Q1 2023 Fusion Fuel Green PLC Earnings Call
Speaker 2: mini-trim electricizer, the EVO, to the heart of everything we do. It simplifies modular architecture, unlocks a number of advantages, including high-throughput industrialized production, a scalable building block approach that positions us to create customized fit-for-purpose hydrogen solutions, and cost-competitive distributed or decentralized production of hydrogen, mitigating the need for a distribution infrastructure, which is a costly and critical bottleneck in the market today. We built a strong pipeline of actionable near-term projects in our core markets of Southern Europe and the United States, with significant grant funding tied to many of those foundational projects, strengthening the economics and de-risking the investment case. Our unique and complementary business model positions us across the value chain. In addition to selling our proprietary electricizer solutions to third-party customers, we also originate and develop green hydrogen projects with diverse avenues for monetizing value creation. And finally, we are poised and positioned for significant growth ramp as the market matures.
Speaker 2: with an extensive long-term project pipeline and a world-class production facility located in Portugal where we're targeting 500 megawatts of process capacity per annum by the end of 2025. So with that, I'll now introduce Gavin Jones, newly appointed interim CFO of Fusion Fuel. Gavin's been with the company since 2021 in the role of chief accounting officer. Prior to that, he spent well over a decade at KPMG in Ireland. So it's my great pleasure to welcome Gavin into his new role and to invite him to share some highlights from the first quarter of 2023. Thank you, Ben.
Speaker 3: Good afternoon or good morning to all of you who have joined our Q1 investor update call. I'm really pleased that my first act as Interim CFO is to present our financial highlights for the three month period ended March 31st.
Speaker 3: Some of the key to the highlights include entering two hydrogen purchase agreements with Durogas and Hydrogen Ventures, issuing invoices to three external clients.
Speaker 3: Also, as Jeffrey mentioned, we commenced the commissioning phase at Exalum, we signed a technology sales agreement with SASEET and awarded grant funding towards a mobility project in Italy.
Speaker 3: Also, in the spirit of sustainability and corporate governance, today also marks the launch of our first ESG report, outlining targets and ambitions for ourselves in the ESG space.
Speaker 3: We want to move to the next slide, please.
Speaker 3: We reached an important milestone during this quarter as we recognized our first third-party revenues.
Speaker 3: This revenue resulted from a technology sale for the supply and installation of 62 solar units that we previously announced.
Speaker 3: Our cost base reduced when compared to Q4 2022 with notable reductions relating to owner's contract provisions, inventory scrappage costs, professional service and consulting fees.
Speaker 3: These reductions were somewhat offset by a 1.4 million charge relating to a production line that was scheduled to be installed at our Benevente production facility during 2023.
Speaker 3: As this production line will no longer be installed as planned, it did not meet the capitalisation requirements and was expressed.
Speaker 3: In line with previous quarters we continue to recognize non-cash expenses for the awards under our Equity Incentive Plan and fair value gains for our warrants that are mark-to-market instruments.
Speaker 3: These items culminated in a net loss of 2.6 million euros.
Speaker 4: Can we move to part five?
Speaker 3: During the quarter we continue to invest in our core assets, notably our Benevente production facility, internally generated hydrogen production plants, our HEBO technology development assets and our inventory.
Speaker 3: Any increases in these assets were all set by depreciation and amortization charges.
Speaker 3: As a consequence of recognising our first revenues, we also recognised trade receivables and the amount shown on this slide was received subsequent to the quarter end. As I previously noted, we've also issued further invoices to other clients during quarter 2.
Speaker 3: Our VAT receivable balance increased by 0.6 million euros during the quarter.
Speaker 3: In Q2 today we received 3.2 million euros of the amount at March 31.
Speaker 3: To continue the trends of firsts, we entered into our first death facility here in the quarter and drew down 2 million euros.
Speaker 3: This facility, which is with a Portuguese financial institution, is short term in nature and its purpose is to free up some of the significant receivables we have at the Portuguese government.
Speaker 3: This €2 million has already been repaid during the second quarter as VAT amounts were received.
Speaker 3: The deferred income balance increased by 3.1 million euros as we received further installments from our C5 grant award and amends from customers that did not yet meet the requirements for revenue recognition. Next slide, please. Next slide, please.
