RNS Number : 1830P ITM Power PLC 08 June 2020

8 June 2020

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

Trading Update

ITM Power (AIM: ITM), the energy storage and clean fuel company, provides a trading update for the year to 30 April 2020. This update includes progress on the contracts pipeline, the effect of the Covid-19 pandemic on the results for the year just ended, the progress of the new joint venture ITM Linde Electrolysis GmbH ("ILE") and updates on some of the major projects currently underway.

Highlights: · Record backlog of £52.4m, comprising £21.8m under contract and £30.6m in negotiation · Backlog up 24% since 27 January and not yet reflecting the ILE activity · Higher quality tender opportunity pipeline ("ToP") of £263m · Contract award for 8MW electrolyser secured · Bidding with Linde, via ILE, very strong and close collaboration with Linde Engineering enabling ITM Power to focus solely on its core manufacturing competence as opposed to EPC activities · Shell Refhyne project programme progressing well with all five 2MW electrolysers built and phase one of factory acceptance testing successfully completed · Legacy projects, Covid-19 delays and Brexit transition effects on EU grant funding increase expected EBITDA loss for the year ended 30 April 2020 to £17.5m, in line with expectations · Minor Covid-19 impact on Bessemer Park fitout programme (now expected to open in Q4 2020) · Rapid hydrogen market development - three European governments have stated explicit electrolyser targets for 2030: Germany 5GW, Holland 3-4GW and Portugal 2GW · Cash position £41.0m at year end, £38.5m at the end of May

Dr Graham Cooley, CEO, ITM Power plc, commented :"The emerging trends in different industrial sectors, together with increasing acceptance by governments around the world that green hydrogen is an essenal vector to achieve their carbon reducon commitments, bode very well for the electrolysis market. Against this background, ITM Power with partner Linde is very well placed to capitalise on the major opportunies we expect to arise from the connuing drive towards climate change mitigation."

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

ITM Power plc +44 (0)114 244 5111 Graham Cooley, CEO / Andy Allen, Finance Director Investec Bank plc (Nominated Adviser and Broker) +44 (0)20 7597 5970 Chris Sim / Jeremy Ellis / Ben Griffiths / Tejas Padalkar Tavistock (Financial PR and IR) +44 (0)20 7920 3150 Simon Hudson / Edward Lee / Barney Hayward

Introduction The market for electrolysis is growing very strongly due to the changing perspecves of industrial leaders and policymakers. In the last year, the offshore wind and gas sectors have started to advocate green hydrogen as the means for sustaining their long-term business models. At the same me, in the transport sector, a renewed focus has been placed on the development of zero-emission heavy vehicles, where fleets need to be refuelled with large amounts of hydrogen on a regular basis.

Pipeline The contracts backlog today stands at a record level of £52.4m (£42.4m as at 27 January 2020), an increase of 24%, comprising £21.8m of projects under contract and a further £30.6m of awards in the final stages of negoaon. The tender opportunity pipeline (ToP) stands at £263m (£248m as at 27 January 2020), comprising 32 acve commercial tender responses over the last 12 months with an average project size of £7.7m (£7.2m) reflecng strong industrial demand for larger systems. The ToP is now more highly qualified and comprises only high probability projects. In many cases the ToP does not include the Engineering, Procurement and Construcon ("EPC") component of bids, which it did before the formaon of the joint venture with Linde. This is expected to increasingly become the norm going forwards.

ITM Linde Electrolysis GmbH (ILE) Update ILE was incorporated in Germany in January 2020 with Andreas Rupieper appointed as Managing Director to provide global green hydrogen gas soluons using ITM Power's PEM electrolysis technology and Linde's world class EPC expertise. Since then, ILE has made significant progress with an operational centre established in Dresden and several full-time business development appointments made.

As a 50/50 joint venture between ITM Power and Linde Engineering ("Linde"), ILE leverages access to the capabilies of both parent organisaons and offers an extremely strong value proposion which spans the full project life cycle from feasibility to plant realisaon. Uning Linde's EPC capabilies, hydrogen processing and applicaon technologies experse with ITM Power's proprietary PEM electrolyser technology means ILE can provide fully optimised turnkey packages.

ILE is already engaged in numerous proposals for the deployment of large-scale electrolysis equipment. It has won its first feasibility study for the installaon of a 100MW plant at an oil refinery and also a major Front End Engineering Design (FEED) study for an additional 100MW plant.

