Half-year Report

RNS Number : 1289D

ITM Power PLC

29 January 2018

ITM Power plc

("ITM Power", "the Group" or the "Company")

Half Year Results for the Period ended 31 October 2017

Significant commercial progress, financial position strengthened by £29.4m working capital fundraise

ITM Power (AIM: ITM), the energy storage and clean fuel company, announces its half year results for the six month period ended 31 October 2017. Comparable figures, where stated, refer to the corresponding period in 2016 unless otherwise indicated.

Commercial Progress:

· As at today, £27.0m (£17.0m) of projects under contract and a further £10.4m (Jan-2017: £1.4m) of contracts in the final stages of negotiation constituting a total backlog of £37.4m (Jan-2017: £18.3m), up 103% year on year

· Tender opportunity pipeline has grown steadily and is now over £200m, reflecting strong industrial demand

· 10MW refinery hydrogen project with Shell to build the world's largest PEM electrolyser at the Rhineland refinery, Germany

· World's first tidal-powered hydrogen generated at European Marine Energy Centre (EMEC) in Orkney

· First hydrogen bus route in the Pau region of France

· 20 tonne/day (50MW) hydrogen refuelling station designs launched in Las Vegas in September

· A new total of 20 hydrogen fuel contracts

Financial Highlights:

· Total income of £4.4m (2016: £3.0m), up 47%, comprising:

o Revenue - £1.7m (2016: £0.4m), up 325%

o Grant income plus grants receivable for capital projects - £2.7m (2016: £2.6m), up 4%

· Increase in fixed assets to £5.5m (2016: £3.8m), up 139%

· Loss from operations £2.9m (2016: £2.3m), increased by 26%

· Cash balance of £27.3m at period end (2016: £1.7m)

· Debtors balances of £12.8m (2016: £9.2m), up 39%

Operational Developments:

· New, larger factory premises identified and heads of terms agreed

· Expansion of the manufacturing and after sales support teams

· Creation of Australian subsidiary ITM Power Pty Ltd and appointment of Dr Neil Thompson as MD

Graham Cooley, CEO, commented: "The six months under review have seen significant advances in all areas of ITM Power's business. The announcement of the deployment of the worlds' largest PEM electrolyser at Shell's Rhineland refinery is a particularly important development seeing ITM Power enter the 10MW product class with a commercial product at scale. The Company's pipeline of deals has more than doubled since last year showing strong and consistent growth in both the refuelling and power-to-gas markets."

Roger Putnam, Chairman, added: "The Board is pleased with the result of the successful equity raise, which secured the working capital the Company needs to underpin the significant progress that has been achieved in growing the order pipeline of commercial sales. Our stronger financial position will help us to continue to strengthen our relationships with a number of major blue-chip companies as we progress our international business. With the establishment of our new company in Australia I welcome Neil Thompson to the development team."

For further information please visit www.itm-power.com or contact:

ITM Power plc

Andy Allen, CFO

+44 (0)114 244 5111

Investec Bank plc (Nominated Adviser and Broker)

Corporate Finance: Jeremy Ellis / Jonathan Wynn

Corporate Broking: Chris Sim / Rob Baker

+44 (0)20 7597 5970

Tavistock (Financial PR and IR)

Simon Hudson / James Collins

+44 (0)20 7920 3150

About ITM Power plc:

ITM Power manufactures integrated hydrogen energy solutions for grid balancing, energy storage and the production of green hydrogen for transport, renewable heat and chemicals. ITM Power was admitted to the AIM market of the London Stock Exchange in 2004. In September 2017 the Company announced the completion of a £29.4m working capital fundraise. The Company signed a forecourt siting agreement with Shell for hydrogen refuelling stations in September 2015 and subsequently a deal to deploy a 10MW electrolyser at Shell's Rhineland refinery. Additional customers include National Grid, RWE, Engie, BOC Linde, Toyota, Honda, Hyundai, Anglo American among others. The Company currently has £27.0m of projects under contract and a further £10.4m of contracts in the final stages of negotiation constituting a total of £37.4m, subject to exchange rate variations.

CHAIRMAN'S STATEMENT

The half year under review and the months since the period end have seen considerable progress made by the Company towards converting interest into tenders, and more importantly, tenders into contracted backlog and commercial sales. Our opportunity pipeline is at a record level, which is more than double the level it was a year ago. The traction developed by ITM Power in global markets has continued to increase as governments and companies worldwide have begun to recognise the attractions of hydrogen, both as a fuel and as an energy storage medium. Our recently announced project with Shell is a significant step into the very large market of decarbonising industrial hydrogen.

The successful equity fund raise of £29.4m to finance a move to enlarged facilities and boost working capital has underpinned the significant progress in the order pipeline. On behalf of the Board, I would like to thank our shareholders for their support.

