Fusion Fuel Green PLC (HTOO) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Fusion Fuel Green's Second Quarter 2023 Investor Update. My name is Benjamin Schwarz, and I'm Head of Investor Relations at Fusion Fuel. So we'll begin with the safe harbor statement. I'd like to remind everyone that this call may contain forward-looking statements, including, but not limited to, the company's expectations or predictions, financial and business performance, which are based on numerous assumptions of sales, margins, competitive factors, industry performance or other factors, which cannot be predicted. Forward-looking statements are inherently subject to risks, uncertainties and assumptions, and they are not guarantees of performance. I encourage you to read the disclaimer slide in the investor presentation for a discussion of those risks that may affect our business or may cause our assumptions to prove incorrect. The company is under no obligation and expressly disclaims any obligation to update, alter or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Thank you for joining us today. So I'll quickly run through our agenda once again. So I'll kick things off with an overview of Fusion Fuel at a glance. The management team will then present second quarter highlights, financial results, project commercial updates before wrapping up with a discussion of our milestones and priorities for the remainder of 2023. We will then open up the floor for -- to facilitate Q&A with the remaining time. As in our previous quarterly calls, questions can either be entered in the chat box in the webcast platform at any point during the next hour or you can submit your questions to me directly at the Investor Relations mailbox at ir@fusion-fuel.eu. Okay. So as always, let's begin with a brief refresher on Fusion Fuel, our value proposition and our positioning in the green hydrogen sector. So our mission is to make the energy transition more accessible through the development and delivery of cost-effective clean hydrogen solutions. Our patented miniaturized PEM electrolyzer, the HEVO is at the heart of everything we do in all of our products. Its simplified modular architecture is a true differentiator that unlocks multiple sources of advantage, including high throughput production, a scalable building block approach that positions us to create customized fit-for-purpose hydrogen solutions and cost-competitive distributed production of hydrogen, mitigating the need for hydrogen distribution infrastructure, a critical and costly bottleneck in the market today. We've built a robust pipeline of actionable near-term projects in our core market, Southern Europe, with significant grant funding tied to many of those foundational projects that strengthen the economics and derisk the investment case. We're also making promising inroads in new priority markets in Northern Europe and North America, geographies that have been unlocked -- unlocked, too, as a result of the introduction of our HEVO-Chain solution. We have a differentiated and synergistic business model that positions us across the value chain. In addition to selling our proprietary electrolyzer solutions to third-party customers, we also originate and develop green hydrogen projects with diverse avenues for monetizing that value creation. And finally, we are poised for a significant growth ramp as the market matures with an extensive long-term project pipeline and a world-class production facility in Portugal, where we're targeting 0.5 gigawatt of electrolysis production by the end -- per annum by the end of 2025. So with that, I'll now pass it over to Gavin Jones, CFO of Fusion Fuel, to share some highlights from the second quarter of 2023.