Collaborative work with Linde Engineering A constant in ITM Power's product strategy is standardisaon and modularisaon. This remains central to both cost reducon and producon capacity ramp up as the Company transions into its new producon facility at Bessemer Park.

Close collaboraon with Linde Engineering has been transformaonal for ITM Power. The availability of engineering capacity, market experience, technical experse and the Linde supply chain has enabled ITM Power to accelerate development in mulple areas. Of parcular relevance is the ability to accelerate compliance work for the deployment of products and systems in a greater number of international territories.

A key reason behind the collaboraon with Linde Engineering was to enable ITM Power to focus solely on its core competence - the manufacture of electrolysis equipment - as opposed to EPC acvies. Both the bidding of projects and their execuon benefit from a redistribuon of efforts which ulmately makes ITM Power more efficient. The synergies between the two companies have made for swi collaboraon and have generated enthusiasm within the team.

Unaudited Results The financial year to 30 April 2020 does not yet reflect any of the benefits of the new arrangements with Linde. The financial performance was also impacted by project delays due to Covid-19 and losses resulng from EPC work on legacy projects. Whilst acvity remained at similar levels to 2019, total income recognised is expected to be approximately £7.0m1 (unaudited) (2019: £17.6m), a decrease of 60 per cent year-on-year. 1 Includes sales revenue and grant income against both development projects and HRS sites in the UK

Sales revenue was £3.0m (£4.6m), down 30 per cent with the effect of Covid-19 reducing revenues by approximately £1.2m due to the fact that income is recognised upon compleon of on-site work, and certain programmes due to complete in the year suffered Covid-related site closures.

Grant revenue was £4.0m (£14.3m), down 70 per cent. This reflects the challenges experienced in obtaining new grant funding from the EU post-2016 and increasingly the ongoing strategy of focusing on commercial sales rather than grants. The Company does expect grant income to connue to play a role in the business in the future and this will predominantly come from appropriate funding calls from the UK Government.

The adjusted EBITDA2 (unaudited) loss from operaons of approximately £17.5m (£6.7m) is in line with expectaons. The increased EBITDA loss is a reflecon of the Group's transion into a pure manufacturing business as the Company closes out legacy projects and invests in producon skills and product improvements. The principal component of the EBITDA loss stems from the installaon of product at the Reyne site, not from the build (manufacture) phases of projects. In closing out the legacy projects, the Company has realised a gross loss of £4.8m in the 2020 financial year, of which £3.5m is aributable to the world's largest PEM electrolyser system at the Wesseling Shell refinery through the Reyne project in Germany. The transformave joint venture and close collaboraon with Linde will in future migate such losses through large-scale installaons as it will allow ITM Power to focus solely on the producon of modules and standard products, rather than project execution on-site, which will be quoted and executed by Linde. 2 EBITDA includes grant income recognised on the income statement

Total financial assets at the year-end were approximately £50.7m (£19.8m as at 30 April 2019), comprising £39.9m (£5.2m) of cash, £1.1m (£1.7m) of cash on guarantee and deployed working capital (debtors less creditors) of £9.7m (£12.9m).

Effect of the Covid-19 Pandemic The health and safety of our employees and their families, suppliers and customers is paramount. Consequently, in accordance with government guidelines, all non-essenal work was stopped at ITM Power locaons and on customer sites from 17 March 2020. However, the Group's Hydrogen Refuelling Staons "HRS" were deemed by the Met Police as an essenal service and have connued to operate in accordance with government guidelines throughout the lockdown.

All seven customer sites where ITM Power is working to install equipment have been closed, delaying site acceptance tesng which has impacted revenue recognion for these contracts. The Company is working with partners to get back on site as soon as it is possible and expects to recover the majority of delays. ITM Power currently employs 190 staff with recent recruitment focused on the areas of producon, standard product design, commissioning and aer sales support. At the peak of the Covid-19 related lockdown, the Company had 28 staff furloughed, but expects all staff back from furlough by the end of June. The Company is operating remotely where possible.

Bessemer Park Progress on Bessemer park pre the Covid-19 pandemic was on schedule with a target compleon date in mid-August. Work connues on-site, but with reduced capacity in order to comply with social distancing. The principal contractor has now advised that the revised target compleon date is in Q4 2020 and progress from now will connue to be carefully monitored. The site will have an annual capacity of 300MW per annum from opening, which will expand to 1GW (1,000MW) per annum by 2024.