Financial Results

Revenue recognised for the period under review was £1.7m (2016: £0.4m). This was supplemented by grant income of £1.9m (2016: £1.6m) and £0.8m (2016: £1.0m) of grants receivable for capital projects, which impacts directly on the balance sheet. Due to recognising revenue on a long term contracts basis, , our revenue line depends on the stage of build of projects at the reference date. Effectively, the busier we are on project build, the more weighted we become to the most recent period. After increased staff costs associated with the higher volumes of manufacturing in the period, the loss before tax for the half year was £2.9m (2016: £2.3m).

As a result of the fundraise, cash and short-term deposits at the period end were £27.3m (£3.0m at 30 April 2017 and £1.7m at 31 October 2016). Debtor balances increased to £12.8m (2016: £9.2m) reflecting grants for capital projects yet to be received and the balances yet to be paid on projects underway at period end.

The Board is not recommending the payment of a dividend for the period in accordance with our stated policy.

Team

In October, Peter Hargreaves, a Non-executive director since 2003, notified the Company of his intention to step down from the Board with effect from the half year end. On behalf of his Board colleagues, the staff of ITM Power and all of our shareholders, I would like to thank Peter for his help and support during his 16 year involvement with the Company. We would not be where we are today without him.

I am delighted to welcome Dr Neil Thompson who joins us as the new Managing Director of ITM Power Pty Ltd in Australia. Neil's background includes engineering and commercial roles in the clean technology, aerospace and automotive industries across the Americas, Europe and the APAC region.

Once again, the Board would like to record its appreciation of the hard work and fantastic commitment of the Company's staff, without which we would not be in the strong position globally that we are today.

Outlook

The second half of the financial year to end April 2018 looks set to be busier than ever when we will be beginning the process relocating to new manufacturing premises in the South Yorkshire region which will give us the additional capacity necessary to manufacture large scale electrolysers of 10MW and beyond. In addition the ability to operate under one roof is expected to provide important operational and cost synergies.

Our relationship with key blue-chip partners such as Shell, Toyota, National Grid, BOC Linde, RWE and Engie continue to strengthen, leading to an increasing number of significant opportunities. Our business is now global and we have new projects in France and Germany and the establishment of our new company in Australia should provide a strong footprint to generate further opportunities in the APAC region.

Hydrogen technology is now receiving the attention it deserves in industrial processes, energy storage and refuelling. The second half is set to be very exciting, with ITM Power's products positioned as undoubted leaders in the world's PEM electrolyser markets for green hydrogen. I look forward to reporting to shareholders on the full year outcome in the summer.

Prof Roger Putnam CBE

Chairman

26 January 2018

CEO's Review

The strong growth in the opportunity pipeline reported in these results reflect the hydrogen and energy storage markets' rapid growth worldwide and ITM Power's focus on developing commercial sales. Scale is now key and ITM Power is in a great market position with our larger footprint of compliant reference plant deployed all over the world. ITM Power is at the forefront of a market which is revolutionising air quality, energy storage and the decarbonisation of heavy industry.

Products in Build and Order Backlog

ITM Power continues to steadily process its order book. Today, the Company has work in progress which will constitute over 5MW of installed capacity that is either in build, undergoing factory acceptance testing, is ready for shipment or being commissioned in the field. The order backlog and opportunity pipeline clearly demonstrate a trend towards larger scale. The backlog is also reflective of the Company's focus on commercial sales. In order to accommodate the increased numbers and size of units in production, and the capacity for Factory Acceptance Testing the company is planning to relocation to a larger facility accommodating all functions under one roof.

Technology Progress

ITM Power's technology development team continues its efforts towards lowering product costs, maximising durability and increasing efficiency. At the system level, the Company has used its modular system design effectively to supply customers with equipment optimised for its duty. Using this principle, systems up to 100MW in size have been developed utilising ITM Power's well proven technology. This strategy has enabled the Company to rapidly engage with large scale opportunities and while minimising technical risk. After detailed and lengthy verification processes, ITM Power is now routinely offering electrolyser systems incorporating high current density PEM stacks. This has enabled ITM Power to reduce the number of stacks in any given system without compromising in efficiency or durability.

Industry Developments:

On 13 November the Hydrogen Council published a first-of-a kind study detailing hydrogen's potential to be a key pillar of the energy transition. The study concluded that when deployed at scale, hydrogen could account for almost one-fifth of total final energy consumed by 2050. This would reduce annual CO₂ emissions by roughly six gigatons compared to today's levels, and contribute roughly 20% of the abatement required to limit global warming to two degrees Celsius.