Thank you, Ben. Good afternoon or morning to all of you who have joined our second quarter investor update call. During the second quarter, we were awarded a $2.5 million contract to supply a 550 kilowatt solar to green hydrogen plant by a Spanish government agency called CSIC. CSIC, also known as the Spanish National Research Council, is a public research institution dedicated to promoting innovation, scientific research and technological development. This project will be based in Zaragoza, Spain. We also published our inaugural ESG report in addition to issuing further invoices to our technology cell customers. After the end of the second quarter, we finalized the acceptance tests that are Exolum hydrogen plant, signed a long-term green hydrogen offtake contract with a Spanish industrial group, continued to work on a strategic partnership with Duferco to cover the Italian markets starting with a 1-megawatt HEVO-Chain, non-containerized version in Southern Italy and signed an agreement with Hydrogen Ventures to reach final investment decision on a $20 million project in Portugal by the end of 2023. Frederico will cover these strategic partnerships with Duferco and Hydrogen Ventures in more detail later in the presentation. We will now move on to the financial results for the second quarter. Please note that all values discussed are in euros unless stated otherwise. We've recognized no revenue during the second quarter. We invoiced customers a total of EUR 1 million during the quarter, but client invoices or inflows do not always equate to revenue recognition as the related accounting standard set out a number of criteria that must be met before identified performance obligations within these customer contracts have been satisfied. The items that we have invoiced have been deferred until such time that the performance obligations will be satisfied. For our Exolum project, the key milestone pertaining to revenue recognition is provisional acceptance. As this was achieved during the third quarter, the associated revenues will be booked. As we continue to transition from HEVO-Solar to HEVO-Chain, we identified a significant portion of our inventory that we do not expect to use on projects utilizing both the non-containerized and containerized version. The monetary value of these components was EUR 7.2 million, and we recorded an impairment charge for the full amount during the second quarter. Any inflows received as we dispose and/or recycle these components are expected to be credited against the impairment charge in future periods. We continue to source buyers for these components, but until we have agreements in place, we consider it prudent to write off the full value of such materials. This impairment has been recorded as part of cost of sales. Our operating cost base decreased for the second consecutive quarter. Excluding the nonrecurring EUR 1.4 million expense that was recorded in Q1, we saw a reduction to our personnel-related costs due to a lower headcount when compared to the first quarter. This was coupled with further reductions to travel, administrative and consulting fees, but some were offset by increased legal and depreciation charges. Our quarterly charge relating to our equity incentive plan reduced by EUR 500,000 during the second quarter. This reduction related to the forfeiture of a significant number of instruments, which was offset by new grants during the period. The forfeiture of options resulted in a credit of EUR 1.3 million, which was split between equity for those expenses booked in 2022 and profit and loss for those booked during 2023. The pretax loss for the quarter amounted to EUR 12.4 million, of which approximately EUR 8.1 million related to noncash items. Moving to the balance sheet. The increase to property plant and equipment is driven by 2 items. The first relates to the booking of new equipment that was invoiced during the quarter for our Benavente production facility. This increased the value of this asset by EUR 4.5 million. The second relates to the recognition of a new land lease for our continued development of our own project pipeline. The inventory balance shown as net of the impairment charge of EUR 7.2 million that was recorded during the quarter. Other notable movements include a reduction in VAT as EUR 3.2 million was settled during the quarter, an increase to trade payables as we book the equipment for Benavente as mentioned above, and an increase to deferred income as we issued further invoices to customers and received more inflows from our C5 grant award. Next slide, please. No ordinary shares were sold through the ATM during the second quarter. Over 9 trading days in July and on August 1, we raised EUR 492,000 cumulatively by selling 222,000 ordinary shares at an average price of EUR 2.35 per share. These sales were made on an opportunistic basis when the price of our ordinary shares and related volumes were at a level that we considered appropriate for us to be active in the market. The last sale that we made was at EUR 2.28 per share. Our stock has since fallen to as low as EUR 1.69 without us being active with the ATM. I think this is the most appropriate moment to discuss our capital position. As we have discussed previously, it's of paramount importance that we raise capital to strengthen our balance sheet and to meaningfully extend our runway, which will enable us to generate revenues as we work towards cash flow self-sufficiency. Our main objective is to ensure we select the financing option that best protects shareholder interests while still meeting the needs of the company. As a small cap company, the ATM has proven to be the most efficient method of strengthening our capital position as capital market transactions of late have tended to focus on larger cap or privately owned companies. We are in discussions with both existing and prospective capital providers regarding financing solutions to meet the above objective. While we have no firm details to relate to you regarding these financing solutions, we expect to update the market further as our discussions progress. As part of our Q4 2022 investor update, we issued guidance for 2023 through 2025 for expected operating results. Our 2023 revenue guidance reflected amounts forecasted to be recognized on 2 of our own projects, both of which were expected to be completed during 2023. For the 2 projects in question, significant ground funding was awarded to each with the key criteria being that both projects were completed before the end of 2023. Given the licensing and permitting delays experienced to date, it will not be possible for these projects to be completed within the allocated timeframe. As a result of the foregoing, we are providing revised guidance. In our revised guidance for 2023, we have excluded the related revenues and cost of goods sold for these 2 projects. It's important to note that we consider this to be a delay rather than a reduction. For the 2 projects in question, we had identified investors for both and have now shifted these investors to other projects in our portfolio that are in advanced stages. The shift from HEVO-Solar to HEVO-Chain will allow for a more streamlined licensing and permitting process. HEVO-Solar requires larger land plots in addition to requiring a more complex licensing process. Moving some of our own projects to HEVO-Chain should reduce some of the difficulties encountered during 2023 to date. We expect our technology sale revenues of EUR 5 million to remain unchanged and are not revising this initial guidance. We expect our invoicing to customers to be ahead of plan, but our revenues will lag behind due to the nature of our technology sale agreements, where revenue recognition will be back ended as opposed to overtime, which is consistent throughout the industry. Slide 12 of this presentation aims to set out some of the key milestones in a typical technology contract. Our cost of goods sold has been updated to reflect lower revenues for 2023 and the impairment charges recorded during the second quarter. We have estimated a lower production capacity for 2023, a reduction of 10 megawatts on the initial guidance. The investment in the second production line has been pushed to 2024 due to slower-than-expected client deliveries. We expect to issue a revised guidance for 2024 as part of our Q3 investor update. I will now pass you over to our CEO, Frederico, who will guide you through the rest of the presentation.

