ITM Power Plc (ITM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the ITM Power Plc Annual General Meeting broadcast. [Operator Instructions] Due to the number of attendees on today's presentation, the company may not be in a position to answer every question it received during the meeting itself; however, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor dashboard on the Investor Meet Company platform. I'd also like to remind you that this presentation is being recorded. I'd now like to hand you over to Mr. Roger Bone, chairman of ITM Power Plc. Good morning, sir.

Good morning. Good morning, and welcome to the ITM Power 2021 Annual General Meeting. This is, in fact, the first of 2 general meetings we're holding in relatively quick succession. The second meeting will be the rescheduled general meeting to approve the fund raise that was announced on the 14th of October, and that meeting will now take place at 10:00 in the morning on Monday, the 15th of November, both at our Bessemer Park site and on this virtual platform. About 15 November meeting, however, there will be no executive committee presentation. Returning to today, given the current situation and the guidance in response to the ongoing COVID pandemic, your Board has had to take the decision again to hold our AGM in this virtual manner. But I do hope that we can welcome shareholders to Bessemer Park sometime during 2022. Now following the conclusion of the formal AGM business, our Chief Executive Officer, Dr. Graham Cooley, together with Andy Allen, our Chief Financial Officer; and Dr. Simon Bourne, our Chief Technology Officer, will present a review of the last 12 months. This will then be followed by a question-and-answer session. We have received some pre-submitted questions. Shareholders may also, of course, ask any questions relating to the businesses of this AGM via the Investor Meet chat facility at any time during the next hour or so. So the notice of the meeting was published online and posted to shareholders on the 1st of October this year, and I'm pleased to confirm that a quorum of shareholders is present at the physical venue and, therefore, this meeting is properly constituted, and I can declare the meeting formally open. Voting for each of the resolutions we're going to consider is, as usual, by way of a poll. And the proxy votes cast by shareholders are reflected in the voting as I will set out verbally and will also be displayed on the screen for each resolution. For the record, resolutions 1 to 7 are proposed as ordinary resolutions and require just a simple majority to be passed. Resolution #8, as proposed, is a special resolution and, therefore, requires a 75% vote in favor of the resolution to be passed. So if we may move into the formal process, I will take the notice of the Annual General Meeting as read. And I now formally propose each of the resolutions set out in the notice to the meeting. So Resolution #1. I would like to propose Resolution #1 to receive the company's accounts for the financial year ended 30 April 2021, together with the directors' reports and the independent auditor's report on those accounts. I report the votes by proxy. Total votes cast 247,193,430 in favor and with the Chairman; 245,205,684; against, 20,301; and withheld 1,967,445. And on that basis, I declare that the resolution carried. Moving to Resolution #2, to approve the directors' remuneration report for the financial year ended 30 April 2021. Before I move to formally propose this resolution, I would like to address some feedback that we have received from some shareholders in relation to parts of the disclosures contained in this year's report. I should like to say that we welcome the feedback. As an AIM-listed company, we were not obliged to put a remuneration committee report to a vote, but we wanted to do so in the interest of openness and transparency. And in order to share with you the decisions we felt were important at this stage of the company's growth. Some shareholders were concerned about the increase in the executive team's salaries. The Remuneration Committee has undertaken annual independent third-party salary benchmarking exercises to ensure that those salaries are maintained at an appropriate level and to reflect the company's substantial growth over the last few years. And I'm sure that shareholders will also appreciate the associated exceptional price increase in share price performance over this period, moving from a price of just 40p in October 2019 to just over 480p at the opening of business this morning. Against that background, the decision was taken to reset the Executive Director salaries at the lowest quartile of the benchmark peer identified with the understanding that this would provide the catch-up correction required and help to attract the right caliber of talent in the future as the company continues to grow. Now that, that level has been established, I can confirm that I would not expect to see any further significant real increases in salary for the foreseeable future. A second point in the feedback was addressed to one aspect of the award of bonuses. Shareholder feedback on that issue has been listened to. I can confirm, going forward, that we would not expect to grant bonus awards