Speaker 3: We sold ordinary shares through our ATM facility which raised net proceeds of 2.4 million.
Speaker 3: Our share-based compensation reserve also increased as we granted our issues to our employees and options to our non-executive directors.
Speaker 3: We have been really successful at both securing direct grant awards and supporting partners in their submissions that will use our technology. This is an activity that we intend to continue and we are already working on numerous proposals both in Spain and Portugal for the next wave of grants.
Speaker 3: Now I will pass you to Frederico who will provide an update on the business.
Speaker 3: Thank you very much Gavin, and thank you for taking on the role of CFO from me as well. And also thank you for the kind words at the beginning. So I will cover both technology and commercial activities in my updates.
Speaker 5: starting with an update on our project and pipeline.
Speaker 5: So we currently have just over 25 projects in our short to mid-term pipeline, the majority coming from Spain, where we are currently commissioning, in the commissioning process in our port, where you'll see the idea of getting Ok Luke phase 1 produced from our
Speaker 5: of our absolute project, our first project to go live in Spain.
Speaker 5: We're already actively marketing our Hebrew Chain offering for delivery as early as this year already.
Speaker 5: Most noticeably, we've already received a bronze award for a project in Italy using this technology, only a few months after launching it.
Speaker 5: The United States continues to be a market with significant strategic importance for us.
Speaker 5: Zach and Jason launched our activities in this market last year with the Bakersfield project.
Speaker 5: and have more recently brought two other opportunities in North America to the portfolio.
Speaker 5: We aim to continue to develop opportunities in this market with them in the future and to enter into technology partnerships with them.
Speaker 5: Our focus is to mature our pipeline into projects in execution and contracted.
Speaker 5: Something we have finally been able to make some progress, given the licensing and regulatory hurdles.
Speaker 5: As Kevin noted, we put our first revenues in Q1 and Q2 with invoice to other clients and we're now picking up momentum on the more traditional activities from our business development front.
Speaker 5: So, we expect that to continue as these 25 and 27 or so projects mature.
Speaker 5: I also want to take this opportunity to introduce an exciting concept we've been working on together with our Fusion Fuel Spain partners.
Speaker 5: Cuzumfield, Spain together with two leading European energy companies along with Toyota material handling have created a holistic solution for hydrogen mobility for logistics centers. Cuzumfield, Spain, together with Toyota material handling have created a holistic solution for logistics centers along with Toyota material handling have created a
Speaker 5: The partnerships provide best in class hydrogen vehicles, our highly competitive electrolyzer solutions and therefore low cost of conscious.
Speaker 5: renewable energy sourcing and the financing options. So it's a true holistic solution for logistic centers.
Speaker 5: We can offer competitive green hydrogen.
Speaker 5: and more mobility at the service options to adjustment companies in the region. The Zaragoza hub is expected to be deployed in various stages. Matching demand growth...
Speaker 5: and high-frequency deployments. In fact, the SASEET project which we are now executing, so our SASEET project in Spain which we are already executing on now.
Speaker 5: serves as the first concrete step in the execution of this particular hub.
Speaker 5: We find this a truly and highly interesting concept and partnership, and we aim to replicate it for other logistic areas across Iberia.
Speaker 5: So although this is just a concept example, this is one of several logistics hubs we want to be targeting. We see logistics as a core market for the green hydrogen world and a market where you traditionally can have captive fleet and fast deployment.
Speaker 5: On the technology front, I want to also note some some pride that we have actually last week started the production of our Gen4 Heavos, which I have here in front of me. Uh, this is a
Speaker 5: substantial progress in our deeper revolution.
Speaker 5: It is eight times more powerful than this one that I have in front of me, the first one used in our Evera project. So we have significant reduction in complexity and therefore also unit cost and it showcases the speed of the innovation that is taking place at human fuel.
Speaker 5: The HEBO continues to benefit from cheaper power equipment in the overall balance of system.
Speaker 5: lower operational and maintenance costs and simpler maintenance processes than other large-stack solutions.
Speaker 5: Reduce system losses.
Speaker 5: lower production costs and is designed for modular and scalable deployments.
Speaker 5: We're already integrating this generation to our ongoing project, starting with a SESI project. So that is a HEBO solar project, but it will already be taking this latest generation of HEBO. The HEBO chain will also be built around this whole new HEBO.