Thank you, Gavin, and thank you all for joining us today. I would like to start by sharing with you the latest developments from the work that's been ongoing throughout this year from Exolum. The project, the first of its kind in Iberia, going from solar energy to green hydrogen, straight to our refueling station all co-located, has completed its acceptance testing phase and the project has been delivered to the client. In addition, we're proud to note that the HEVO-Solars and the HEVOs within them are producing at a higher rate than their datasheet. In this early stage market, Fusion Fuel has proved itself as having a leading engineering team, able to not only design but also deliver a full solution to the client, having taken on the oversight of the design, construction, installation and commissioning of the plant. Currently, Fusion Fuel has the only green hydrogen plant currently live in Iberia, and we're working to deliver the third to CSIC. This is an experience level that has proven to have substantial value as we enter the negotiations of future sales contracts. We now have a brief slide show of the Exolum project, which, as I mentioned, we oversaw every step, bringing together several partners throughout. The project included civil construction, installation of the HEVO-Solars, the installation of the balance of plant, the development of control software processes, the commissioning of the entire plant. The team worked incredibly hard these months to bring a truly pioneering part to life. This experience and knowledge are a strong competitive advantage that Fusion Fuel has in the Southern European market. As we've mentioned several times, we've secured substantial strategic sites besides with the development of key green hydrogen projects, primarily in Portugal and Spain, but also in the U.S. and Morocco. Focusing on Portugal and the 5 key owned projects underway, we continue to move forward with these projects adding significant value to them as we continue to secure the elements required for them to go live, be it power payments, connection lines, local permits or even offtake agreements. These, in addition to the EUR 44 million of grants we have secured already for this portfolio, and the EUR 15 million already requested for the Aveiro project, creates an enormous portfolio value for the company. This is in addition to the IPCEI project submission, where we are still awaiting to hear a decision on whether it's approved or not. We continue to receive questions and clarification points, which we are answering, but we do not know yet what the timeline for a final decision is. We are currently negotiating the sale of 3 of the projects listed here to infrastructure investors. With the successful negotiation of these projects and the transfers of those SPVs, we will be able to secure significant revenue orders for '24 and 2025, as well as recognize some of the value of the stock already with those SPVs. The Sines I and Azambuja projects alone represent EUR 20 million each of potential revenues for Fusion Fuel given that we're looking to not only deliver the electrolyzer, but similar to CSIC and Exolum, we are looking to develop the entire hydrogen plant, including balance of plant, something that we are able to do as one of the only players to have done so in the last years in this market. Our expectation is to be able to close the negotiations on these projects by year end. Projects take a long time to take shape, unfortunately, a lot longer than we expected, but also longer than was ever considered in the various national hydrogen strategies. However, the recent negotiations with several large counterparts on the various projects in our existing portfolio, highlighting the value these have for the company. Firstly, to create the backbone for technology sales in future years. And secondly, they enable us to engage with hydrogen offtakers and potential investors in a way that simply supplying the solutions with technology integration wouldn't allow us to do. With this in mind, our team was busy during June and July, preparing 3 new submissions for our own projects for the latest round of Spanish and Portuguese programs as well as being highly engaged in submissions for 4 client projects. If successful, these projects represent nearly 70 megawatts of electrolyzer capacity and around EUR 65 million of potential revenues for Fusion Fuel. The importance of creating these potential projects has only grown since the announcement of the European Hydrogen Bank earlier this year. As a recap, any project that seeks to benefit from the European Hydrogen Bank cannot receive other forms of support or grants. Therefore, if the project is listed here and not successful in securing the grants we are seeking, the work to create these opportunities will not be in vain. We will still be looking to make it a reality by pursuing the European Hydrogen Bank option. In June of this year, coinciding with the progression of our HEVO-Chain offering, the team began pursuing a more focused effort to secure third-party sales for electrolyzer deliveries. The HEVO-Solar proved to be a difficult product for clients as it required substantial land and a unique and ever-changing licensing landscape. To give an example, just in Portugal, the regulatory requirements for our hydrogen project have substantially changed and have had lots of different introductions