While the move will provide significantly more producon space, emphasis is on processes, semi-automaon and efficiency to support repeat build of standard products and modules. As part of the move, ITM Power will be adopng dedicated producon cells, improved in-line tesng together with line-side feed of materials and data capture. The investments made in new machinery to automate repeve processes will unlock stack producon capacity while ensuring precise quality control. The site also benefits from a 5MW grid connecon enabling two 2MW systems to be tested in parallel or one 5MW module at any one me. Factory Acceptance Tesng is an important stage in the production cycle and one which has suffered from constraints in the Company's current facility.

The Company has spent two years developing the new manufacturing process for the factory, which includes semi- automaon, a new process for stack manufacture and process layout to achieve a 1GW manufacturing capacity. This blueprint can now be replicated so that capacity expansion in other territories could be very effectively achieved.

Technology As a vercally integrated company, ITM Power connues to place strategic focus on the development of its technology. The technology roadmap is driven by the business plan and targeted at reducing cost, increasing performance and expanding producon capacity. Over the course of the last 12 months, using the Company's extensive tesng facilies, ITM Power has completed verificaon work on a number of machines which will bring semi-automaon to stack producon. This has been an important development and is central to achieving a step change in future production capacity while also bringing important cost reductions.

ITM Power has achieved further improvements to stack efficiency through incremental advances within the laboratory. As per standard process, such improvements are to be integrated into the commercial offering aer verificaon tesng. The knowledge of processes within high performance PEM stacks that ITM Power has developed is deep and extensive and will continue to drive improvements at the stack level.

Projects In addion to its arrangement with Linde, the Company currently has a porolio of 34 projects and a team of 10 dedicated project managers, including Italian, French and German speakers, who work closely with clients to support the delivery of projects and products to me and budget. They are now working towards geng back on to the customer sites that were closed due to Covid-19.

The 10MW Shell Reyne programme is progressing well and has provided the Company with valuable 'first of a kind' lessons. ITM Power's manufacture of the 10MW electrolysis plant is ongoing, with all five 2MW modules now built and these have completed the first stage of Factory Acceptance Tesng (up to 85% load). Site works in the Rhineland Refinery are progressing but delays are now ancipated due to Covid-19 restricons affecng suppliers and the tesng and build phases. Cost overruns are ancipated for the project due to higher than ancipated EPC costs, primarily installaon and commissioning costs for key components. The Company is working with Shell to seek to minimise anticipated cost overruns, currently forecast to be £3.5m, in line with previous guidance.

The ITM Power 1MW Big Hit electrolyser on the Orkney Islands is now generang hydrogen from excess wind, following a successful coupling to the onsite wind turbine. The project connues for a further two years collecng data and evaluating performance and the business case for island hydrogen systems.

Hydeploy has connued to undertake hydrogen blending tests in the Keele gas grid using the ITM Power 0.5MW electrolyser and delivered the longest period of connuous blending operaon to date in March 2020 supplying gas for domesc heat and cooking. Whilst the Hydeploy site is currently shut down, blending tesng will connue once UK Government restrictions are lifted.

The ITM Power 1MW electrolyser at the EnergyStock site in the Netherlands successfully filled tube trailers during March and April and the hydrogen gas produced by the ITM Power electrolyser was used to provide fuel for the first hydrogen train in the Netherlands, on its maiden voyage.

The ITM Power 0.5MW electrolyser central to the Pau bus refueler project in France was put into operaon and enabled the launch of Pau City's Hydrogen Bus Fleet in December 2019. Since then over nine tonnes of hydrogen have been produced and used by the buses in seven days per week refuelling, prior to the site shung down in March as a result of Covid-19 restrictions.

A number of other projects are in the final stages of commissioning but are currently on hold due to Covid-19 restricons, The Company's Project Managers connue to work with customers and suppliers to migate delays and prepare for returns to site. This is expected to have an impact on revenues in the current financial year but the impact is currently too uncertain to quantify.

The Company was pleased to announce the award of phase two of the Gigastack project from the UK's Department for Business, Energy and Industrial Strategy in February 2020. Following an earlier feasibility study, this project will support the development of a 5MW stack module. Carrying over proven technology and processes from the Company's current stack generaon, the development will represent an increase of 150 per cent in module capacity. The Gigastack project also includes a FEED study with Orsted and Phillips 66 for a 100MW electrolyser system at the Phillips 66 refinery in Humberside.