for performance, which are not linked to specific performance objectives and indeed, specific performance metrics. We will, of course, also be replying separately to the shareholders who have written to us on these issues and indeed on other issues too. So with that, I hope that provides some clarity and reassurance to shareholders. And I would now like to propose formally Resolution #2 to approve the directors' remuneration report for the financial year ended 30 April 2021. So I report the votes cast by proxy. Total votes cast 247,193,430. In favor and with the Chairman, 176,214,513; against, 70,929,249; withheld 49,668. And on that basis, I declare the resolution carried. If we could move to the next slide, please. I would now like to propose Resolution #3, to elect Tom Rae, who was appointed on 3 December 2020 by the Board of Directors as a director in accordance with Article 76.1 of the company's Articles of Association and who, being eligible, offers himself for election as a Director of the company. I report the votes cast by proxy. Total votes cast, again, 247,193,430. Votes in favor, 230,749,532; votes against, 16,420,227; and withheld 23,671 million. And on that basis, I declare that resolution carried. Moving then to Resolution #4. I would like to propose Resolution #4 to reappoint Andrew Allen, who retires in accordance with Article 81.1 of the company's Articles of Association and who offers himself for reelection as a Director of the company. I report the votes cast by proxy. Total votes cast, again, 247,193,430. Votes in favor and with the Chairman, 240,243,118; votes against, 6,927,981; and votes withheld 22,331. And on that basis, I declare the resolution carried. If we could move to the next slide, please. I would now like to propose Resolution #5 to reappoint Dr. Graham Cooley, who retires in accordance with Article 81.1 of the company's Articles of Association and offers himself for reelection as a Director of the company. And I report those votes cast by proxy. Total votes cast 247,193,430. In favor and with the Chairman, 223,481,701; votes against 23,659,161; and votes withheld 52,568. And I declare that resolution carried. Moving to Resolution #6. I would like to propose Resolution #6 to reappoint Grant Thornton as auditors and to hold office from the conclusion of the meeting to the conclusion of the next meeting at which accounts are laid before the company at a remuneration to be determined by the directors. I report the votes cast by proxy. Total votes cast, again, 247,193,430. In favor and with the Chairman, 240,313,996; votes against, 6,860,990; and withheld 18,444. And I declare that resolution also carried. Turning to Resolution #7. I would like to propose, as an ordinary resolution, resolution #7 to give the directors authority until the conclusion of the company's next AGM to allot shares and grant rights to subscribe for or convert securities into shares up to a maximum amount equal to 1/3 of the company's issued share capital or in connection with rights issues, 2/3 of the company's issued share capital. Again, I report total votes cast, 247,193,430. In favor and with the Chairman, 226,015,075; against 14,366,321; and votes withheld 6,812,034. And on that basis, I declare that resolution carried. Turning now to the last of the resolutions, Resolution #8. I would like to propose, as a special resolution, Resolution #8, to empower the directors until the conclusion of the company's next AGM to allot shares with cash up to an amount equal to 10% of the company's issued share capital or in connection with rights issues as if the statutory preemption rights did not apply. Again, I report the votes cast by proxy. Total votes cast, again, 247,193,430. In favor and with the Chairman, 237,495,481; against 9,668,755; and withheld 29,194. And on that basis, I declare the resolution carried. Ladies and gentlemen, with that, I can declare the formal AGM closed. Before I hand over to our Chief Executive Officer, Graham Cooley, and Andy and Simon, to present a review of the last few months. I would just like to say a few words to shareholders about the background of the accelerated book build, the institutional placing that you will be invited to approve on the 15th of November. The presentation you're about to hear will explain in more detail the rationale behind the raise. The principal reason for using solely the placing structure on this occasion was due to the fact that it was under 1 year since we last raised funds. And that means that we could not include an open offer component without publishing a full prospectus, which would have been costly, but much more importantly, very time consuming. As longer-term shareholders will know, we've always made every effort to include existing private shareholders in our fundraises, where the rules allow us to do so in an efficient manner. The support from the directors and from Linde for the fund raise was an important element in welcoming new institutional investors. So this is an enormously exciting time for the company. We've seen quite extraordinary growth in the company over the last 2 to 3 years. And on that note, I'm absolutely delighted to hand over to Graham, Simon and Andy to give us their presentation. Graham, over to you.