of new processes in the parenting process. This meant that things like our Aveiro projects, we would no longer be able to build them as they are today. This is how fast the pace is changing. We will still implement the HEVO-Solar in certain projects, Exolum and CSIC are examples of those, but it increasingly becomes harder as these things will be on industrial sites and the permitting process is much longer. The HEVO-Chain solution, was notably our core offering today with its industry-leading efficiency for a PEM system, is receiving significant traction from projects developed by third parties and our own. We've been transferring the technology used in our own projects to the HEVO-Chain solution gradually. And this is improving substantially easier to advance with the licensing and permitting processes. Since this transition to the HEVO-Chain, our sales team has already submitted around 40 offers for this new solution. These submissions are often complex, requiring full design specifications for hydrogen projects that go well beyond the supply of the electrolyzer alone. This is where our unique ability for being responsible for projects that are live was a significant differentiated in the years to come. The sales to third parties in several stages, and we expect to be hearing final technology decisions on several of the offers in the coming months now that the European summer break is coming to a close. A highlight for us in this process has been the offering of our technology for the first project in Northern Europe, which is not possible before the HEVO-Chain solution and something which we noted in the last update and is a strategic priority for us. The reality is that although Southern Europe has enormous potential for green hydrogen, the northern countries in the continent are moving faster and establishing a series of projects in this space. And, therefore, it's something we certainly want to participate in. As noted in the previous slide, the sale of our own projects to infrastructure investors is something that we are actively engaged in and look to conclude before year-end, which will generate significant confirmed revenues for the firm as well as release substantial cash flows given that they will consume a significant amount of product currently in our inventory. We've received several [indiscernible] some of our competitors. Here, we've laid out the value chain of green hydrogen plants, starting with the power supply and the electrolyzer system, the engineering, the balance of plant procurement, the construction process finally leading to green hydrogen being produced and delivered. For Aveiro and Exolum and also for CSIC, Fusion Fuel is responsible for the entire value chain, developing a full, but rare experience within our team to be able to deliver this. Going forward, our primary focus on the delivery of the electrolyzer system and amenities of their installation commission. We will also look to provide engineering services and balance of plant and engineering and procurement for selected projects and mostly limited to projects in Iberia. These are services that require a thorough understanding of the local regulatory requirements, something we have here, but instead of developing for our markets, we'll look to partner -- we'll look for partners with the relative expertise. Partnerships are a key enabler of our strategy and have a multiplier effect on our limited team and size. In Italy, we are working together with Duferco Energia, a company we have partnered on 2 project proposals for Italian plants before to create a commercial partnership, to promote the Fusion Fuel technology suite to the Italian market. This is an example of the strategic relationship with -- relationships we are looking to form. While we bring our leading technology to our partner with substantial local operations and knowledge and thereby accelerating our presence in the market beyond what would be possible. The partnership with Duferco kicks off with a 1-megawatt HEVO-Chain Series C electrolyzer system during 2024 to decarbonize local refinery. This is the first project that we'll be taking the containerized version of the HEVO-Chain solution, something we're very excited to deliver. There are further partnership discussions ongoing, covering new markets such as North America and India with demonstrated projects for Fusion Fuel included. We can't go into them now, but we will share developments on these exciting discussions as soon as we can. We're working -- we're also working with a large renewable specialist entity for potential funding on some of Fusion Fuels projects in Europe beyond Portugal. These are projects that have already begun to take shape, but they still require investments for their completion. The green hydrogen are still in its early stage, but these partnerships are important to help us accelerate our growth while ensuring that we keep our cost as low as possible. We have been able to secure some of the first green hydrogen purchase agreements in Southern Europe. Green hydrogen offtake is still in its early stage and is a critical part of making any green hydrogen project viable. Our experience in negotiating contracts for industrial use gas spending and mobility cases puts us ahead of the curve on establishing ourselves in these markets. In addition to these green hydrogen purchase agreements, we've also secured