Corporate The company recently appointed Katherine Roe as non-execuve director of the company. Katherine had a 14 year plus career in investment banking and corporate finance, inially with Morgan Stanley and subsequently with Panmure Gordon where she was a Director within Investment Banking and headed up the energy team from 2010 to 2014. Her knowledge and experience of investment markets and the energy industry will add a directly relevant skill set to the governance and strategic direction of the Company.

The Company also recently appointed Duncan Yellen as Managing Director of ITM Move, the division of ITM Power responsible for the UK build, own and operate porolio of hydrogen refuelling staons. ITM Move will be established as a separate, wholly owned subsidiary for the management of the Company's refuelling assets, and will own and operate a network of 11 publicly accessible hydrogen refuelling station by the end of 2020.

The Company also announced the formaon of the H2OzBus Project and the signing of a memorandum of understanding with strategic partners. The Consorum will undertake a project to deploy an inial 100 hydrogen electric buses in cies across Australia in Phase 1, with the intenon to use this as a seed for more widespread roll-out. The H2OzBus Project partners are Ballard Power Systems, BOC Limited, Transit Systems, Palisade Investment Partners and ITM Power.

Outlook Governments are increasingly recognising the role of green hydrogen as a decarbonisaon tool. The U.K. government has introduced an overarching net zero target and placed an early focus on decarbonising industrial clusters that will lead to progressively larger deployments of electrolysers. In the Netherlands, the Dutch government has recently presented its green hydrogen vision for achieving a sustainable energy system that is reliable, clean and affordable. A total of three European governments have now stated explicit electrolyser targets for 2030: Germany 5GW, Holland 3-4GW and Portugal 2GW.

The EC has recently established a Clean Hydrogen Alliance to accelerate the decarbonisaon of EU industry. In addion, it is about to introduce a Renewable Energy Direcve II, which will facilitate green hydrogen adopon by refineries and introduce a Smart Sectoral Integraon Package which is widely expected to set targets for hydrogen admixtures in the gas grid. These emerging policy frameworks will have a major impact on the scale of the European electrolysis market.

The German government announced in its smulus package of 3 June 2020 that it will present a naonal hydrogen strategy in the short term. Accordingly, a programme for the development of hydrogen producon plants will be developed to demonstrate industrial-scale producon of up to 5GW total output in Germany, operaonal by 2030. For the period up to 2035, but until 2040 at the latest, an additional 5 GW will be added if possible. To implement all these measures, the German government will invest €7bn.

Alongside the predicted growth trajectory for electrolysis, the cost outlook for green hydrogen is also posive. The Hydrogen Council expects green hydrogen to become cost compeve with grey hydrogen by 2025 assuming a €50 per ton CO2 price. An 80GW electrolyser target for Europe by 2030 has been proposed, where electrolysers feed into a hydrogen transmission network that interconnects the renewable energy resources of the North Sea, Morocco and Ukraine with the demand centres of Europe. Further afield, Australia is acvely pursuing opportunies to export green hydrogen and has esmated that 69 per cent of the 2025 global market for hydrogen will lie in its four target markets of China, Japan, Korea and Singapore.

Against this encouraging market backdrop ITM Power has made good progress in the period. The near term outlook is well underpinned by the record contract backlog, which does not yet reflect the benefit of substanal opportunies being bid through the ILE joint venture, and highly qualified tender opportunity pipeline.

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About ITM Power plc ITM Power plc manufactures integrated hydrogen energy soluons for grid balancing, energy storage and the producon of renewable hydrogen for transport, renewable heat and chemicals. ITM Power plc was admied to the AIM market of the London Stock Exchange in 2004. In October 2019, the Company announced the compleon of a £58.8 million fundraising, including a subscripon by Linde of £38 million, together with the formaon of a joint- venture with Linde to focus on delivering renewable hydrogen to large scale industrial projects worldwide. ITM Power signed a forecourt sing agreement with Shell for hydrogen refuelling staons in September 2015 (which was extended in May 2019 to include buses, trucks, trains and ships), and in January 2018 a 'first of a kind' project to deploy a 10MW electrolyser at Shell's Rhineland refinery. ITM Power announced the lease of the world's largest electrolyser factory in Sheffield with a capacity of 1GW (1,000MW) per annum in July 2019. Customers and partners include Sumitomo, Ørsted, Phillips 66, Naonal Grid, Cadent, Northern Gas Networks, Gasunie, RWE, Engie, BOC Linde, , Honda, Hyundai and Anglo American among others.

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