ITM Power bottom line hit by legacy projects and lower grant income

Hydrogen power specialist ITM Power continued to build out its manufacturing capabilities over its most recent half-year, which also saw it beef up its balance sheet via a capital raise and the entry of Germany's Linde as a cornerstone investor.

Nonetheless, the company's results continued to be impacted by cost overruns at some legacy projects and by a larger-than expected-drop in grant income.

Over the six-month stretch ending on 31 October, the company, which designs and makes electrolyser units for the generation of green hydrogen fuel, also saw its qualified tender opportunity pipeline increase 3.3% to £248.0m.

In parallel, its backlog jumped by 26.2% to hit £42.4m, with £16.3m of projects under contract and £26.1m in the final stages of negotiation.

At the same stage of the previous financial year, £10.4m of projects were in the final stage of negotiations.

Commenting on the outlook, Dr. Graham Cooley said: "ITM Power has increasing commercial visibility of those projects which are viable, and ready, and is becoming increasingly selective about where it focuses its sales efforts, with an increasingly rigorous bidding criteria for projects."

On 3 October, the company raised £58.8m of fresh funding, with £38.0m invested by Linde UK Holdings, another £14.0m subscribed by new and existing institutional investors and a further £6.8m obtained through an open share placing, all at 40.0p a share.

It also created a 50-50 joint-venture with Linde.

During the reporting period, ITM continued fitting out its new manufacturing site at Bessemer Park, worked to further standardise its 2MW standard offering so as to make it more scalable for larger projects and to develop the concept for its 5MW next generation stack module.

Construction at Bessemer was seen completing in the third quarter of 2020 and allowing the company to reach 1GW of capacity within thre years.

Losses from operations nearly doubled during the half, rising by 85.0% to £9.8m, in large part due to a faster than anticipated decline in grant income of £3.0m which management attributed mainly to the loss of grants from the European Union.

In parallel, the firm's cash burn increased 29.0% from £4.8m to £6.2m.

The company's bottom line was also hit by cost overruns at what it described as legacy projects such as the Refhyne project.

ITM said that post period end it had received price indications for the installation and commissioning on the Refhyne project "which are likely to be higher than originally anticipated".

In future, the costing for such proejcts would be conducted by TM Linde Electrolysis GmbH, which would allow ITM to benefit from Linde's expertise in properly costing projects and from its engineering, procurement and construction skills.

The UK Commission for Climate Change Net Zero's technical report, published on 2 May 2019, forecast that Britain would 6-17.0GM of electrolysis to hits its net zero target for carbon emissions by 2050.

To that potential demand, one had to add possible further requirements from other industrialised economies, including the Netherlands, Denmark, Germany, Australia, Korea, Japan, and China.

At period end, ITM Power had £56.9m of cash and cash equivalents on hand, versus £15.6m one year before.

As of 1356 GMT, shares of ITM Power wre trading 0.92% lower at 108.0p, having recovered from an early sharp fall to 98.0p.