several other use for the supply of green hydrogen for projects in our portfolio. The experience we established in the negotiating and framing the cost agreements form a principal foundation to finalize these larger contracts, ensuring that the projects in our portfolio have an attractive, unlevered IRR for their investors. Before reaching the last side of the presentation, I'd like to spend a few moments to dig into what is truly special about the HEVO-Chain offering and the HEVO itself. It is a really important evolution in the PEM market, so bear with me for a moment. Firstly, we have a market-leading PEM stack efficiency of 47.8 kilowatt hours per kilo and an efficiency at the system level of 51.8 kilowatt hours per kilo. This compared to most peers in and around 57 kilowatt hours per kilo, roughly a 10% efficiency advantage. Our system is one of the most modular and scalable of any electrolyzer solution in the market, able to be handled with components and dimensions as small as 20 kilowatts. This allows for high-scale modularity in building hydrogen plants, but also minimizes the disruption during maintenance processes and during any system issues, reducing the risk of requiring an entire plant to shut down as has been seen in other systems. One point to highlight, as we've gone over into this detail in the past, we have an industry-leading precious metal utilization. This is the chart you see here on the right. We are currently well below the targeted platinum group metals usage in both the EU Clean Hydrogen Roadmap and the U.S. Department of Energy Roadmap. Critically, we've completed more than 2,000 hours of new HEVOs using an amount of platinum group metals, only targeted to reach around 2030, and about 1/4 of the value used by some of our more established PEM competitors. This highlights how truly differentiating the HEVO technology is and the advantages it has in the market. I'll touch upon the slide briefly. We wanted to keep it in as we always look to highlight where we stand versus what we set out to do at the start of the year. Most of the points have been covered in previous slides. However, I'd like to note that HEVO-Chain is now in full commercial mode. And that for the first time, we've included the capture of oxygen for the electrolysis process for a client for the system delivery at the end of the year. The process of producing 1 kilo of green hydrogen releases 8x that amount of oxygen, better yet, green oxygen, as no carbon emissions were released during its creation. In this first case, the client has a use for oxygen in their industrial process, and therefore, we're able to add on to the system also the capture capabilities. We expect this to be included in more and more client proposals going forward. Last quarter, we highlighted our strategic priorities, and we want to provide an update now on how we are executing against this. As noted, we have started an all-effort push on tech sales with our HEVO-Chain offering. This has resulted in more sale offers going out in the last few months than the previous 2 years. Importantly, this induced the first proposals for project in Northern Europe and in the U.S., both key markets for the green hydrogen industry. As clear to us and to everyone that strengthening our capital position in balance sheet is a priority for the executive team. Before going into the details that Gavin noted that we've been provided this time, we are in advanced discussions with capital providers to strengthen our capital position. We do expect to make significant progress in the business in the coming months, given what I've mentioned before and where we are in project sales and tech sales, which has also put us in a position to take further steps to strengthen our capital without having such a distressed valuation. As noted, the HEVO-Chain offering is well advanced and commercially ready, and we can deliver an offer for purchase up to 5 and 10 megawatts already. It's important to note that the largest PEM electrolyzing operation today is 20 megawatts only. So the part to going large in this industry is still something that everyone is pursuing. For us delivering on smaller projects and scaling up gradually is how we intend to meet the delivery of our other projects in the future. As the company grows and the industry evolves, we've also identified the need to review the structure and size of certain areas. And importantly that we ensure that our resources are allocated in the most appropriate manner for our strategic goals. This is a process that won't stop while in the coming months will lead us to have some refocusing of our efforts and cost reductions where possible. The plan is that we can self-fund pursuing some of the new opportunities that we have identified. Lastly, regarding strategic partnerships, as highlighted earlier, we are thrilled to provide green energy for Duferco Energia, bringing not only our first 1-megawatt containerized order, but also importantly our plan for commericial coverage of the Italian market. We're pursuing other partnerships to help us grow and bring a multiplier effect to our business and are in very advanced discussions with both Europe and beyond. We can't say more now, but we hope to be able to announce some of the items we're working on over the coming weeks. I'll now ask Gavin and Ben to join me as we open the session for some Q&A. Thank you.