Thanks very much, Roger, and thanks to everybody for attending this AGM. So the presentation you're going to hear from me, first of all, about the rationale for the funding round, about the development of the macro market and some of our commercial progress. I'm then going to hand over to Simon Bourne, our Chief Technology Officer. Simon is going to talk you through technology and automation and manufacturing. And then Simon will be handing over to Andy Allen, our Chief Financial Officer, to talk you through financials and some guidance for the current year. So first of all, in terms of ITM Power and our positioning, as I'm sure you're all aware, we are a manufacturer of PEM electrolysis equipment. Actually, we're the leader in scaling the manufacturing of PEM electrolysers, having moved into the world's largest electrolyser factory this year. And we work very closely with Linde Engineering who are scaling the deployment. And actually, you need to be able to scale both the manufacturing of the modules and also the deployment to catch what is an incredibly rapidly growing market, a huge market. And I'm going to give you some more information about market sizes in a minute. So today, we're looking at an annual capacity of 1 gigawatt per annum to be fully installed by the end of 2022. And actually, that requires us to understand in detail what our product mix is and also to have played out some of the cost reduction. By 2023, we will have installed a second factory in the U.K. of capacity 1.5 gigawatts with additional levels of automation, taking us to a capacity of 2.5 gigawatts per annum by the end of 2023. And then we've raised enough resources to build a 2.5 gigawatt per annum factory, which is more highly automated in a location internationally. And that will mean that our total manufacturing capacity by the end of 2024 will be 5 gigawatts per annum. The funding, and Andy is going to tell you more about the use of funds of GBP 250 million, which is subject to a vote, is in combination with the existing cash on the balance sheet, takes us to a total of just over GBP 400 million and puts us in a very strong position in this incredibly dynamic market. So the macro picture then has accelerated very strongly over this year. The IEA report was very, very interesting. The IEA report, which is a road map to -- for the global energy sector points out that to get to net zero by 2050 the world needs 3,500 gigawatts of electrolysis. It's a very large number. Actually, we're in the world's largest electrolyser factory with the nameplate capacity of 1 gigawatt per annum and that's 35 centuries of the production of the world's largest electrolyser factory. And that's required in the next 29 years. And if you look at that as a full system price to the customer of EUR 0.5 million a megawatt, that's over EUR 2 trillion of market. It's a very, very large market. If you look at the existing projects today, the Aurora Energy Report identifies 200 gigawatts of electrolysis projects already in development, actually 85% of them in Europe. And if you add up all the national targets for electrolysis equipment, comes to nearly 150 gigawatts. And all over the world now, we see the announcement of electrolyser targets, indicating how important green hydrogen is in the energy transition. And I would say that in the run-up to COP26 and we're now days away from COP26, you'll see more and more interest in green hydrogen. And in fact, we have a whole series now of visitors to our factory who are attending the conference in Glasgow. One other very important development was the Earthshot in the U.S. and the first Earthshot, which was announced by the U.S. is for green hydrogen. This is showing, again, a very rapidly developing macro picture. So our numbers then, we achieved a record backlog of 310 megawatts. This includes preferred supplier status. If you strip that out and you just look at the contracts we've received, that we've either signed or they are in negotiation, that has gone over 200 megawatts for the first time. So sales of 200 megawatts is a strong position to be in. But the tender pipeline is moving just as rapidly. In fact, the tender pipeline is the number of quotations we have made against international competitive tenders over the last 12 months, and that now stands at 1,011 megawatts, which is over a gigawatt for the first time. And there's a definite increase in the weighting towards larger projects. And this is a dynamic that we see in the industry. But you can see the blue line is the increase of the tender pipeline. And you can see the extent to which the gradient has increased over the last 2.5 years. So what are the -- what's the breakdown of that gigawatt of tenders? What I've done here is divided those tenders up into project sizes. And just so that you understand the various project sizes, if you're below 4 megawatts, then this is definitely a plug-and-play technology that we use. And you can see on the top right-hand side of the diagram, a containerized plug-and-play unit. In this case, it's a 3 MEP 2-megawatt unit. And at the bottom, you can see what our installations look like working with Linde if you're at a much larger scale. In this case, that's 100 megawatts in size. So we segment the market in terms of north to 4 megawatts, then up to 20 megawatts, then up to 80 megawatts in size. And when you go to above 20 megawatts, you're integrating the 2-megawatt module. That is a real sweet spot for ITM Power. That's the cost of projects that we -- the 2-megawatt units we used for the first refined project and also really using for the Leuna project. The important thing here is to note that we manufactured the same thing over and over again. We either manufacture 2-megawatt module or a 5-megawatt module regardless of the size of the project. All of the bespoken and the project integration and, therefore, the project risk is on Linde and Linde Engineering. And ITM is providing those modules. So if you look at the dynamic then, if you look at the blue bars in the chart on the right-hand side, you'll see that the largest class measured by total number of megawatts is actually above 80 megawatts in size, and they're using 5-megawatt modules. So 580 megawatts of those projects are across just 3 projects, based on 5 megawatt projects. 200 megawatts of -- or 190 megawatts across 5 projects using the 2-megawatt module. And this is a definite weighting towards larger scale projects. And the very simple explanation for that is that the early entry market for green hydrogen is replacing gray hydrogen in the industry with green hydrogen. And that's where the demand centers are for hydrogen right now. So if you look at what region in the world the projects are, and again, looking at the industries. EMEA is the region which is moving fastest. So that's -- currently, it's principally Europe, but the Middle East is also moving very, very quickly as well. And APAC is the fast follower right now, Australia and Australasia, so New Zealand and Tasmania and Australia, all moving very quickly in the area of industrial hydrogen. And now the U.S., are kind of a giant in the industry, just waking up with the Earthshot. The U.S. led hydrogen in California for refueling. But now the Earthshot is about replacing industrial hydrogen with green hydrogen, and we're seeing some considerable traction beginning there now. So I think you can see energy and industrial hydrogen moving very quickly. Industrial is where it's led by principally the oil and gas industry and energy is where it's led principally by renewable energy companies looking for a long-term energy storage, but there's considerable overlap between those 2 definitions. So my last slide then, before I hand over to Simon, our current position is very strong. We have a very strong technology platform, a very strong product portfolio and a great integration partner with Linde Engineering with 1 gigawatt of manufacturing capacity. I think for all sorts of reasons, ITM is in a very strong position. Where we ultimately want to get to is being the very lowest cost provider, working with our customers so they get the lowest total cost of ownership and the lowest levelized cost of hydrogen, and moving from 1 gigawatt of manufacturing per annum to 5 gigawatts of manufacturing per annum. So with that, I'll hand over to Simon, who's going to talk you through technology and the manufacturing. Simon?

