the other costs of dispensing and also tax.
SUMMARY & CONCLUSIONS
Focus on two major markets
Power-to-gas and H2 mobility infrastructure represent large scale business
opportunities and ITM Power is focussing entirely on these. Projects in the pipeline are
increasing, particularly in refuellers.
New grant funded projects may have
come too late for the year just ending
The timing of contracts is highly variable. Trading has been slower than expected with
results for the full year below market expectations. The recently announced EMEC
contract, as well as grant funding for the two London-based HRS, may have come too
late to affect the current year and thus slip into ITM Power’s 2016 financial year.
Lengthening order book
Several other projects are still under negotiation. The more projects built, the greater
the likelihood of sales to follow, especially as the reference plants in operation in both
power-to-gas and H2 refuelling stations have so far proved successful.
Costs substantially covered by grant
income
A high proportion of the value of the contracted business is covered by grant awards.
These appear generous covering a high proportion of contract value. Upfront payments
on sales also improve the working capital position.
Standardised production
Standardised production permits cost economies. With the expanded factory premises
for both production and testing, the prospect of capacity shortage is highly unlikely in
the foreseeable future.
Improved output performance
Electrolyser technology has been improved with greater efficiency (over 70%), higher
densities generating greater hydrogen output per unit of cost and reduced ground
space. Higher product prices can be achieved.
Tenders won against strong competition
ITM Power is winning contracts which might, on the balance of probabilities, have gone
to larger competitors. The recent JCB investment is an endorsement of its technology
while opening up new revenue possibilities on a substantial scale. The focus on mobility
has diverted attention from the larger potential market for hydrogen fuel.
10
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
BROKER FORECASTS
Current year downgraded after
interims...
House broker, Zeus Capital, has made estimates based on a build up of sales but
estimates do not take account of the new contracts. The broker estimates current year
revenues of £5.73m with negative EBITDA of (£7.60m) (2014: £8.59m negative) and
loss before tax of (£6.10m) (2014: (£7.79m loss).
...but build-up of sales in 2016
Zeus forecasts total income in 2016 of £9.85m with sales revenue on new build units
comprising £7.20m of that figure. The five refuelling stations currently under
construction are grant funded with ownership remaining with ITM Power. Rising sales
contribute to a fall in the operating loss to £5.35m and loss before tax to £3.85m
(£8.26m and £6.1m respectively for the 2015 year just ending).
Zeus forecasts cash burn of c.£7m in
2015...
Another key question relates to the cash burn. For the current year, based on the Zeus
forecasts, the cash burn is close to £7m or c.£580,000 per average month. This is
calculated after extracting the cash injected by the JCB investment of £4.86m in new
shares.
...but reducing to £2.5m in 2016
For 2016, net cash used in operations is forecast at £1.20m against £5.17m in 2015.
That would enable ITM Power to end 2016 with £5.11m of cash in hand. Nothing
beyond 2016 is considered, but further strategic investments of the JCB type could be
attracted as business increases.
11
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
FINANCIALS RESUMÉ
Losses higher...
Key figures from the results for the half year ended 31 October 2014 presented on 30
January were:


Revenue from sales of £0.52 (2013: £0.71m)
Grant income of £0.82m (2013: £0.90m)

Loss from operations of £3.69m (2013: £3.29m)

Pre-tax loss £3.68m (2013: £3.27m loss)

