ITM Power Plc (ITM) Earnings Call Transcript & Summary

We still got 3 or 4 people with no mute buttons on. So if people can activate those thanks Graham, that'd be stunning, please. The call is recorded, and thank you all very much for joining the ITM Power call today. You've got Investec hosting it, thank you to the buy side and the sell side. There'll be an opportunity for everyone to ask questions here after Graham and Andy have run through 10- to 15-minute update on the company. Please look after mute buttons. The call is recorded, so please be cognizant of that. Now without further ado, Graham, over to you. Thank you.

Thank you very much, Luke, for the introduction, and thank you to everybody for joining the call. So just checking that I'm showing my screen okay. Luke, if you wouldn't mind just confirming that for me. How am I doing?

It's good, Graham. You're good to go.

I'm good to go. Okay, that's great. So yes, thanks for coming to the call, everybody. This is a trading update, and it's for the 3-month period since we last reported our numbers, September the 13th. It is going to be me, first of all. I'm the CEO, Graham Cooley, talking you through a quick update. And then I'm going to hand over to Andy Allen, our Finance Director, CFO, who's going to talk you through the finances. And it's a pretty succinct presentation. We're not going to have death by PowerPoint. We're very keen to take your questions. So highlights then. So as always, to summarize this trading update, it would be somewhere along the lines of solid progress. I think we've converted a significant amount of megawatts from the tender pipeline to in the final stages of negotiation and they've moved now into our backlog. And our backlog now stands at a record just under 0.5 gigawatt, 499 megawatts, up from 310 megawatts 3 months ago. We've also converted from final stages of negotiation some more contracts, and we now have work in progress of 62 megawatts. During the period, we were delighted to announce the Whitelee project backed by the U.K. government. The first 10 megawatts of an overall 20-megawatt project with ScottishPower connected to the U.K.'s largest onshore wind farm. We completed the final report for Gigastack, the GEP test rig. That's the testing rig for testing the 5-megawatt module technology. It's now up and running. We've drove into the operations phase of the Refhyne project, which is the 10-megawatt electrolyzer of Rhineland refinery with Shell and seeing very good results from that. We've made some significant additions to our management team, and I'm going to run through that in the next slide. And we announced the heads of terms for the purchase of the site for our new Gigafactory in the U.K., which is our expansion from 1 gigawatt per annum to 2.5 gigawatts per annum, which will be online by the end of 2023. So in terms of team development then, Martin and Helen and Nadia, that is the new Operations Director, Company Secretary and Head of Procurement, have started up already and are already making an important contribution to the company. We have identified our new Projects Director, Chris, who comes -- he was -- headed the project delivery office at Rolls-Royce, he's becoming our Projects Director and starts in February. And we are in the process of recruiting a commercial director. So procuring some very, very strong new skills and experience into the company, those managers and directors who have had very senior experience across British industry. In terms of development of skills, the organization is expanding. We are investing in skills, particularly in the area of product innovation service. And we've been recruiting engineers and managers. And you can see that we've moved from 250 full-time staff in April '21 to now last in October 350. So a significant influx of highly skilled engineers and technologists into the company. In terms of the progress of the numbers, you can see this graphically. We have made significant increases at all levels in the pipeline. So our total backlog has moved from 310 megawatts to just under 500 megawatts. The most significant change then is tenders moving into -- in the final stage of negotiation. In other words, they were tendered, we have been selected, and we are now negotiating in terms of conditions. And some of those projects that were under negotiation have already been converted into our contracted backlog. So, I think some solid progress there, a reduction in the tender pipeline as a result of some large volume contracts moving into the negotiation stage. So that's a very positive change. In terms of project sizes and segmenting those projects, same as before, this will be a consistent theme in reporting. We divide up into four project classes: those projects between 0 and 4 megawatts; those between 4 and 20 megawatts; those projects between 20 and 80 megawatts; and those above 80 megawatts. And you can see a typical project in the case of 100 megawatts at the bottom right-hand side. And the container is plug and play on the top right-hand side. So in the tender pipeline, I mean, where is the demand? Who is putting out tenders and for what types of the project? And the fastest growing, the largest accumulate -- cumulative number of megawatts is in the project above 80 megawatts in size. This is an increased weighting towards larger projects, very logical because the entry market for green hydrogen is replacing industrial hype, which is made with natural gas. And we're seeing a very strong dynamic here where the cost of green hydrogen has come down, cost of industrial gray hydrogen has gone up because of the supply issues to do with natural gas. And we're seeing a very interesting dynamic in the industry towards larger projects. Where are they in the world? This pie chart hasn't changed significantly since the last time we showed it, a little bit more in the U.S. And the U.S. is really now getting to become a significant target market because of the Biden infrastructure build and a very significant strategic emphasis on green hydrogen in the U.S. But still leading is the EMEA region, particularly Europe, but now increasingly projects being announced in the Middle East and also APAC, particularly Australia. So a very similar spread to what we reported in September. In terms of -- this is my last slide. In terms of the new location for the new factory of 1.5 gigawatts per annum of production. We've identified the site, it's one at 0.4 miles, 4 minutes drive away from Bessemer Park. It's on the Advanced Manufacturing Park. We're in a very important cluster in the U.K. next to the Nuclear AMRC, the factory of the future, Boeing, Rolls Royce and McLaren, all in this technology cluster. We are negotiating the purchase of the land and looking at. It's subject to planning consent and making progress on that. And we are on target for production from that new facility Q4 of 2023. So -- and I can hand over now to Andy Allen, our CFO, Andy is going to talk you through the finances.