Thanks, Graham, and good morning, everyone. Pleased to be able to speak with you today. I'm going to talk about what electrolyser operators are looking for, how that drives our technology program and product offering. I'm going to outline the growing area of aftersales support, and then I'm going to finish up with a summary of our manufacturing position today and how we plan to scale out before I hand over to Andy. So what do customers look for? Well, every project is trying to understand total cost of ownership and the levelized cost of hydrogen. In every project, there are always several considerations to do that comprehensively, but there are always 3 key factors. And the first one and most important one is performance. So the higher the electrolyser efficiency, the less energy is consumed in generating hydrogen. The second is system price. That's a full system price. And the third is the ongoing operational support, the ability of the supplier to support the user of the equipment and maximize their operations over project life. And so ITM are active, of course, in all of these areas and more and we can derive competitive advantage at all 3 of these levels. And efficiency improvement is driven by technology. Cost improvement is driven by a combination of technology and the adoption of higher levels of automation. And our intention is to continue to build on the strong position we have today while scaling out our manufacture to be able to address the significant growth in demand that Graham outlined a few moments ago. So how does all that influence what we do? Well, of course, our technology program is focused on cost reduction, performance improvement and lifetime extension, but there are several other aspects where we can add further value to the customer to make our offering more desirable. And ITM is active across many of these areas. I'm not going to go through this full table. It's not exhaustive anyway, but I'll give you a couple of quick examples. If you can capture and use the byproduct oxygen from the electrolyser, that gives the user access to an additional revenue stream. If you can reduce the system footprint, that renders more involved sites viable for electrolyser deployment. And the overall message here for me is that it's not -- you need to consider all factors together. It's not good enough to talk about the lowest cost electrolyser only if it has poor performance. And likewise, it's not good enough to claim the highest efficiency if the system is too big to deploy in your target applications. So we need to have all of these things in the same place at the same time in order to be able to optimize. And that's what we do through the eyes of the customer. So what is our offering? As Graham said, the largest segment of -- the largest segment of growth for us is the very large end of the spectrum. And the picture on the right here shows a 100-megawatt plan. This came from front-end engineering study that was done for a project in the U.K. with Australia, Phillips 66. And I like this picture, because it does a good job of describing how complex large-scale electrolysis is, it's more than just a core electrolyser in there. So to be able to execute projects at this kind, it's vital to have strong EPC capability. And of course, that's part of the rationale for the strong partnership we have with Linde Engineering. We have developed a 5-megawatt stack platform with Linde. We're pre-engineering that into 10- and 20-megawatt packages. And we're doing that so that we have the largest possible building blocks to address these large-scale projects efficiently. But the partnership with Linde also enables us to optimize our work split, and that allows each company to focus on where it adds value. And through this mechanism, ITM's offering has evolved to a standard electrolysed module which Linde integrates. And Linde have the capacity to put a different wrapper around that core electrolysis for different applications as necessary. And in that way, ITM is protected from getting dragged into lots of project-specific engineering. So all of this allows ITM to get repetition and that enables us to get volume. And in that way, we can scale the business. And this approach has been well received by the market. You may have seen that Shell recently announced their intentions to add an additional 100 megawatts to their Rheinland refinery. And they said that they're going to do that with ITM Power and our joint venture, ITM Linde Electrolysis. So this comes off the back of a successful project called Refine. That's where ITM deploy a 10-megawatt electrolyser into the Rheinland refinery. And we shouldn't forget that that's the largest electrolyser in Europe and Germany's largest refinery. And that plant was inaugurated recently, and at that inauguration event, Shell explain clearly that their ability to generate green hydrogen is central to their decarbonization strategy, and we see Shell and others starting to rebrand refineries into energy and chemical parks. So what's different about the 10-megawatt plant we've deployed and the 100-megawatt plant that we will deliver? The 10-megawatt was delivered entirely by ITM, but the 100-megawatt plant will be delivered by Linde. So they will do all of the EPC, the concrete pouring, the civil works and so on and ITM will deliver that repetitive electrolyzer module at the heart of the system. So ITM's contacts with the customer doesn't end at the supply of equipment. We continue to develop a suite of aftersales support packages, and these tend to be long duration contracts until they represent reoccurring revenue for ITM. The picture on the right is the remote operating center here at Bessemer Park, it's staffed 24/7 with experienced engineers. And through this facility, we have continuous access to all of our plant wherever it's located in the world. And that adds tremendous value to the customer as ITM can provide near instantaneous and proactive support to maximize customer operations. And of course, it adds significant value to us as well because we can collect all of the performance and operational data, which we fold into the continuous development process. And having this world-class facility really does give confidence to the customer that we're there and able to support products over the life of the project. And that helps them understand the total cost of ownership. So on to manufacturing and where we are today. And we've moved into Bessemer Park. It's the largest facility of its type in the world. And crucially, we've successfully brought in-house key manufacturing processes as part of that move. And we've done that to make those processes under our control. We've also adopted semi automation, particularly around the repetitive processes associated with stack build. And with that, we're able to increase throughput rapidly and maintain quality. So all of these measures together gives us the ability to scale rapidly up to the nameplate 1 gigawatt production per annum. We've also engaged with automation experts to model the manufacturing processes and their interactions. That's a digital twin. And we continue to use the learning from that modeling to further optimize factory operations. And so the final slide from me. And before I talk about the strategy to scale out the manufacturing, my view is that we're at a great place at a critical time in the hydrogen market. We've established the largest electrolyser factory in the world. We've delivered one of the largest electrolysers in the world with some great partners, and we've successfully adopted semi automation and we enjoy a leading technology position. But as Graham has described, the markets move more faster than we thought, and we need to move faster still to keep pace. So how are we going to do that? Well, there's 2 steps. The first is to establish a new factory in the U.K. This will use a higher level of automation, it will incorporate all the learning from Bessemer Park and the outcomes from the process modeling and our digital twin analysis. The new factory will have an annual capacity of 1.5 gigawatts per year, which will be additional to the Bessemer Park of 1 gigawatt per year. And scaling our manufacturing this way is the first step that enables us to fully stress test the processes and also automation close to home. And this gives us a verified blueprint, which we can then replicate in our next step. And that next step is to establish an additional international factory with an annual capacity of 2.5 gigawatts per year. So altogether, that gives us an annual capacity of 5 gigawatts, which Graham referred to at the beginning of the presentation. I'll now hand over to Andy.