Cash burn reduced to £3.09m (2013: £4.15m)
Significant increase in contracts under
negotiation since half year end...
ITM Power commented that trading had been lower than expected which was reflected
in the H1 figures and will also impact on the full year results to be announced at the end
of July. At the half year end, ITM Power had signed contracts of £8.76m and a further
£2.61m in final stages of negotiation. However, these figures have now been updated.
In a press release dated 30 March 2015, ITM Power indicated that the contracted figure
was slightly lower at £8.20m (due to some work completed after the period end,
including delivery of a third power-to-gas electrolyser system to a German utility), and
with a further £5.79m in final stages of negotiation.
...and larger upfront payments are
helping to reduce the cash burn
With projects of substantial size, ITM Power has increased the proportion of upfront
payments in the contract balance. Previously that proportion had been set at 50%; in
the case of the RWE contract, the upfront payment was increased to 65%, although
with a quid pro quo concerning certain guarantees on the work. One effect of this has
been to reduce the rate of cash burn which, for the half year was £3.09m against
£4.15m in the corresponding period.
ITM Power’s Income Statement is as shown below:
Half year ended 30 November (£'000)
H1
Revenues from sales
Cost of sales
Gross profit/(Loss)
H2
FY 2014
HY 2015
711
416
1,127
521
(1,412)
(614)
(2,026)
(160)
(701)
(198)
(899)
361
(1,806)
(2,173)
(3,979)
(3,581)
Prototype production & engineering
(519)
(1,652)
(2,171)
(148)
Sales & marketing
(332)
(363)
(695)
(242)
Administration
(832)
(772)
(1,604)
(902)
(3,489)
(4,960)
(8,449)
(4,873)
Research and development
Total operating costs
Grant and other operating income
Loss from operations
901
469
1,370
823
(3,289)
(4,689)
(7,978)
(3,689)
Investment revenues
Loss before tax
20
5
25
11
(3,269)
(4,684)
(7,953)
(3,678)
Tax
Profit/(loss) after tax
-
164
164
93
(3,269)
(4,520)
(7,789)
(3,585)
(2.6)
(3)
(5.9)
(2)
Loss per share, basic and diluted (p)
12
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
BALANCE SHEET
Key features of the balance sheet were:

Fixed assets: £1.51m, a reduction in property, plant and equipment from £1.75m at
the year end;

Inventories: £937m, up £394,000 on the last half year and £175,000 on the last
year end, representing a rise in work-in-progress;

Trade and other receivables: £1.23m, lower on the last half year but up £23,000
on the year end. Receivables mainly relate to grant income debtors;

Cash and short term deposits: £6.67m against the year-end total of £9.76m.
The Consolidated Balance Sheet is as shown below.
As at 30 November (£'000)
HY 2014
YE 2014
HY 2015
Property, plant and equipment
1,421
1,755
1,511
(244)
Non-current assets
1,421
1,755
1,511
(244)
543
762
937
175
Trade and other receivables
1,497
1,206
1,229
23
Cash and cash equivalents
2,699
9,763
6,674
(3,089)
Short term deposits
1,000
-
-
-
Current assets
5,739
11,731
8,840
(2,891)
Total assets
7,160
13,486
10,351
(3,135)
Trade and other payables
(919)
(2,184)
(2,840)
(656)
Provisions
(211)
(302)
(88)
214
(1,130)
(2,486)
(2,928)
(442)
Inventories
Current liabilities
Change on YE
Net current assets
4,609
9,245
5,912
(3,333)
Net assets
6,030
11,000
7,423
(3,577)
Equity
Issued share capital
Retained earnings/(loss)
Total equity
47,341
56,823
56,823
-
(41,311)
(45,823)
(49,400)
(3,577)
6,030
11,000
7,423
(3,577)
13
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
CASH FLOW
Cash flow negative but improving with
business picking up
Average monthly cash burn now c.£0.5m
but large monthly variations
Focus on ITM Power’s cash flow is primarily driven by the need to balance business
development, which is now accelerating, with the amount of cash burn. Key features of
the last half year compared with the corresponding period were:

Loss from operations: This figure, before working capital, increased to (£3.37m)
from (£2.97m);

Working capital: The working capital movement was positive, generating £0.14m
against a negative of £0.95m in the corresponding half year period. This
improvement was due to an increase in credit taken (increase in payables).

Cash used in operations: The negative figure was (£3.22m) compared with
(£3.92m), with additional benefit from income tax received of £0.19m.

Investment in plant: Expansion of the factory premises for production and testing
was mainly financed in H2 last year. In the year as a whole, £929,000 was spent.