Thanks, Graham, and good afternoon, everybody. So I'll first talk about our backlog in pipeline a bit more. So Graham has already shown you the highlights on the left-hand side, but I'll also include a bit of attention on what the table on the right-hand side is one we included in the RNS this morning. So you can see that progress if you switch to the right-hand side, the number of megawatts is up 45% in the last 3 months. And the contract backlog is up 61% in the last 3 months. Tender pipeline is down slightly, and that's about conversion into that contracts backlog. And if you added the two together backlog and pipeline, we were up 7% in those 3 months. The figure that sticks out perhaps for some is the change in values that accompany that sticking around work in progress where -- although the megawatts of product, the value to ITM has gone down by 6%. And really, there's 3 drivers here. The first one is that we've recognized some revenue in the period. So whilst we've kept the 10 megawatts of refined in the work in progress, at a trunk of the revenue, which was recognized against the Refhyne project has been recognized. So the number of megawatts stay high and the value goes down. Secondly, we've stripped out projects for ITM Motive, which are going to fill the shop floor but they won't generate revenue for us. They would generate revenue through fuel cells and not through product service. So what you see now is a very production-focused work-in-progress line, which is all about units that are going to turn into revenue. And the final one is that we've actually converted from the backlog into work in progress. We signed contracts of about 20 megawatts worth, testing in excess of 20 megawatts or about GBP 14 million. So with an average sales price of about just under GBP 700,000 per megawatt. So that is the other dynamics to consider here is that not only are our products -- our cost reduction curve being met, but we're also seeing a change in product mix to larger projects where the ITM scope is smaller. All of these numbers are just shown the value to ITM, not the total project scale. So in terms of the results for the 6 months to the end of October, the full interim results announcement will come out towards the end of January, but some headlines here. So total revenue of GBP 4.1 million versus GBP 0.2 million for the same period last year. And actually, we did GBP 4.3 million for the full year. So you can see a step change in what's happening in terms of revenue. Adjusted EBITDA loss was GBP 13 million against GBP 10.4 million for the same period last year. In terms of cash at the period end, we had GBP 167 million, and that excludes the GBP 242 million net that we raised in November. Cash burn was GBP 12 million for the first 6 months against GBP 14 million for the same period a year ago. We expect that cash flow to start increasing, partly we view with stock, but also we're excited to be investing in that new manufacturing facility that Graham's talked about. And final slide for me. In terms of guidance, the guidance is unchanged from what we said in September. Our completed products will be in the range of 33 to 50 megawatts. And our core stack modules, which is setting us up for next year's production, in excess of 55 megawatts. And revenue is going to be heavy weighting to the second half of the year. There are potential risks with revenue recognition, and we include this for completeness, but actually think these were unlikely diminishing from when we last reported. Particularly around plug and play unit is the smaller products that we sell, site access and travel restrictions could have an impact in us completing all of the works on site. And we also have microchips within the small plug and play units. And we know that there has been a global shortage. We've worked well with Linde to mitigate a lot of those risks. So they include full completeness, but perhaps aren't affecting the bigger picture here. I'll hand back to Graham for summary.