Many thanks, Simon, and good morning all. So I'm going to talk a bit about the financials and some guidance for the current financial year as well. I'll talk about the use of funds in the capital raise, the economics of a 2.5 gigawatt factory, and then what we're producing right now. So Simon has already presented the diagram on the left, which is really looking at what the customer is looking for from ITM power. So it's looking for the lowest production costs. And you can see in that box, there's now one which is in relation to the table on the right. So lowering hydrogen production costs is a technology-led initiative. And there's GBP 50 million in this phase for accelerating technology. Then the customer is looking for the lowest full system price, and that is the mixture of technology initiatives, which is the one, and CapEx are spending money on automation and factories, which is the second box on the right-hand side. And finally, they're looking for the best operational excellence, and this is how ITM are interacting with the product in the field to maintain the highest uptime possible. And that's about working capital and about company development. And so you can see the box on the top right gives you how we are going to spend the money and invest it to really accelerate capacity and rollout for the company. Now the numbers add up to just over GBP 300 million. We've raised GBP 250 million here, and we've had -- in excess of GBP 160 million in the bank as we speak. So we have not only the funds to do this, but also some headroom to negotiate with national partners. On the bottom right, you've got the rollout of the factories. So we will, in 2022, take Bessemer Park from 300 megawatts to 1 gigawatt of capacity. We'll be bringing online the second Gigafactory in 2023, which will take the total company production capacity to 2.5 gigawatts. And the third factory, which will be the first international factory, will take us to 5 gigawatts worth of capacity in 2024. In terms of what the 2.5 gigawatt factory will look like, this is the economics that we see evolving as we come out. And the headline is you need about GBP 100 million to deploy 2.5 gigawatt factory. GBP 50 million to GBP 65 million of that is in CapEx. And then you need a further GBP 40 million of working capital before you get to a breakeven point. The way we're modeling it is the cash breakeven is in year 5 with about GBP 300 million worth of sales. And we see a long run target by year 10 of GBP 430 million worth of revenue per annum with a factory EBIT margin in excess of 15%. Why year 10? Well, that lines up with the national strategy. It's the 150 gigawatts that Graham talked about at the start of this presentation. In terms of where we're looking for a factory, it needs to be developed in collaboration with Linde. Linde needs to be incumbent in the country with commercial deals in the region that needs to be announced actual strategies and visibility on demand, which will lead us to where we put the factory. In terms of what we're looking for -- We're looking for low-cost renewable power, skilled labor to maintain machines that are producing the kits. And we're also going to need local supply chain, which will enable us to align with national strategies in terms of deploying this first factory. Final slide for me. It's just a reiteration of the current year guidance. Our core stack module production is going to be in excess of 55 megawatts in the current financial year. And we will have completed between 33 and 50 megawatts worth of products. Now revenue recognition for ITM on plug-and-play modules depends on being able to put the kit on site and fully commissioned. So that -- some site access and travel restrictions could impact on revenue recognition. Otherwise, it's about building modules which Linde integrate, and that revenue recognition is at the factory gates. So revenue is heavily weighted to the second half of the year. But we'll be reporting more on that with a trading update in December and interim results in January. I'll hand back to Graham for a summary.