Cash burn: The amount of cash absorbed (‘burnt’) in the year reduced to £3.09m
from £4.15m, assisted by higher upfront payments on contracts.
On an average monthly basis, the Company has been absorbing c.£515,000 per
month, lower than in previous years despite activity picking up. That figure is based on
an extrapolation of the half year results which may not be accurate due to the timing of
receipts and payments on large contracts and any receipt of upfront payments. There is
likely to be significant variation month by month
Year ended 30 April (£'000s)
H1 2013
FY 2014
H1 2015
(3,289)
(7,978)
(3,689)
305
641
314
14
(2,970)
22
(7,315)
8
(3,367)
Increase in inventories
(Increase)/decrease in receivables
(350)
15
(567)
443
(175)
(123)
Increase/(decrease) in payables
(792)
473
656
174
(3,923)
265
(6,701)
(214)
193
(3,030)
36
(263)
(227)
62
(929)
(867)
11
(70)
(59)
(4,150)
3,000
(7,568)
4,000
(3,089)
-
(1,150)
1,906
1,906
(3,568)
11,388
11,388
(3,089)
-
756
1,943
2,699
7,820
1,943
9,763
(3,089)
9,763
Cash flows from operating activities
Operating loss
Depreciation
Share based payments
Cash flows from operations before working capital
(Decrease)/increase in provisions
Income tax received
Cash absorbed by operations
Interest received
Purchase of property, plant and equipment (net)
Net cash flows from investing activities
Cash burn from operating and investing activities
Decrease in short term deposits
Issue of shares
Net cash flows from financing activities
(Decrease)/increase in cash and cash equivalents
Cash & cash equivalents at beginning of period
Cash & cash equivalents at period end
14
-
6,674
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
BOARD OF DIRECTORS
CHIEF EXECUTIVE
OFFICER
Dr. Graham Cooley
CHIEF TECHNOLOGY
OFFICER
Dr. Simon Bourne
NON-EXECUTIVE
CHAIRMAN
Roger Putnam
NON-EXECUTIVE
DIRECTOR
Peter Hargreaves
NON-EXECUTIVE
DIRECTOR
The Right Hon. Lord Freeman
NON-EXECUTIVE
DIRECTOR
Sir Roger Bone
Graham joined ITM on 29 June 2009 as CEO. He was previously CEO of Sensortec and Universal
Sensors, founding CEO of Metalysis Ltd, and founding CEO of Antenova Ltd. Graham spent 11
years in the power industry developing conductive polymers, fuel cells, batteries and energy
storage technologies. He was Business Development Manager for National Power Plc and
International Power Plc and developed the Regenesys energy storage technology which was
acquired by RWE from Innogy. Graham specialises in turning IP and technology into products;
identifying the product strategy and business model required to enter a target market and generate
growth. He has a Degree in Physics, a PhD in Materials Technology and an MBA.
Simon joined ITM in 2002 as a Technical Manager and has been one of the leading scientists
involved in the development of ITM's suite of patented membrane materials. Before joining ITM
Simon was a project engineer with Sonatest Plc and a researcher with the Ministry of Defence.
Simon has a BSc Hons in Materials Science from UMIST and a PhD from Cranfield University.
Roger Putnam is a former Chairman of Ford of Britain, ex-President of the Society of Motor
Manufacturers & Traders and a member of the Government's Energy Review Partnership and
Automotive Innovation and Growth Team. The Partnership will report to the Chancellor on the
country's future energy strategy and the AIGT to the Prime Minister on alternative fuels and
transport. Other directorships include: Trustee of Jaguar Daimler Heritage Trust, and Chairman of
DBERR's Retail Motor Strategy Group. He is also a visiting professor of Automotive Studies at the
City of London University. He was made CBE in 2007.
Peter joined the board of ITM in February 2004 as a Non-Executive Director. After qualifying as a
chartered accountant he was employed by KPMG, Unisys and Whitbread and Company Limited.
In 1981 he founded the national investment brokerage Hargreaves Lansdown Plc where he
remains an Executive Director.
Lord Freeman is a member of the House of Lords having been a Conservative MP for Kettering
(1983 to 1997) and serving as Parliamentary Secretary for the Departments of Health and Armed
Forces and as Minister of State for Public Transport and Defence Procurement. He was a Cabinet
Minister in John Major’s government, having also served as Deputy Chairman of the Conservative
Party. Commercial roles now include Chairman of Thales Holdings (UK) Plc, NED of Thales S.A.;
Chairman of the Advisory Board of PricewaterhouseCoopers (UK) and a consultant to RP&C
International. Lord Freeman was a Partner and Managing Director with Lehman Brothers,