Thanks, Andy. So just a very quick summary for me. I think very solid progress in converting from tenders into backlog and then in negotiation falling under work in progress. I think we see strong market and policy momentum over the period. It's only a 3-month period, but I think conversion from the tender pipeline has been the headwind. In terms of going forward, you'll see more of that pipeline and sales development, you'll see more strategic recruitment. And you'll see some announcements about partnerships within ITM Motive So that's a summary really, short and succinct so we have time to take your questions. So over to you.

Guys, thank you very much, indeed, for the presentation, Graham and Andy. Alex Smith first for the question then Colin Grant. And if you want to ask us good questions, raise your hand.

Graham, Andy, team, thank you very much for the presentation today. If you could kind of get a sense of how operations are running at the plant. I guess you've made a wave of new hires in the past year. And could you kind of identify maybe two or three key new hires that are really making a change into the business and really being a part of that new integration that you're talking about and kind of how the factory floor is looking as we really begin to ramp up in 2022.

Sure. Be delighted to do that, Alex. So first of all, it's a shame that the team from Investec and some of the investors didn't actually get to visit the factory today, although that was scheduled for today. The very best way of understanding the activity in the factory is a visit and you can see all the things that are going on, the shop floor's full now. And in terms of key hires, well, first of all, very pleased to report how much contribution Martin plays, making Martin the new Operations Director, Martin is managing production. We got a very strong production team with Grant Teagle, who has been the production manager for some time now. but also joined by a gentleman from McLaren, who's also and adding some very significant expertise to that team. Martin working very closely with Nadia. Nadia is a very experienced procurement manager. She was with Alstom before joining us, and she was a procurement head at JCB before Alstom and making an important contribution to the procurement activity. We've also not included in the slide, but Sharon Poulter has joined us, and she is heading our Markons team. And of course, quite recently, Justin joined James' team and making that an important contribution with James in the area of IR. So I think in all areas, the teams are strengthening and we are strategically recruiting some important skills into the company. I don't mind if you've got anything to add in terms of the finance department. There are a lot of strong hires in technology as well. But Andy, anything to add to that?

No. I mean I think you're right with the people. And we found actually Sheffield's a great place to hire people. And so we've got a good amount of resource in this location. The other part of the question is around what's happening on the shop floor. You do need to come and see it, but it's starting to fill up. We're starting to build products on stock as well, and it's getting busier, and it's really exciting to see that happen. So again, the invite is extended.

That's clear. Thank you, gents. Colin, over to you.

Just a question, really, we've seen some very large moves in natural gas prices. And hydrogen is, obviously, to an extent competing against that. And I'm just wondering if you could give us any latest thoughts, Graham, on what the economics look like for hydrogen gas [Audio Gap]?

Yes. So you've broken up a bit there, Colin. Did you finish your question?

I think Cooley maybe you could just talk on that.