Marketing

The Group's marketing efforts remain focused on engagement with multi-national companies that operate within the energy, transport and chemical sectors. Salesforce has become a key tool for the sales and marcomms teams with the industry contacts data base now at over 28,000 contacts. ITM Power attends and presents at many industry specific trade fairs and conferences in the UK, mainland Europe and the United States. A regularly updated list of all the events the company will be attending can be found at http://www.itm-power.com/news-media/events

Outlook

Quotations, sales and the order pipeline are stronger than they have ever been. The traction with customers and partners that ITM Power achieves through its market leading PEM electrolyser technology combined with the additional balance sheet strength following the recent equity fund raising puts the group in a very strong position to deliver its future growth ambitions. The global growth in demand for hydrogen solutions in utility, petrochemical and refuelling markets is also very encouraging. I look forward to reporting on what will be a very active second half to the year, as well as reporting on the development of the opportunity pipeline at the announcement of the full year results.

Dr Graham Cooley

Chief Executive Officer

26 January 2018

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

Results for the six months ended 31 October 2017

	Six months ended 31 October 2017 (unaudited) £'000	Six months ended 31 October 2016 (unaudited) £'000	Year ended 30 April 2017 (audited) £'000

Revenue	1,739	405	2,415
Cost of sales	(1,580)	(313)	(1,757)
Gross profit	159	92	658

Operating costs
- Research and development	(957)	(790)	(2,023)
- Prototype production and engineering	(1,586)	(1,614)	(2,615)
- Sales and marketing	(673)	(744)	(1,528)
- Administration	(1,739)	(833)	(2,202)
Other operating income - grant income	1,920	1,616	4,160
Loss from operations	(2,877)	(2,274)	(3,550)

Investment revenues	-	2	-
Loss before tax	(2,877)	(2,272)	(3,550)
Tax	348	69	(230)
Loss for the period	(2,529)	(2,203)	(3,780)

OTHER TOTAL COMPREHENSIVE INCOME:
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences on foreign operations	134	81	(250)
Total comprehensive loss for the period	(2,395)	(2,122)	(4,030)
Loss per share
Basic and diluted	(1.0p)	(1.0p)	(1.7p)
Weighted average number of shares	250,613,176	216,892,973	222,513,007

The loss per ordinary share and diluted loss per share are equal because share options are only included in the calculation of diluted earnings per share if their issue would decrease the net profit per share or increase the net loss per share.

All results presented above are derived from continuing operations.

The loss for the period is equal to the total comprehensive expense for the period.

The accompanying notes form part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

Results for the six months ended 31 October 2017

	Called up share capital £'000	Share premium account £'000	Merger reserve £'000	Foreign Exchange reserve £'000	Retained loss £'000	Total Equity £'000


At 1 May 2016	10,845	58,151	(1,973)	54	(55,442)	11,635
Loss for the period	-	-	-	-	(2,203)	(2,203)
Other comprehensive income for the period	-	-	-	81	-	81
Total Comprehensive income for the period	-	-	-	81	(2,203)	(2,122)

Issue of share capital	-	-	-	-	-	-
Credit to equity for equity settled share based payments	-	-	-	-	-	-
At 31 October 2016 (unaudited)	10,845	58,151	(1,973)	135	(57,645)	9,513


At 1 May 2017	12,531	61,930	(1,973)	(196)	(59,222)	13,070
Loss for the period	-	-	-	-	(2,529)	(2,529)
Other comprehensive income for the period	-	-	-	134	-	134
Total Comprehensive income for the period	-	-	-	134	(2,529)	(2,395)

Issue of share capital	3,669	24,767	-	-	-	28,436
Credit to equity for equity settled share based payments	-	-	-	-	-	-
At 31 October 2017 (unaudited)	16,200	86,697	(1,973)	(62)	(61,751)	39,111

The accompanying notes form part of these financial statements.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

31 October 2017

	As at 31 October 2017 (unaudited) £'000	As at 31 October 2016 (unaudited) £'000	As at 30 April 2017 (audited) £'000
NON CURRENT ASSETS
Development Costs	330	352	380
Property, plant and equipment	5,137	3,447	4,519
	5,467	3,799	4,899

CURRENT ASSETS
Inventories	749	445	760
Trade and other receivables	12,834	9,195	11,082
Cash and cash equivalents	26,190	1,315	1,558
Restricted cash and cash equivalents	1,117	410	1,446
TOTAL CURRENT ASSETS	40,890	11,365	14,846

CURRENT LIABILITIES
Trade and other payables	(6,479)	(5,651)	(6,666)
Provisions	(767)	-	(9)
TOTAL CURRENT LIABILITIES	(7,245)	(5,651)	(6,675)

NET CURRENT ASSETS	33,644	5,714	8,171

NET ASSETS	39,111	9,513	13,070

EQUITY
Called up share capital	16,200	10,845	12,531
Share premium account	86,697	58,151	61,930
Merger reserve	(1,973)	(1,973)	(1,973)
Foreign Exchange Reserve	(62)	131	(196)
Retained loss	(61,751)	(57,645)	(59,222)
TOTAL EQUITY	39,111	9,513	13,070

The accompanying notes form part of these financial statements.

CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

Results for the six months ended 31 October 2017

	Six months ended 31 October 2017 (unaudited) £'000	Six months ended 31 October 2016 (unaudited) £'000	Year ended 30 April 2017 (audited) £'000

Loss from operations	(2,877)	(2,274)	(3,550)
Adjustments:
Depreciation of property, plant and equipment	730	415	1,181
Loss on disposal	2	22	22
Fixed asset impairment	39	-	100
Amortisation	50	-	23
Operating cash flows before movements in working capital	(2,056)	(1,837)	(2,224)
Decrease/ (Increase) in inventories	11	(154)	(469)
(Increase) in receivables	(1,493)	(2,803)	(5,363)
Increase in payables	1,984	3,838	2,747
Increase in provisions	758	-	9
Cash used in operations	(796)	(956)	(5,300)
Income taxes received	189	252	252
Net cash used in operating activities	(607)	(704)	(5,048)

Investing activities
Interest received	-	2	-
Purchases of property, plant and equipment	(3,574)	(839)	(647)
Proceeds from sale of plant & equipment	-	3	4
Payments for intangible assets	-	(100)	(151)
Net cash (used in) investing activities	(3,574)	(934)	(1,419)

Financing activities
Proceeds from issue of shares	29,359	-	5,732
Costs associated with fund raise	(921)	-	(267)
Net cash from financing activities	28,438	-	5,465

Increase/ (decrease) in cash and cash equivalents	24,257	(1,638)	(377)
Cash and cash equivalents at the beginning of the period	3,004	3,336	3,336
Effect of foreign exchange rate changes	46	27	45
Cash and cash equivalents at the end of the period	27,307	1,725	3,004

Cash Burn

Cash burn is a measure used by key management personnel to monitor the performance of the business.

Increase/ (Decrease) in Cash and Cash equivalents per the cash flow statement	24,257	(1,638)	(377)
Effect of foreign exchange rates	46	27	45
Less share issue proceeds	(29,359)	-	(5,732)
Cash Burn	(5,056)	(1,611)	(6,064)

The accompanying notes form part of these financial statements.

The condensed interim financial statements were approved by the board of Directors on 26 January 2018

Notes to condensed interim financial statements

1. Basis of preparation of interim figures

The interim financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) as adopted for use in the EU. While the financial information included in this interim announcement has been compiled in accordance with the recognition and measurement principles of IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs. This interim financial information does not constitute statutory financial statements within the meaning of section 435 of the Companies Act 2006. The financial information for the six months ended 31 October 2015 have been subject to an interim review in accordance with ISRE2410 by the Group's auditors. The financial information for the six months ended 31 October 2017 have not been subject to an interim review. The information relating to the year ended 30 April 2017 has been extracted from the Group's published financial statements for that year, which contain an unqualified audit report that does not draw attention to any matters of emphasis, and did not contain statements under section 498(2) and 498(3) of the Companies Act 2006 and which have been filed with the Registrar of Companies.

The Group's condensed interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union. The principle accounting policies adopted by the group are as applied in the Group's latest annual audited financial statements.

The financial statements have been prepared on the historical cost basis. The principle accounting policies adopted by the Group are as applied in the Group's latest audited financial statements.

Going concern

The Directors have prepared a cash flow forecast (the "Forecast") for the period to 31 January 2018 (the "Forecast Period"). The Forecast includes proceeds from the equity fund raise completed in October 2017 less expenses relating to the fundraise, together with a number of assumptions, including the level of projected sales and grant income, the timing of which is inherently uncertain.

The Directors have a reasonable expectation that the Company and Group can continue to meet their liabilities as they fall due, for a period of not less than twelve months from the date of approval of this condensed set of financial statements.

Accordingly, the financial statements have been prepared on a going concern basis.

2. Revenue, other operating income and Investment Income

In 2017, the following accounted for more than 10% of total revenue (2016: no single customer contract):

Customer A	£456,672
Customer B	£438,572
Customer C	£232,915
Customer D	£278,229

An analysis of the Group's revenue is a follows:	2017 £'000	2016 £'000
Continuing operations
Revenue from construction contracts	1,522	213
Consulting services	99	157
Maintenance services	32	23
Fuel sales	63	4
Other	23	8
Revenue in the Consolidated Income Statement	1,739	405
Grant income	1,920	1,616
Investment income	-	2
	3,659	2,023

Revenues from major products and services

The Group's revenues from its major products and services were as follows:

	2017 £'000	2016 £'000
Continuing operations
Power-to gas	639	148
Refuelling	398	249
Chemical Industry	679	-
Other	23	8
Consolidated revenue (excluding investment revenue)	1,739	405