Speaker 5: Speaking of the Hebrew Chain, I want to introduce the overall concept of this product line. So once again the new Hebrew lines are the heart of the Hebrew Chain offering. Our centralized intellectual owner offering has two product types.
Speaker 5: The previously announced containerized solution, which ranges from 1 to 2.5 megawatt option depending on the size of the container, which will enter commercial production in 2024. This is what we announced in December , you see that on the right hand side.
Speaker 5: but also on non-containerized solutions.
Speaker 5: Still operating with the EVO at its core, together in a string and together in a tailored system that can be deployed by any project size.
Speaker 5: We planned commercial production employment of this series already in 2023.
Speaker 5: I want to highlight some of our 2023 strategic priorities. This will be different from the general business milestone that we have going on.
Speaker 5: So now with the Hebrew chain offering, the Northern European market becomes a potentially addressable market for us. The electrolyzer market in Northern Europe has been moving quickly, and although Southern Europe benefits from very cheap and readily available renewable power, it's been moving very quickly. Thank you for making prices internalmoi!!
Speaker 5: The Northern Europe market, early European market has been moving faster in terms of actually supporting electrolyzers.
Speaker 5: With our EPO chain offering, we now will have a highly competitive solution where we can enter this market, and we plan to do so already this year.
Speaker 5: Also, we want to strengthen our balance sheet and our capital position.
Speaker 5: Our strong tech offering and robust pipeline enable us to target being cash flow-subsufficient at some point in the second half of 2024.
Speaker 5: We continue to explore all options to ensure we have a balance sheet that allows us to use on our strategy. On point three, as previously mentioned, we'll continue to evolve the Hebrew chain offering to be able to be deployed in the large scale projects that we're engaged in, in particular the non-containerized version.
Speaker 5: last ESG report that we also published today.
Speaker 5: We've been successful by being nimble and quick.
Speaker 5: And now we need to safeguard these elements as we grow Latoura's company.
Speaker 5: Lastly, I want to focus the work I'm doing on ensuring we can pursue strategic partnerships.
Speaker 5: Across the industry we see exciting opportunities, be they in the development, funding, technology or even production space.
Speaker 5: We'll continue to explore these to strategically add value to our proposition where we can. Already, our fusion fuel Spain, our Toshiba on the membrane, our Toyota on the handling side of partnerships are just some examples of our efforts.
Speaker 5: to make sure that we bring in and partner with strong
Speaker 5: strong propositions to add to our offering.
Speaker 6: Lastly, I want to...
Speaker 5: as we always do, just finish up on tackling our key milestones for 2023 and our progress against them.
Speaker 5: With the new more powerful HEBO, we are well on the way to have an expanded production capacity at minimal additional cost. As I mentioned before, this HEBO now in Kotzumi is eight times more powerful than the one before, yet it doesn't take eight times the time to make it. So we are able to produce a lot more electrolyzer capacity now with this offering.
Speaker 5: which is helping with both our production capacity.
Speaker 5: The HugoChain Non-Containerized Units will be ready for deployment in the coming weeks.
Speaker 5: I said I will already finalize the trials and ready for deployment.
Speaker 5: We continue to execute on our contracts. Obviously, the recognized revenues being able to issue invoices and receive payments from clients has been a major milestone in that front. We have two large projects that we are – For more info – give us a call on battle Sciences
Speaker 5: currently in contract negotiation for deployment later this year. And we also continue to see a wave of interest in projects coming to our commercial team for even for deployment as early as this year. Now on the project development side
Speaker 5: started several of these projects several years ago. So we are now hoping that they are reaching a level of maturity where we can start deploying some of those large projects that you've had.
Speaker 5: I had for once for a while now.
Speaker 5: We are on the cusp of hydrogen deployment in a very large scale in Europe .
Speaker 5: The urgency and appetite for projects has never been greater and we're finally seeing governments not only making promises or announcing ambitions but finally actually taking action.
Speaker 5: Examples of these are both the Portuguese and the European hydrogen banks hydrogen auctions going live later this year. This one's a stark change and step up in the industry overall.
Speaker 5: I'm thrilled to have the opportunity to welcome my fusion colleagues to play a leading impactful role in this hydrogen market.