Okay. Yes. I'm very, very happy to do that. So Colin, first thing to say is that yesterday morning, the EU announced its gas and hydrogen package. You have seen the announcement from France Timmermans. It used to be called the gas package, and they changed its name, which I think is in itself a significant signal. Gas and energy strategy in Europe is becoming incredibly complex and becoming extremely urgent. As you know, natural gas prices have gone up considerably due principally to supply from Russia. Fuel security has become a very significant and political issue. And as gas prices go up, of course, you see the price of supplying energy through the gas group, which needs to be carbonizing anyway, increasing the cost of gray hydrogen, industrial hydrogen. So you have this dynamic now where green hydrogen, because of the reduction in the cost of renewable power, is coming down. Gray industrial hydrogen, the cost is going up. And we have all over Europe now crossed over. And all over Europe, you can make green hydrogen -- if you get the right electricity price in the right load factor, you can make green hydrogen at a lower cost than industrial hydrogen made from natural gas. So there's some questions, right? The first question is, this increased price of natural gas, is it a sticky increase in price? Or is it short-term volatility and will it renormalize? The question that is difficult to answer. Second question to answer is this. Where will Europe be and the U.K., because we are linked, because we import half of all of our natural gas, most of it comes from Norway and the Norwegians are under pressure to supply to other parts of Europe, not just the U.K. So it does affect us, particularly affects Germany. So question is, how long would it last, number one? And number two, if you're going to develop a policy for fuel security, how do you do that? Do you put in more natural gas infrastructure or do you develop green hydrogen, given that we're in an energy transition. So you've got price crossover, energy security and the third and very important point is price volatility. If you connect an electrolyzer via a PPA to renewable power, you get an absolutely solid price for a long period of time, in fact, for the duration of the PPA. So you're increasing fuel security, decreasing fuel volatility and also the absolute prices converged. So look, the gas package that was announced, what that gas package is doing is, I think, two important things. It's setting the legislation for what is termed clean hydrogen at first and looking at booking infrastructure methane emissions to kilograms of hydrogen that's made from fossil. That's the first thing. And the second thing is it's looking at the way the green hydrogen or low carbon hydrogen will be introduced into the gas grid. Now introducing hydrogen into the gas grid is a pretty significant activity because it's the -- on the planning, it is the largest energy vector. So I think that announcement and that policy document is really worth doing down.

Yes, Graham, just as a follow-on. In terms of your discussions with utilities, are you actually seeing any near-term change? Are they trying to accelerate any plans? Because some of them are switching from gas to oil because the oil price as some guys know is cheaper now on a BTU basis. And are any of them accelerating plans in terms of switching to hydrogen, do you know anything on that front?

Yes. I mean the way that we report activity is our tender pipeline. I'm not avoiding your question. I will get back to it, Colin. So please forgive me for going ahead from a different angle. But I think we're the only electrolyzer manufacturer that reports the tender pipeline. So we give you an accurate measure of the activity in the market. And the proof of the pudding of what we're saying is rather than me being anecdotal about it is whether you see more activity in the tender pipeline. The wider pipeline -- there's a much wider pipeline. There's 200 gigawatts of electrolyzer projects identified by the Aurora Energy report, and we see increasing amounts of activity in the market, and some of it is driven by gas prices. This is correct. One other anecdotal point is that CF fertilizer, they had two plants in the U.K. and they were temporarily closed down because of the cost of industrial hydrogen and actually have to be supported as a matter of emergency by the U.K. government. Actually, the reason they have to support them was that the U.K. ran out of CO2, which is a byproduct, which you need for food processing.

I have some questions, please. Firstly, maybe you can give us any help on the phasing of the contract backlog as it is, that GBP 200 million. And then secondly, just linked to Colin's question, I guess. I just wondered, looking as well at CP price or carbon pricing. Obviously, that's been moving up quite steeply as well. Just wondering if that's driving conversations forward as well.

Yes. It's a very good point, and that's the other dynamics. So your first question, I'll hand over to Andy about phasing of revenue, but let me answer your second question first. Carbon pricing is increasing. It's increasing particularly, the European carbon price is somewhere between -- I don't know what it is today and I'm sure someone is looking at their screen and can probably tell us, but it's somewhere between EUR 71 and EUR 75. And that is an amazing place to get to. And reports are telling us that it's going to get to EUR 100 by year-end. And whether that will happen or not, I don't know. So the dynamics you have that is the increasing carbon price and increasing natural gas price, which is driving up the cost of industrial hydrogen and then reducing cost of green hydrogen. And it's a pretty strong dynamic, Will. And I think all the arrows are pointing in a good direction for green hydrogen. So Andy, do you want to talk about phasing?