Thanks, Andy and Simon. So just a quick summary then. A record backlog and tender pipeline this year and very strong market and policy momentum. And I think you'll see some additional policy momentum in the coming days with COP26. So what can you expect as an outlook for the coming year? First of all, you can expect a new factory announcement with regards to the 1.5 gigawatts of expansion, you'll see the development of the pipeline. So we're very focused with Linde on sales and on tenders and then converting what's in the final stages of negotiation to being under contract. You will see some strategic recruitment and certainly some partnerships in the area of IT and motive. So the summary for me would be, I think it's a very exciting time to be an electrolyser manufacturer. I think we have a very strong position in that market. And I think there's some incredibly heavy lifting done by our team over the year. And having moved down all of the things in that summary and also moved into the world's largest electrolyser factory during a pandemic is real credit to all of our staff. So I'd like to thank them formally as well. Okay. Thank you. That's the last slide.

Thank you very much indeed, and the team for the presentation. [Operator Instructions] I'd now like to hand over to Simon Hudson to post questions to the ITM Power team where it's appropriate to do so. Simon, if I may just ask you to read out the question and that will be fantastic.

Thanks, and good morning, everyone. I'm going to aggregate some of the questions, because we've got quite a lot of them. So if I don't ask your precise question, please don't be offended. I'm going to put the questions to Graham and then he can decide where to farm the mat if necessary. So starting perhaps with the most asked question. "Can you tell us what locations you're considering both for your second U.K. plant and for your first international plant?"

Yes. So I think the U.K. plant is a plant that we are developing in parallel with sweating our existing asset. So what's really important is that Bessemer Park and the existing 1 gigawatt of capacity that we sweat their asset. And so we're selecting a separate location where we're going to be implementing further automation. And that location will be somewhere near Bessemer Park because, of course, it's about implementing new technology and developing a further automation of the manufacturing. So that will be close to the Sheffield site. International locations. I think there are many -- our national schemes now come in forward with very large energy companies that are supporting those national schemes, and they're all multi gigawatts in size. And what the funding does for us is give us the capital on our balance sheet so that we can be part of those discussions. We can be around the table, being able to do a deal with the resources already secured. And that's fundamentally important in being able to capture what are some incredible demand numbers. So we haven't decided where we'll be in the world. We'll be doing the best deal that we can. It will be demand-driven, and some obvious locations might be Chile and South America, the USA, Australia, Europe and also the Middle East. All of those regions are now moving very, very quickly.

Thanks. A few questions on the subject of automation. Can you shed some light on how far you think you can take the automation of manufacturing? And what steps you need to take to get to where you want to be?

Yes. I think this is a question for Simon. I mean, I would say that ITM Power and Simon's team have been real pioneers in this area for electrolysis equipment. So Simon, would you like to comment on that question?

Yes, there's significant potential. And of course, the high level of automation gives us access to cost reduction. But the thing about it is that we need to do it in a phased and proportionate way. So we're focusing on the high repetitive processes around the stack today, but we need to be careful while there's still a rapid rate of development and improvement that we don't over alternate and close off some areas of improvement for us. So I think potential is very high and we are pursuing it in a stepwise manner, focusing on the highly repetitive processes first.

Linde has talked about a 20-megawatt module in the future. Is it correct that you will develop a 20-watt module? We've currently only heard from you about 5-megawatt modules.

So the strategy -- one of the strategies with Linde, but one that we're pursuing is combining together 4, 5-megawatt modules. So not only do we increase, not only do we develop the modularity at level of the modules, but also at the level of the balancing plant. So it's about integrating together a number of 5-megawatt modules to standardize balance of plant and therefore, drive out cost. So that's where that comes from.

Okay. That's where you appear to be with large-scale PEM systems. Do you intend to exploit the lower scale plug-and-play systems for energy storage and farm and community level or maybe spin that out?

Yes. So look, whatever hydrogen project that you do, the important thing is that you have the demand for the product that you make. One of the -- we have seen early interest in things like farming, for instance, land management and so on. What's key is demand. So we can put an electrolyzer on the ground that's around 2 megawatts in size and do transport schemes or do energy storage schemes. But the issue is, is there a demand for the hydrogen. So -- and this is, of course, the reason that replacement of gray hydrogen with green hydrogen is such a dynamic market. It is the fact that gray hydrogen and industrial hydrogen are demand centers. So you take the electrolysis equipment to the demand center. One other thing to add is that gray hydrogen for industry is maybe natural gas and the price of natural gas has very significantly increased over the last year. And one of the dynamics that we see in the market is companies and nations all over the world looking at fuel security, looking at the increase in the cost of fossil fuels and natural gas and also looking at that price volatility. So this has also been a very strong driver in replacing industrial hydrogen with green hydrogen.

And could you give shareholders an update on activity at your joint venture? ITM Linde electrolysis?

Yes. So ILE is focused on putting together proposals and responding to tenders, also ILE organizes with Linde Engineering and ITM feasibility studies and FEED studies. And you can see the intense activity going on the ILE just by looking at the tender pipeline numbers and how rapidly they are increasing. Each one of those 1,011 megawatts, each of those projects requires a full engineering proposal. And that's what we do with ILE. And I can tell you that there is at least 1 meeting with Linde somewhere in ITM every day. And on the occasion, 4, 5 meetings. I mean, it's a very, very intense relationship, and we are -- we have a very strong reputation in the market and the amount of engineering and quoting activity is going up, as you can see, very, very rapidly.