Great. Thanks, Frederico. I've gotten some questions in the e-mail as well as in the chat box. A quick reminder, if you do have additional questions, you can send them to Investor Relations mailbox at ir@fusion-fuel.eu or enter them into the chatbox and webcast platform. Okay. So we'll begin some questions from Chris Tsung at Webber Research. There's a handful of questions on the H2 Pioneros project announcement that confirms EUR 3.3 million in grant funding. How do you plan to fund the remaining EUR 2.5 million of capital investment for that project?

So to note, this project is one similar to our Portugal projects. These are own projects that we are looking for infrastructure investors for the actually owners and the funding partners for these projects. We're already in advanced discussions with the renewable investor for that project. To note, that project is what we call Toledo I in the slide of PERTE and C14 project front overview. And we're in discussions with that same investor for Toledo I and Toledo II, right? The project has also been changed to HEVO-Chain. So it is a HEVO-Chain offering as well. Most critically, together, these projects hold critical item, was the hydrogen purchase agreement, something we have announced and secured already for that project. So now we are in the next stage discussions with the investor. I hope that answers the question.

Yes, that's right. I think it does. As a follow-up to that, we announced that there were 4 projects preselected for grant funding as part of the first H2 Pioneros call. Are the remaining 3 projects still in contention? And if not, how should we think about the viability of those projects?

Sure. Thanks, Ben. So of the 4, one was awarded and 2 what we let go and one has been resubmitted to the new purchase. So that is Toledo II is the actual one that we have resubmitted at present.

Great. What is the pathway to monetize the approved grants or the secured grants given that only EUR 6.8 million or so has been invoiced to date? Also, the approved grants decreased quarter-on-quarter from EUR 70 million to roughly EUR 60 million. What -- can you provide some clarity as to what happened there?