Yes. Thanks. Sure. So I guess the most certain of is the 62 megawatts that's work in progress. So we'll address that first. And really, we might expect 30% to 40% of that happening FY '22, assume around in FY '23 and the balance being in FY '24. Now that is not the capacity of the factory. And you can expect to see Q4 FY '23, FY '24, that we're adding on top of that as we convert what's in negotiation into work in progress. So I'm not going to commit to a number for what's in negotiation, but suffice to say that we can accept far more and put it through the shop floor. And one of the things we're doing is we're building the stock so we can reduce lead times and mechanize in the same year that we get those contracts signed.

Thank you very much indeed. And Bruce, over to you.

It's a question on ITM Motive. Can you say a little bit about that in terms of the key objectives or milestones for it over the next year? And have you given any thought to spinning it in and out as a sort of separate business for the sort of like a distribution of [indiscernible] listing ITM shareholders. The reason I ask that is I think the investment demands for it going forward are obviously going to increase. It's a different sort of business to your main core business. And I just wondered whether on that basis it will be better spun out with you retaining the major shareholders.

No. Bruce, it's a great set of questions. So just a review on understanding ITM Motive is the wholly owned subsidiary of ITM Power, which has been separated out as a wholly owned subsidiary. The assets have transferred to that company and owns all of our hydrogen refueling stations. And the hydrogen refueling business, ITM Motive has a different business model to ITM Power. ITM Power is a manufacturer of electrolysis equipment and we sell equipment, and that's deployed by Linde. Whereas ITM Motive is a build-on and operate organization that is looking at building hydrogen refueling stations for buses and trucks and trains. We allocated GBP 30 million to the development of ITM Motive. And we will be -- I think I said in my last slide, the summary slide, under the outlook section that we would be announcing -- likely announcing ITM Motive partnerships. So where are we now with ITM Motive? So Birmingham refueling station and our bus refueling station in Birmingham has being servicing buses from National Express. We have there a reference plant. We are looking at developing partnerships with vehicle OEMs and fleet operators about building further and rolling out further large-scale megawatt level refueling station in the U.K. And ITM plc will be delivering the electrolysis equipment and ITM Motive will be build, owning and operating that equipment. So that's the business model.

That's appreciated. I hope that's a good enough answer. Appreciate it. Adam, you're on the line, the floor is yours.

Sorry, I think I was trying to use my phone. I hope you can hear me. Two questions, if I may. Just firstly, can you give us an update on average cost of production and just how that might develop as Investment Park fills out. And then secondly, I noticed that with the existing business, it's going through either yourself as an integrator or ILE. I wonder, are you seeing any business interest from third-party integrators?

Yes. That's fine. So if I take the second question first. And Andy, if you want to take the cost question. So Adam, thanks for the two questions. In terms of integration, the bit that we integrate is plug-and-play units, and we concentrate mostly on a 2-megawatt what's called 3 MEP product. And if somebody wants 0 to 4 megawatts, we've got 1 or 2 of those containers on the ground. 4 to up to about 10 or 20 megawatts, you might implement plug-and-play units or it might be integrated by ILE. That's the table segmenting product size that you saw in the presentation. We actually have no desire to develop a relationship with any other integrator. Working very closely with Linde Engineering and EPC, we are doing incredibly well at developing that relationship, reducing the cost of the balance of plant and it is a genuinely productive relationship. Why we would want to start another integration partnership and do all that work again? I don't see the logic in that. And we formed a joint venture with Linde called ITM Linde Electrolysis, and it's a very productive JV -- So we're very happy with our integration partner. And for smaller stuff, we may well use plug-and-play units. So I hope that's okay as an answer for you, Adam. And -- okay, on the cost question, Andy.