specialising in cross border mergers and acquisitions. Other directorships include: Savile Group
Plc, Chemring Group Plc, Global Energy Development Plc, Big DNA Ltd and Parity Group Plc.
Sir Roger was appointed as a Non-Executive Director to the ITM Power Board in June 2014. He is
the President of Boeing UK, Non-Executive Director of F&C Investment Trust plc, Non-Executive
Director and Trustee of the National Centre for Universities and Business and a Prime Minister’s
honorary UKTI Ambassador for British Business. Previously he has been Ambassador to Brazil
and Sweden and Assistant Under Secretary of State in the Foreign & Commonwealth Office. Sir
Roger is also a Trustee of the Royal United Services Institute.
15
ITM POWER
www.itm-power.com
COMPANY UPDATE
23 APRIL 2015
ADDRESS
Head office
22 Atlas Way
Sheffield
S4 7QQ
Telephone
+44 114 244 5111
LEADING SHAREHOLDERS
As at 12 March 2015
%
Allianz Global Investors
8.89
Majedie Asset Management
7.33
JCB
7.22
Hargreaves Lansdown Asset Mgt
4.04
Herald Investment Management
3.37
Barclays Wealth
3.01
INCOME STATEMENT
Year ended 30 April (£'000s)
Revenues
Cost of sales
Gross profit
R&D
Prototype production & engineering
Sales & marketing
Administration
Grant & other operating income
Operating loss
Net interest receivable
Loss before tax
Tax
Profit/(loss) after tax
BALANCE SHEET
As at 30 April (£'000s)
Non-current assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash, cash equivalents and short term deposits
Total assets
Current liabilities
Trade and other payables
Provisions
Equity = Net assets
CITY INSIGHTS CONTACTS
Simon Hudson
[email protected]
Tony Cooper
[email protected]
City Insights
131 Finsbury Pavement, London EC2A 1NT
Tel: +44 (0) 20 7920 3190
CASH FLOW STATEMENT
Year ended 30 April (£'000s)
Operating loss
Depreciation
Loss on disposal of fixed assets
Share based payments
Cash flows from operations before working capital changes
Movement in working capital
Increase in provisions
Income taxes received
Cash absorbed by operations
Interest received
Net purchase of property, plant and equipment
Short term deposits
Net cash flows from investing activities
Issue of shares
Net cash flows from financing activities
Cash and cash equivalents at beginning of period
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at end of period
2012
2013
2014
480
(297)
183
(4,745)
(992)
(477)
(1,472)
985
(6,518)
45
(6,473)
230
(6,243)
87
(138)
(51)
(4,453)
(1,057)
(646)
(1,508)
1,358
(6,357)
189
(6,168)
265
(5,903)
1,127
(2,026)
(899)
(3,979)
(2,171)
(695)
(1,604)
1,370
(7,978)
25
(7,953)
164
(7,789)
2012
2013
2014
1,232
1,463
1,755
12
891
6,560
7,463
8,695
193
1,528
5,943
7,664
9,127
762
1,206
9,763
11,731
13,486
(990)
7,705
(1,711)
(37)
7,379
(2,184)
(302)
11,000
2012
(6,518)
669
(6)
83
(5,772)
(241)
737
(5,276)
45
(469)
(5,000)
(5,424)
101
101
12,159
(10,599)
1,560
2013
(6,357)
601
3
131
(5,622)
(34)
37
239
(5,380)
152
(835)
1,000
317
5,446
5,446
1,560
383
1,943
2014
(7,978)
641
22
(7,315)
349
265
(6,701)
62
(929)
4,000
3,133
11,388
11,388
1,943
7,820
9,763
This document is designed to 'inform and educate' and is intended for professional advisers. The information contained in this document has been compiled from sources believed
to be reliable, but no warranty, expressed or implied, is given that the information is complete or accurate or that it is fit for a particular purpose. All such warranties are expressly
disclaimed and excluded. Any opinions, recommendations and forecasts referred to may have been superseded and thus not necessarily be the current opinions,
recommendations and forecasts of the relevant analyst/broker.
This document is not an offer to buy or sell, or a solicitation of an offer to buy or sell, the securities mentioned. Any recommendations referred to do not necessarily imply the
suitability of particular securities for individual situations. The value of securities and the income from them may fluctuate. It should be remembered that past performance is not
necessarily a guide to future performance and that some companies may be pre-profits and/or pre-revenues, and therefore are high risk situations. You are strongly advised to
have a professional adviser and to contact him/her before entering into any contract to buy or sell any security.
By reading this document, I confirm that I have read and understand the above, that I am a professional investment adviser, and that I shall not hold City Insights or any of its
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16