Sure. So I will tackle those in the reverse order. The gross net reduction of the EUR 10 million are related to, as Gavin mentioned, the 2 projects that we could not complete due to licensing delays right so, even though we have been -- we were not the only ones to suffer this problem. There were -- in these Government programs, there were 40 hydrogen projects approved. Not a single one was implemented given the delays on the government side. So we were not unique. But effectively, that matches exactly the decrease in grant value was us formally acknowledging that we will not be pursuing the project. In reality, the grant will only expire at the end of the year, but we are already reflecting that in the numbers. So when those are -- sorry, yes, the recognizing of the revenues. So effectively, the grants to support the CapEx expense of the project. So as we try to entail the projects to investors, they will be the ones who will benefit the most from the grant. So there are -- there is a certain amount of the grant funding that we are taking receipt as the current holders of the SPV. This allows us to sell some of our products to that SPV. But by the time, the grants, we do hope to see a decrease in that broad number in our own books as we transfer these SPVs to third-party investors. And so with the moving of the grants to third parties we'll truly benefit from them. We will also see the contract sales related.

Great. Thanks, Frederico. A final question from Chris. On the revised guidance, can you provide some clarity as to how revenue decreases -- expected revenue decreases by EUR 20 million, but net income only decreases by EUR 9 million.

Sure. I can take that one, Ben. So in terms of that revised guidance, again, important just to note the split between technology sales and our own project development sales. So the cost of sales related to the 2 projects that I mentioned has fully fallen away. And for those who have been following us, you might remember that as reported in our most recently filed 20-F and our Q1 investor update, we recorded significant onerous contract provisions for our technology sales in December 2022, which effectively under accounting standards requires you to book the -- your best estimate of the loss for those contracts when you first realize that those contracts will be loss making. So we recorded a provision in December and how that kind of works its way out as you record revenue, and you will record the corresponding cost of sales. But as those losses have already been recorded in the income statement, the amount that will be recorded once revenue has been recognized will actually be significantly lower and if a contract loss provision hadn't been booked in the first instance. So sorry, a bit of a worthy response to that, but hopefully, I've got the message across.

Thanks, Gavin. A couple of questions from Erwan Kerouredan at RBC. What are the next steps regarding your product simplification strategy and perceived phaseout of HEVO-Solar? Should we expect further impairments as part of that transition?

So I'll answer the next steps, and Gavin will take the impairment piece. So for us, as we noted we are already moving well along on the HEVO-Chain solution. We've been moving our projects towards the HEVO-Chain offering, so taking advantage of the simplified licensing process that, that offers us. At this stage, there's no real sort of further requirement for us to do a product simplification strategy. It's more just focusing our efforts on getting the projects transferred, which boosted mostly to the HEVO-Chain solution. Gavin, I will pass to you on the impairment.

Yes. Perfect. So we don't expect any further impairments. But again, we can't be 100% definitive on that. What we have done is taking a pretty rigorous review of everything that we have in inventory. And we feel the number that we booked in this quarter correctly reflects the items that we won't -- we know for sure that won't use going forward. And as I mentioned, we're looking to sell those or recycle or scrap them. So hopefully, there will be inflows in the future. But in terms of other items in our inventory that we have, as Frederico mentioned, HEVO-Solar is not dead. We still have projects ongoing. So we will utilize the materials that we have. And our production and R&D team have also done a pretty good job at reviewing the materials to be used for HEVO-Chain, both containerized and non-containerized, and we've been able to utilize many, many components within the inventory. If that process wasn't done, then they would have had to be impaired. And we will continue -- we will be on this journey for the next couple of months until HEVO-Chain becomes a bit more recognized in the market, and then, we're actually installing the product. So hopefully, not is the answer based on the review that we've done so far.

Thanks, Gavin. Can you touch on the U.S. strategy? Has the U.S. market been deprioritized in the near term in favor of Northern and Southern Europe?

No, absolutely not. So the U.S. market, and note that North American markets so as to throw in Canada in there as well, it's certainly a priority for us. As I noted during our speech, we've been making offers for both Northern European markets as well as North American markets. The IRA is a phenomenal opportunity for everyone in the -- in hydrogen space. The -- any project that includes our technology can benefit from the EUR 3 tax credit a kilo of hydrogen produced. So it's certainly a focus. In fact, this is one of the partnership discussions that we are engaged in. So we look forward to being able to share more with you all related to our efforts in North America. But just to know that it is certainly a priority for us. How we plan to cover that market going forward beyond just the sort of answering for inbound technology requests and ongoing live home projects that were already in flight. I believe it will become clearer as we're able to announce details around our partnerships. So I will be vague, but I hope to be able to communicate more in the coming weeks.