Yes, sure. So we are -- I suppose there's a number of ways of looking at this. But if you start looking at what's work in progress, right now, we've got an average pounds per megawatt at about GBP 550,000. If you look at the pipeline, which is the products that are coming next, we're about GBP 400,000. So there's two dynamics there. One is the product mix and the other one is the cost reduction curve. I know this is a cost reduction question. So the cost reduction, the first part of that curve is technology led. And then the second part of the curve as we go into sort of the mid-2020s was volume led. So we're not currently at positioning Investment Park where we're seeing price reduction improve volume. We're doing that through technology and R&D, but we do expect to start to see that happening in the next 2 or 3 years for volume as well.

Erwan, over to you. Thank you.

A follow-up question for Andy, still on the value per megawatt on the revenue side of things. So the trend is down and you mentioned one of the drivers is obviously the size of the contracts that's going up. I was wondering to what extent if you could give a percentage to what extent the reselling of stack replacement, upgrades and changes to stacks that are already in place is in the mix and basically puts the value per megawatt down.

Yes. So I guess what we're trying to do is present a very keen work in progress, so that is purely about products. There are other revenues that are sort of very early stage in terms of after sales packages that we're looking to sell and enhance support that we can sell beyond that. So when you're looking at what was in the announcement date, that's purely products, so you compare like-for-like.

Thank you very much, indeed. Christopher, over to you.

Can I just follow up on, Graham, about PPAs and looking at renewable power and trying to get the security of offtake there. And I'm just wondering what your views are. As we see that develop, do you think green hydrogen can be powered with PPAs attached? We note that your Gigastack study, you're looking to source 20% grid power. So I just wonder, is that where you think the market goes to do in terms of PPAs being utilized for green hydrogen production? That's the first question. And then the second is really to Andy, please. And I think following on from point from the last question, just about how much are we looking here in terms of percentage share for Linde on the system price? Because clearly, the work in progress has reduced, and you commented that large orders to come through and you guys naturally will get a smaller share. So it'd just be useful if there's any sort of yardstick you can give us as the ones communities tell us where we're sort of sitting at an average system price, what percentage is coming through to you?

Okay. So I'll start with the PPA question. So a good observation, having you obviously looked at the Gigastack work accessing 20% grid power. It is a pretty amazing place to have gotten to. So Christopher, if you look at that, 80% load factor coming from offshore wind, what is telling you quite an interesting thing there. So what it says is that if you couple to a very large offshore wind generator that has a 55% load factor and you coupled with a low that's 100 megawatts, you do actually get somewhere around 80% load factor on the electric level, which we were celebrating as a very good news. The -- so what we've been doing there is combining a PPA with wind, combined with power that comes through the grid, which could also be a PPA, but for wind bit you're not directly coupled to, which is the argument that all steadies about PPAs being a portfolio thing. The other issue is for RED currently, for RED II compliant hydrogen, you need to be [ compliant ] to renewable power. And the debate that's going on at the moment is whether you should be able to be qualified as being green hydrogen via a PPA or a renewable energy contract, where some of the power also comes through the grid. And this is the live debate that's in New York at the moment. PPA, where you are directly coupling to an offshore wind farm like Orsted, which is 1.4 gigawatts and making 100 megawatts of green hydrogen, gives you a load factor of 80% and that is pretty significantly green hydrogen. If you buy the other 20% using a renewable energy contract, then you've got a very, very low carbon footprint green hydrogen. Question is, can you define it as being green hydrogen and that is the debate.

Following up on that, do you believe that the bet will shift? Do you believe that the nations, maybe EU it's going to be different. But do we think, hey, if there is a PPA in that nation that you can procure and you can then say, okay, I have x megawatts of power each year coming through this PPA. And I will then, as a result, unlike you guys doing 20% from the grid, I might do 50% or I might do 80% or I might even do 90% from the grid. Is that -- do you think that could ever happen?