Speaker 5: So I thank you all for your time and I'll pass back to Ben so we can go through the Q&A.
Speaker 2: Thank you, Federico. Just as a reminder for those of you who have questions, you can submit them in the chat box in the webcast platform or direct them to the IR mailbox at ir.fusion-viewer.eu.
Speaker 2: So let's – we'll open things up with a handful of questions that I received via email from Chris Soong at Web of Research. His first question is around Bakersfield here in the U.S. and the JV with the electives commenting on the – The –
Speaker 2: the latest information that provided in the 20F filing. So just an update there and perhaps also commentary on how the JV is structured and the perspective roles of fusion fuel on electric energy.
Speaker 5: Thanks Ben. I'll take that one. So we continue to work with electric energy. The details of the partnership and so on we can't disclose at this time. It's still too early for that stage but as noted we did engage with Battle Beach to start feasibility study of the...
Speaker 5: of the project and now the development life on that continues. Given its location in California, it does require a sort of lengthy licensing time, a process which has started, but we will expect to continue to make progress, although it will likely still be someone...
Speaker 5: time before able to give meaningful updates on that site. I will note that that is a very large project. As we announced, it was about 75 megawatts.
Speaker 5: We do, and as I mentioned before, Seth and Jason created two new opportunities in the US for earlier, sorry, North America for earlier deployment.
Speaker 5: I'll cast you and-
Speaker 5: slightly smaller scale which we could tackle faster. So we hope to be able to...
Speaker 5: be announcing further details of those projects soon. It's important for us to note that the U.S. market continues to be a priority for fusion fuel.
Speaker 2: Thanks, Federico. Second question was, how are we tracking against our full year 2023 guidance?
Speaker 7: Thank you.
Speaker 5: I'll take this one Ben.
Speaker 3: So I think during the Q4 investor update, Federico presented our full guidance for 2023 and 2022. We are currently tracking positively towards those projections, especially when it comes to revenue and costs.
Speaker 3: So I think even previous to Q4, Frederico would have provided guidance of between maybe 4 and 4.5 million for operating costs per quarter.
Speaker 3: excluding that one-off charge which I mentioned during my slides, we were within that bucket and with cost reduction plans that we put in place and cost efficiencies, we expect us to reduce further as we continue on in the year.
Speaker 3: To answer your question Ben, yes we were still within the power meters of the guidance we provided previously.
Speaker 2: Thanks, Gavin. Sticking with you, can you, as a question on –
Speaker 3: capital planning and strategy. Can you walk us through how we plan to fund our CAPEX requirements through this year and beyond? No problem. So I think as Frederico mentioned most recently, we're currently looking into and investigating various capital models, regulations.
Speaker 3: capital areas where we can strengthen our balance sheet, multiple discussions with financial institutions based here in Europe and wider. As I mentioned as well at the outset, we've invoiced three external clients so far in 2023.
Speaker 3: We want to continue that momentum as we push into the latter stages of Q2 and into Q3.
Speaker 3: to continue that momentum as we push into the latter stages of Q2 and into Q3.
Speaker 3: Again, as I mentioned, we entered into our hydrogen purchase agreements as well with Durobas and hydrogen vendors, so we will look to use any inflows from those contracts to continue our... up for future projects.
Speaker 3: But it will be through a couple of raising needs. I'll ask those questions.
Speaker 5: Each conclusion I again I'll have to hear to think up because I told as around the just high other CapEx we like associated with projects.
Speaker 5: So we do, as anyone who's been following us for a while, we do the development of a number of projects ourselves. However, the total investment value for those projects is significant in the triple digit millions saved.
Speaker 5: We've noted this before, but just to clarify again, we intend to have financial partners for those projects. So those projects in the SBBs are to be owned by a financial investor, which takes on that CapEx responsibility. We create the opportunity and we intend to deploy our technology to it.
Speaker 3: funding those projects through to completion is not in our short term capital term. And then just one piece if I may as well that I forgot to mention was the grant inflows which we've now started recognising or receiving over the last four or five months alone. Some of the awards that we received.
Speaker 3: over the last 18 months have actually been provided and paid out. So again, we hope that the positive trend will continue during 2023 and 2024.
Speaker 2: Just sticking with going out of order a little bit, sticking with that point around grants, there's a question here around should we expect continued delays in grants being paid out and do we expect this to lead to any liquidity challenges or project delays down the road?