Can you tell us your views on using nuclear energy, possibly from small modular reactors as a feedstock for electrolyzers? And if you were to enter that market, would you need to reengineer the product in any way to deal with nuclear as a feedstock?

So I think the answer to the second question is no. You can be relatively agnostic to the power input. In fact, with PEM electrolysis, because you can turn them on and off very rapidly, they can handle anything from extreme intermittency where you can turn them off in less than a second all the way through to steady state operation. So that's one of the key advantages of ITM technology. Making hydrogen from nuclear is a very interesting proposition. I mean one of the issues with nuclear energy is that, in general, you can't turn it on and off quickly. But the demand for the power may fluctuate very, very quickly. And so what you do with an electrolyzer if you combine it with nuclear is you use it as a load following device. That means that all of the intermittency in the network can be taken up by the electrolyzer rather than the nuclear generator. So an example would be if you're generating using nuclear, and this is key with small nuclear reactors, if you're generating and you're pointing the generation at the grid, and the grid wants you to turn off because it's oversupplied, you point the electricity at the electrolyzer, you make hydrogen, and you put it in the gas grid or you supply it to an industrial user. And then as soon as the power is required back on the electricity network, you point the nuclear straight back of the network. That means that you can always baseload the nuclear. And if you have a small nuclear reactor, this is absolutely key to the way you operate. So I think there is good potential. You'll see small nuclear reactors as part of Boris' 10-point plan. There's great interest in them, and you probably saw the announcement from Macron in France about a lot of funding for small nuclear as well. So yes, the answer is there's a good application there for electrolysis.

Could you let us have an update on outlook and strategy for ITM Motive since you spun it off into a separate subsidiary?

Yes. So the first and principal operation of Motive right now is operating the assets which we already own, and that's going very well. We are looking at developing partnerships very intensively. Duncan Yellen, who is the Managing Director, is in a number of discussions with partners as you can imagine. The whole proposition of build, own and operate for a fueling stations in the U.K. for buses, trucks and trains is demand from operators of buses, trucks and trains. And that's what we're concentrating on right now. The RTFO in the U.K. is under consultation with the U.K. government. And we are, I think, confident that the outcome of that consultation will be some change in the status of RTFO for buses and for trucks in the U.K.

Would you ever contemplate the idea of licensing your technology and know-how as some of the solid oxide fuel cell and electrolyzer companies are doing?

I think the licensing model has some significant drawbacks. So I think the principal drawback is if you license and, particularly if you license too early before your full manufacturing capability and technologies to play down, then you can find licensees making improvements, and that makes your development pathway very, very difficult. I think you have to spend your time trying to manage an improvement pool, which can be quite difficult. So certainly, manufacturing early -- sorry, licensing early is not a great idea. But we're a manufacturing company. And we're a manufacturing company with significant technology and know-how and we're happy with that. That's our proposition that we've put to the capital markets, and they've backed us with investments. So I think that's our positioning.

Thanks. Can you give us an update on your relationship with JCB, please?

Yes. So JCB is a valued shareholder in ITM Power. JCB have made some very interesting announcements about using their diesel engines to use hydrogen. And I think that the company is a strong advocate for hydrogen into the future.

Is it correct that you plan to have full factory utilization for the 5 gigawatt of capacity being planned by 2026? And if that is the case, when would you start thinking about expanding beyond 5 gigawatts?

Yes. I think you deploy an asset, you sweat that asset, you deploy another asset when you think that the market is right for the capacity and also making deals internationally that are based on securing very, very significant demand. We put forward a plan which takes us to 2024. Is this thing played out by 2024? Certainly not. We've got targets of 150 gigawatts by 2030 although with national schemes. And if you look at the IEA report, there's an astonishing large demand for electrolysis coming. But we're taking it a stage at a time. We are articulating to the capital markets and to shareholders where we're going. And I think we'll be executing on the current plan and reporting against that.

Could you expand on any supply chain issues or risks that you're facing with the sourcing of chips and steel?

Yes. I think we -- the slide that you saw today was also used in our final results presentation. We were keen to articulate any of the risks that we thought might appear. And those that we articulated were chips and steel and also the potential for a further development in COVID and not being able to get on site. And that's important in terms of recognizing revenue. But I think we put those risks out for completeness. So that we could articulate to the market anything that we thought might happen. So I think we're comfortable that those risks are low and manageable and we work closely with Linde who have very strong purchasing power to help us in all of those areas. Risks are very difficult to assess, articulating low-risk areas, but areas no doubt, is something that's important for us to do, and that's why we did it.

How do you see the price of green hydrogen per kilogram moving over the period to 2030? And how many years away do you think you are from being competitive with hydrogen produced from methane, taking into account that there has been a spike in natural gas prices?