Yes. Look, renewable energy contracts, if you go back to a renewable energy contracts are offered by retailers when they were first introduced. The whole principle is if the retail end by renewable energy contracts, you increase the amount of investment in renewable energy. And therefore, at the generation end you end up with more renewables that deployed. Same as -- exactly the same is the case with electrolysis. The electricity network, because of intermittent power, needs energy storage and grid balancing. So if you do it via the PPA route and you're connecting directly to the high-voltage network, then you've got a bank of electrolyzers which you can use for energy storage and grid balancing and you can generate anywhere in the network. The point is there are more flexible loads on the network. So the argument is doing it by the PPA allows you to accelerate the deployment of flexible lows like electrolysis equipment. And that's the augment. It is very similar to the argument that we went through with retail when we developed green electricity contracts. And the origin of all those green electricity suppliers whatever it was a decade ago now. Same rationale, really.

Yes. And sorry to continue on this point, but I think it's pretty [indiscernible]. If it does turn out the PPAs, as you say, are net positive for us getting to net zero quicker, I shouldn't have said net twice though. But if it does incentivize further renewables, if it causes people to expand there and we could see that happening, which electrolyzer system is best suited there. Is it the one that is highly responsive or is it the one that's most efficient?

The whole reason to doing it is to incentivize the amount of rapid response nodes on the demand side so that you can respond when you need frequency regulation. So actually, the whole proposition of using hydrogen to allow more renewable power on the network has got to do with being able to absorb intermittent and energy storage. Andy, maybe on the I think you could...

Yes, sure. So Linde has done a couple of webinars this year, which has been very helpful. But they did on it was around about 10th of June, which basically said we're looking at about EUR 750 per megawatt -- and that's [ EUR 50,000 ] per megawatt split into thirds. Tax is 1/3, balance of plans is 1/3 and a bit in the middle is sort of supporting the system. And that can be done by either ITM all in there. So the percentages flex depending on what sale it is. And what we're also finding is there isn't a standard sale yet when it comes to the turnkey solution. There's often ancillary products bolted on by Linde. So actually, we've got a very competitive offering, but it's quite out of our pure number basis to say this is the number for assisted.

Yes, absolutely right. If I might add to that, Christopher, by saying that as the systems get larger, they get more complex. So it's not just a straight electrolyzer the balance of plant. It can be compression, liquefaction, ammonia plant, [indiscernible] plant as well and the possibility of making sustainable aviation fuel, methanol, all those sorts of things. And when you get to that point, it becomes pretty nonsensical to say what the overall contract is because you have to go into great detail about what was included in the overall project. So we just talk about the amounts of money to the parts ITM part of the system.

And cognizant of time here. I'm just saying we can have a quick question from Adam Collins and the succinct answer, and we'll try and get through our last remaining people. Edward, over to you.

My question was just on progress with the potential 100-megawatt electrolyzer at the Whistling plant for Shell. And also, I think there was an announcement or a press release last year, can't remember who did whether it was Sasol or Linde. I was talking about a potential 200-megawatt electrolyzer at Sasol for sustainable aviation fuel.

Yes. So thank you, Edward, two important projects, of course. The first one, the Rhineland refinery, 100 megawatts. As you can see, that project was selected as the first 100-megawatt PEM electrolyzer by the EU, and that was an important milestone for the project. There is a more detailed FEED study required at the front end so that we can very accurately cost that pump, and that is the process that we're in right now. And it will get -- I think we've announced the time line for it to get the financial close. And that's important because, of course, it's now being tracked by the EU. So the first plant, the 10 megawatts, we are doing great work with Shell on site right now, and we're going into operations with that unit. And in parallel with that, we are, I think, the discussion with Shell and Linde about finalizing the engineering. What we do when you begin a project is we all get together to do it pricing. And then when you go through a FEED study, you more accurately draw down on the prices. And actually, you have to do that because when you're signing a contract for a large-scale EPC, you have to have accuracy and firm pricing, and that's the process being gone through at the moment. The 200-megawatt is also a sustainable aviation fuel project. And your reference to it comes from a Linde webinar. And they also -- there is an article written about that plant. It's Sasol-Linde Gas project, it has been announced. I have no update that I can make on that as of right now. But I think there are some exciting projects appearing in the 100-megawatt class as you can see from our breakdown in the tender pipeline.