Speaker 5: So what we are looking to do is partner with some commercial banks and so on to take the uncertainty of that.
Speaker 5: timing of the payment away from us so that we can proceed and operate in a more sort of normalized function. Of course, that's not possible. That could delay projects, could delay activities. Otherwise, we'll note once again that we are not looking to...
Speaker 5: take on the investment risk of the project ourselves, which is held in one to the third party. So depending on the capital position of that third party, they will have to decide how they want to take that timing risk themselves.
Speaker 2: Great. This question here from Amit Dayal at H.D. Wainwright.
Speaker 2: There's a question around maintaining our outlook for 2023 and 2024. We already covered, I think, 2023 and said, yes, we are. We're confident with that guidance. Preliminary 2024 outlook has that changed since our 4Q22 call.
Speaker 5: We maintain the same guidance and some of these projects can be chunky as noted. So obviously the timing of when those start and the deployment can impact those targets with the information we have available.
Speaker 5: So we continue to be all ambitions and targets.
Speaker 2: Great. Sticking with analysts here, a question from Erwan Ferdin at Royal Lanka, Canada. In light of the leadership changes announced this morning, how should we be thinking about the Americas? Should we expect the appointment of a head of Americas reporting into Puerto Rico anytime soon? So this is a...
Speaker 5: still to be determined. As noted, America continues to be a strategic priority for us. We do still...
Speaker 5: It's a second plan to be working with Zach and Jason on developing some projects in the United States and North America in the future. And it's also based on strategic partnerships. Naturally strategic partnerships to cover the American market is obviously a question that's going to provide.
Speaker 5: It is still early days, it is still something that we are working on, but the likely scenario is that there will be multiple solutions for such a large and critical market for us.
Speaker 2: Thanks, Federico. I'll pass it over to Gavin for this next question. Do we expect the current rate of dilution both through sales of securities through the ATM and the award of options to continue to be steady at these levels for the foreseeable future?
Speaker 2: What would it take for this pace to increase or decrease?
Speaker 3: Thanks Ben, I think if not steady, definitely reduced.
Speaker 3: So if we think about the options that Norris Hughes and these are predominantly issues to retain key employees and also attract new hires and as those who have followed us in the past we've grown our headcount from very small amounts to
Speaker 3: 150, 160 people and so we don't expect to be granting too many more options or issues in the near future. On the ATM we have not sold any amounts under the ATM facility in Q2 to date.
Speaker 3: But again, without repeating myself again, we're looking at various ways of strengthening our capital position and obviously if we're successful in one of those that will obviously produce a dilution from any future ATM sales as well.
Speaker 2: Thanks, Gavin. I think this one is a more strategic question perhaps for Federico. Question around why the development and evolution of the green hydrogen economy is taking so long. What do you see as the – W
Speaker 2: the primary challenges and obstacles and what changes need to be addressed and build some momentum in the testing space. Thanks Ben. So naturally the first point to note is that how hydrogen has been used historically has been lean and
Speaker 5: chemical processes that are truly commodified.
Speaker 5: activities with low margin and they're very sensitive to increases in cost. Clean hydrogen – blue hydrogen or clean hydrogen, let's call it, still operates as a premium to grade and therefore it takes time to be able to – Wash the ground in a pack aiming for the right direction –
Speaker 5: replace the grey used for traditional activities.
Speaker 5: What we've seen is obviously the support from governments to come to support the green premium in these early stages of the market. And we're seeing of course new uses for hydrogen such as mobility which can justify a higher cost of hydrogen. The regulatory environment.
Speaker 5: licensing environment, as well as demand, have all been slowly working together to start framing a world where green hydrogen is truly economically viable in large scale use.
Speaker 5: I think with the IRA, now with the latest European activities, that starts to truly be the case and that's why we're seeing such a rapid ramp up in interest and green hydrogen activity in both markets. So we are, I think the world is sort of waiting for something to move.
Speaker 5: The US was the catalyst to get everyone else moving and now we're seeing a sort of dynamic in the market that we haven't seen before.
Speaker 2: I would also mention, if I can get up on my soapbox for just a moment, I think that there is a – and I talked about this before – a dislocation between what's being announced and what's drawing a lot of attention in the market, which are really large. That's my Engineers video source!...