Great. We'll pivot now to some questions from [ Jeffrey Grant with AGP ]. What are the remaining steps required to reach FID on the projects with Hydrogen Ventures?

So the project with Hydrogen Ventures, the one that we are discussing with them, this is a project that we've been -- already we have the licensing of the power grid, we have the power line, we have the hydrogen production line. So at the moment, this is more around the contractual discussions with Hydrogen Ventures than doing their review and due diligence on the project, all the project materials, the grant contracts and so on. So in terms of FID, these are now the coming ones, it's really on investor review of the project more than any particular milestone.

Great. Second question concerns the reference made in the second quarter materials for more standardization and rigor in sales efforts. Can you expand on what you mean by that? And what benefit that standardization will have?

Sure, of course. So effectively, when you do a HEVO -- this is one of the advantages of the HEVO-Chain, when we do a HEVO-Solar project, every single project needs to be completely tailored with the amount of hydrogen produced by HEVO-Solar depends on the local radiation of that site. The topography of the land can change the requirements and so on. So every single proposal needed substantial customize and customer offering, nearly doing a full project review just to put out an offer. With the HEVO-Chain, we're able to have standard offers. So we have effectively much more standard building blocks that can be applied anywhere given that it only requires a certain amount of land to place the unit. This has allowed us to have pretty much from standard designs to standard offer letters, laying out 3D layouts, sorry, and so on. This -- the ability to be able to deliver nearly 40-plus offers in a couple of months would simply not have been possible with the HEVO-Solar offering. So that standardization is what we're referring to.

Moving now to some questions from the audience. What's the status of the HEVO-Solar given the permitting challenges referenced during the quarter? And can you provide some additional commentary on those permitting issues in Portugal and Spain?

Sure. So again, on permitting issues in Portugal and Spain are related to the type of land and the rules and requirements that each hydrogen project has to go through. So for example, last year, Portugal passed a regulation that was called SIMPLEX that allowed hydrogen projects to be sent through a number of regulatory and licensing requirements and sort of a licensing-light approach. As of this year, that position was reversed, and that accelerated process is impossible, especially projects that were pursuing that SIMPLEX System that informed that they need to revert back to the old, lengthier regulatory process. So that's what, change of goal posts from the regulators, they get very hard for the various projects. It particularly hits the HEVO-Solar because the type and -- the original regulatory requirements that they now reverted back to, the amount of licensing required or should say the required licensing hurdles, significantly increases with the footprint size of the project. So when you're doing a 1 hectare project it's very different when you are doing a 10 hectare project and so on. So effectively, the required licensing process for a HEVO-Solar project with any sort of relatively decent size maintained already would immediately hit all the highest hurdles. Again, this is also a development in the regulatory process that was quite a surprise because as the previous one was only implemented last year, effectively changed gain for the HEVO-Solar in these markets. It's not to say that, that applies to Morocco or other markets, but certainly Portugal and Spain, these were one of the changes. So effectively, what we have done is we have separated the hydrogen production from the power production in terms of physical separation, and we transfer the electronics to the electrolyzer. This proves still to be a very cost-effective manner because the HEVO-Chain is actually performing very well, exceptionally well with a very low -- or I should say very high efficiency, low kilowatt hour requirement per kilo.

Thanks, Frederico. Can you provide an update on the Gedisol project, which was announced last year?

The Gedisol project and the HEVO-Solar project, to be specific, those are the 2 projects that were impacted by the delays of licensing as Gavin mentioned. These were the projects that we were expecting to deliver this year. They have been -- we had to change the investors for those projects to other projects in our portfolio.

Thanks. When should investors expect some clarity on the company's capital position?