I've got the Adam Collins question there. It's in the chat. It's basically saying international trade projects, Chile, North Africa, Australia, et cetera, how well-placed are you to secure those? And do you see some tendering next year in [ camp ] Australia and Chile be supplied from U.K.

Chile and Australia can be supplied from the U.K. so that one first. Second, do we see tendering activity next year? Very definitely, yes and a very strong emphasis on doing that. Other territories that you identified, one they are key for the green hydrogen industry as well as being key for ITM, yes, they are. And when would we consider not supplying from the U.K. but manufacturing locally, that will be demand-driven.

That's fantastic. And one last question here, Jean-Marc, over to you.

Graham, just a bit on the bottom up, really. Firstly, what are your production yields on stack looking like these days as you're ramping up volumes?

Sorry, what do you mean by production yield?

So what percentage of the stacks that come off the production line are fully sealed and on the board first time, what portion has to be reworked?

We see -- I can't remember seeing a rework in terms of stack. I mean it's very high, almost 100%. I mean, that's what we do the testing for. Do you mean -- what do you mean? I'm not -- maybe I'm not entirely understanding your question. Do you want to just state it again, I mean...

Currently ramping up production and increasing the volumes and moving from manual to semi-automated to fully automated, I mean no manufacturing process is 100%, people strive to get 5 Sigma, 6 Sigma, whatever it is. I'm just wondering where you guys are at right now with your core manufacturing.

Yes. So if we move and change anything in the process, we test the lines, first of all. We do a lot of testing. In the testing process, you have some failures, of course. But when you go into production, you're very confident about the output that you achieve. Are you asking us for publicly stating SIGMA data, we wouldn't be in a position to disclose that on a call like this.

Okay. Okay. Understood. And then in terms of the actual products, I mean, obviously, you've had a few warranty recalls over the last few years. Where are you at in terms of the average stack life in the field? And have you done any more testing in terms of degradation. And do you have any sort of current degradation rates, you can sort of guide us to that supports the sort of the lifetimes that you're providing?

Yes. So maybe I'll take the last one first, and then Andy, you could talk about warranty provisions. So we've been testing lifetime for years and years. We have loads of small stacks, and we make modifications to the components and we look at how it affects their lifetime. And the way that we work with lifetime in the field is that we charge our customers in after-sale support and we work with them. And any issues that we might see in the field will be fully taken underneath the after-sale-support contract. The stacks and the electrolysis equipment is very reliable. And we do more and more testing and increasing lifetimes all of the time. I mean, you can use an electrolyzer badly if you wanted to. And if you wanted to do that, you put dirty water in it and you turn it on and off rapidly every day with dirty water in it. We look after our electrolyzers so that they performed well. Andy, do you want to talk about warranty and warranty provision?

Well, I think you said a lot. So I think where there has been a higher provision, it's typically been around treatment of the stacks that we have systems that look at them. We've had -- we've learned a lot of lessons, we've deployed first-of-a-kind plant out there. And we have supported it, so all of our customers are incredibly happy. And what we're seeing now is an incredibly low rate of warranty requirements.

I think we'll leave it there on questions, if that's okay, everybody. If anyone has a big urge to ask a question, you can talk over me now and hop on. But I'm assuming that we've gone through all the questions that people have asked here that I can see. Graham, over to you for our conclusion. If you can wrap it, please.

Yes, sure. So I think the summary at the end is probably the same as the one I gave at the beginning, which is that we've made solid progress. We've converted from the tender pipeline to the backlog and from backlog to work in progress. We're very focused now on delivery on getting -- building our top line and recognize revenue, building and manufacturing to inventory so that we can reduce lead times. And it's all about doing that solid work now and this fantastic market coming through in the numbers. So thanks very much for your time and your interest in ITM.

Thank you to everyone here on the call to the company, for the buy side, to the sell side to you and your festive Chair, and thank you for your time.

Thank you.