Speaker 2: you know, multi-billion dollar mega projects, and what's actually being developed in the field, which are predominantly kind of projects in the small to mid-scale space that have a much more modest capital requirement. So, you know, what we feel like we are.
Speaker 2: pretty well positioned given our unique competitive advantage by virtue of our technology in that small to mid-scale space while the rest of the industry and more importantly while the rest of the value chain particularly on the infrastructure side.
Speaker 2: scales up to support more widespread adoption of green hydrogen.
Speaker 2: A question here around the HEBO chain and a request to clarify the benefits and I guess importantly the differences between the two solutions. Can you speak to the benefits of each and where they would be most comfortable?
Speaker 5: So the HEBO train again will start with the advantages of using our sort of small and modular solution. Any product using the HEBO will benefit from these advantages, namely the HEBO train.
Speaker 5: The fact that it's modular allows for relatively easy operating maintenance. So as opposed to having to send the full stack back if there's an issue or having to shut down an entire plant if there's an issue or something needs to be repaired, we can simply take out the… Rob B Sh Arch
Speaker 5: and the rest of the plant can continue operating as normal. We also membrane each unit, operate independently even though they are on a string, which means that any mismatched boxes in the system...
Speaker 5: are actually only at the individual Hebo level and not on the full system level. So we have much lower losses from the system. So these are some of the large scale advantages of the Hebo itself. The Hebo chain, it just takes advantage of those.
Speaker 5: is able to then have a much cheaper power system because the Hebrews require a lot less power to, or amps, I should say, current to go through them and this reduces the overall cost of the Hebrew chain.
Speaker 5: Both UO Chain units, the containerized and the non-containerized versions can be scaled. For example, we do not need to fill the container all in one go. So they can be scaled and they can be ramped up in phases as clients need. So we do have projects where they have a phase one or phase two, for example, one in a containerized solution which is half megawatts and then a second half megawatts to be complemented as the – in this case, the mobility as of – –
Speaker 5: and that's the advantage of the non-containerized versus the containerized. They have the different use cases and both are very competitive in their markets.
Speaker 2: Yeah, thanks Federico.
Speaker 2: Comment here on technology sales and what that process, what that sales cycle looks like and how those contracts tend to be structured. Is payment done up front? Is it after delivery? Is it in piecemeal fashion? Is it shoots?
Speaker 5: Let's call it each negotiation in its own world, but in general the approach that we're taking...
Speaker 5: is that there is a set amount of upfront payments. This allows us to invest in the working capital to buy more materials, buy items needed for the production of that item. And then in certain milestones, there'd be certain amounts delivered, such as the production phase and so on.
Speaker 5: There are subsequent payments. There is a remainder withheld until the end, which is only paid after successful commissioning and acceptance of the unit. So the payment is phased and it is designed in a way to ease the worth capital required for that production.
Speaker 2: Next, Puerto Rico. A question here around the efficiency of the HEBO 2023 and how many kilowatt hours is required to produce a kilogram of hydrogen. I'm going to say that that has not unchanged relative to the prior versions. I want to make one opinion and make one other argument here.
Speaker 2: But it's important to note that the distinction between the efficiency at the stack level versus the system level. But Federico, I'll let you chime in on that. Yeah, that's right. So the efficiency at the stack level, it continues to be the same and extremely attractive. Thezero, if I can't remember the information, what we're talking about it again.
Speaker 5: That's how it's keeping me on the spec level and then the full system level is around 52 kilowatt hours per kilo. These are highly competitive numbers for an electrolyzer system and again we've been able to maintain those numbers and we're...
Speaker 5: advancing the deep bill and making it more powerful. And by more powerful we mean more electrochemical cell real estate or space and therefore higher hydrogen with a sort of same-new necessary space overall.
Speaker 5: We may have space.
Speaker 2: So I think we've reached the end of the Q&A session with plenty of practice there. If there are any further questions or unless Federico or Gavin you have some final thoughts you want to share. If not then then we can wrap it up here.
Speaker 2: So a big thank you to everyone who has joined. If any questions come up or you felt that your question was not answered sufficiently, please do reach out to me and the IR team at ION at fusion-q.com. We will focus on you all again at our next update.