Yes, it's a really very topical question. So the cost of green hydrogen was outlined in Simon's slides and there are 3 levels. The principal level, the most important thing, is the cost of the renewable power. So the simplest answer to the question about the cost of green hydrogen going forward is you make the lowest cost green hydrogen when you have low cost, high load factor renewable power. So that's the first point. And if you look at Bloomberg New Energy Finance, so the Hydrogen Council, they're saying that hydrogen will be lower -- green hydrogen will be lower cost than any other form of hydrogen by 2030 and that it will be at GBP 0.025 per kilowatt hour, would be about GBP 1.5 per kilogram. The Earthshot in the U.S. is a 1-1-1 strategy. It's $1, 1 kilogram in 1 decade. So what they're saying is that the target is to drive green hydrogen to the point where it's $1 a kilogram, and that's cost-competitive with gray hydrogen for industry. And that's cost-competitive under any circumstances because of the volatility of natural gas right now. Today, all over Europe, you can make green hydrogen in lower cost than gray hydrogen. I mean literally all over the world because of the cost of natural gas. And in fact, we saw in the U.K., because of the cost of industrial hydrogen, CF Fertilizer closed down the 2 ammonia production plants in the U.K. because of the cost of gray hydrogen made with natural gas. Now those prices, I'm told, will normalize. But I'm also informed that they probably won't come all the way down to where they were in the past. So you have 2 forms of hydrogen. You have net zero hydrogen, which is based on renewable power as a feedstock, and you have gray industrial hydrogen, which is used in huge volume worldwide based on natural gas as a feedstock. One is net zero and the other is highly carbonizing. And what we're seeing is a reduction in the cost of green and an increase in the cost of gray, and that doesn't even include carbon pricing yet. So it looks like the crossover point is coming at us -- coming towards us very quickly.

Can you give us any guidance as to what gross profit margins might look like at the end of 2024 when you've completed the 5 gigawatts?

Yes, sure. I mean, there's a lot of guidance out there in the market. This is probably a question for Andy. But let me tell you, first of all, that guidance in the market now is very strong. Actually, there are about 15 research notes published. And many of them, I think, around the 11, are published on Bloomberg screens. But Andy, do you want to talk about our expectation for margins?

That's a good answer, Graham. Obviously, we're targeting a long-run target of 30%. We're not there at the moment. And so there is a growth through -- within the margin as we reach capacity within the factories.

Would you ever contemplate putting a toe in the water in the fuel cell market, either with your technology or with some kind of manufacturing proposition? Or is that ruled out?

Well, I wouldn't say it's ruled out. I mean we estimate fuel cells. It is more difficult to enter the market with a fuel cell than with an electrolyzer. That was our assessment a number of years ago. I mean I made the decision to stop making fuel cells because it required a considerable interaction with OEMs where it was more straightforward to deploy electrolysis equipment. They are very different technologies. There seems to be the idea that PEM electrolyser is a PEM fuel cell in reverse and that isn't the case, both in mechanical structure and also in terms of electric chemistry. We've never ruled anything out for the future, but that's not the plan right now.

Okay. I think we have almost reached the end of the questions. Let's have a second to last one. How do you see the partnership with Linde developing in the future?

Yes. I mean, Linde, a very strong partner of ours. Linde Engineering build very large plants, they build ammonia plants, methanol plants, renewable polymer plants, they build carbon capture plants which allow you to make renewable e-fuels like marine fuel and aviation fuel. So the proposition for ITM is that we're designed into their offering to customers. And that designing means that if someone wants a renewable ammonia plant, they will be specified in an ITM electrolyser. So I think we'll see larger and larger installations. I think we'll see more installations that chemicals parks of the type that we have with Shell. The renewable directive gives an obligation for the oil and gas industry to decarbonized and by the next decade to make 14% of their products renewably. So over the next decade also I think you'll see a lot of activity in that area. So it's about more projects, larger projects and an increasing reputation in the industry.

Final question or observation, really. It's from a shareholder who was wondering if you've noted the announcement from Andrew Forrest of Fortescue Mining Group and his desire to put a chunk of his fortune into green hydrogen? And if you have any comment on it?

So very well noted. In fact, the first electrolyzer project with Fortescue is an ITM Power project, which is in Australia. I shared the stage with Andrew at Australia house for their energy transition conference a few days ago. And yes, very well noted. I think he's a great spokesperson for green hydrogen. And it's good to have committed individuals like that around.

That's fantastic, Simon. Thank you very much. And thank you to the team. I think you've addressed pretty much all those questions you can from investment. Of course, the company will review any further questions that come through and we'll publish responses where appropriate to do so on the Investor Meet company platform. And Doug, if I may, just hand back to you just if there are any further closing comments before we redirect attendees to give us some feedback.

Not particularly. I think I summarized earlier, but First of all, thanks very much for attending the AGM presentation. All shareholders are very valued by ITM. We will try and answer any of your questions if we didn't have a chance to do so. And looking forward to next year, which I think is going to be an incredible year for ITM.

That's fantastic. Thank you indeed to the ITM Power Board for updating attendees today. Could I please ask the attendees not to close the session, it should be automatically redirected for your opportunity to provide your feedback in order the team can better understand your views and expectations. This will then take a few moments to complete and is greatly valued by the company. On behalf of the Board of ITM Power Plc, I would like to thank you for attending today's AGM broadcast. That concludes today's session. Thank you, and good morning.