Fusion Fuel Green PLC Q4 FY2023 Earnings Call

Hello, everyone. Welcome to Fusion Fuel Green's Fourth Quarter 2023 Investor Update. My name is Ben Schwarz, and I'm Head of Investor Relations at Fusion Fuel. I'd first like to remind everyone that some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties. It's possible that our actual results and financial condition may differ from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of these risks and important factors that could affect Fusion Fuel's future results, see the risk factors in the company's latest Annual Report on Form 20-F filed with the SEC. Fusion Fuel assumes no obligation to update or revise any forward-looking information provided during the conference call and should not be liable for any action taken in reliance upon such information. Okay. With that out of the way, thank you all for joining us today. In terms of our agenda for the next hour, we will kick things off with an overview of Fusion Fuel along with some thoughts on the hydrogen market and industry dynamics. Frederico and Gavin will then review highlights from 2023, our fourth quarter results, and the commercial updates, including the exciting announcement of our recent IPCEI designation earlier this year, before wrapping up with a discussion of our 2024 priorities. We'll then open up the floor for facilitated Q&A. As in our previous quarterly calls, questions can be entered in the chat box in the webcast platform at any point during the next hour. You can also submit your questions directly to the Investor Relations mailbox at [email protected]. So let's begin with a refresher on Fusion Fuel, our value proposition, and our positioning in the green hydrogen market. Our mission is to unlock the transition through the design and development of innovative green hydrogen solutions. At the heart of everything we do is our proprietary HEVO micro-electrolyzer technology, which employs a simplified and modularized architecture that creates multiple sources of advantage for us, including high throughput and industrialized production and a scalable building block approach, enabling us to compete in small to mid-scale projects, a segment of the market where we're seeing considerable demand today. We've built a robust European pipeline of actionable near-term green hydrogen projects with diverse avenues for monetizing value creation along the development cycle. This is highlighted by the recent designation of our HEVO-Portugal Project as an Important Project of Common European Interest. More on that later. We have a differentiated and complementary business model that positions us as one of the few green hydrogen players that can credibly deliver truly end-to-end solutions, supporting clients throughout their green hydrogen journey. Finally, we're well-positioned to take advantage of a significant growth plan as the market develops with an extensive long-term project pipeline and a world-class production facility located in Portugal, which will enable 500 megawatts of annualized production. On the next slide, I want to share a couple of observations on the green hydrogen market to help ground today's discussion. It should come as no surprise that 2023 was a challenging year in the green hydrogen space. What was expected to be an inflection point turned out to be, in many ways, a step back as we saw a deceleration of commercial activity. There are multiple factors that drove this dynamic, some of which we've addressed previously, including technological immaturity, regulatory uncertainty, a persistent cost premium for green molecules, and a lack of access to project financing, among others. One of the downstream impacts of the delay in market development is that it has extended the timeline to profitability for many market participants, prompting greater attention from investors on capital discipline and triggering a shift in strategy towards more sustainable balanced growth. We did start to see some signs of life in the fourth quarter, which we'll discuss a little bit later, capped by the announcement of the Hy2Infra IPCEI program last month, which has the potential to catalyze the European green hydrogen market and address a longstanding infrastructure bottleneck. It is reasonable to expect some of these more structural headwinds to persist into 2024, but these challenges also present an opportunity for differentiation. As Frederico and Gavin will explain over the next half hour, we believe Fusion Fuel is well-positioned to overcome these challenges and capitalize on the emerging opportunities we see in front of us. With that, I'll now introduce Gavin Jones, CFO of Fusion Fuel, to share some highlights from the fourth quarter of 2023.

Thank you, Ben. Good afternoon or morning to all of you who have joined our fourth quarter investor update call. I'm joining today from our offices in Ireland. During the fourth quarter, we received two separate purchase orders for a combined €4.2 million of revenue. These projects will serve customers in Portugal and will include the supply of our HEVO-Chain products, along with bonds of plant equipment and EPC services, and will each represent a 1.25-megawatt system. In addition, we entered into a securities purchase agreement with Belike Nominees, a Macquarie Group Company. After the end of the fourth quarter, we received notification of the European Commission's acceptance of our HEVO-Portugal Project as an Important Project of Common European Interest. Frederico will cover what this IPCEI stamp means for Fusion Fuel later in his presentation. We raised net proceeds of €5.9 million through our ATM facility during February, with the lion's share of this being raised on February 16 when we experienced unprecedented trading volume following the IPCEI award. Finally, last week, we were awarded a separate grant from the European Commission as part of the H2tALENT consortium. The total value of this award is just above €1 million. We will now move on to the financial results for the fourth quarter. Please note that all values discussed are in euros unless stated otherwise. We recognized €1.6 million in revenue during the fourth quarter. This represents revenue related to our manufacturing and supply of a hydrogen production system to CSIC. As a reminder, CSIC is the largest public research institution in Spain, and this project is based in Zaragoza. This contract has three phases. During 2023, we completed Phase I and Phase II, with Phase III scheduled for completion during the first half of 2024. In addition to the revenues recorded, we had €0.6 million of inflows that did not meet the revenue recognition requirements, and instead, these amounts will be recognized as revenue during 2024. As you may remember from our second quarter investor presentation, we booked our provision against components within our inventory that were manufactured to legacy design. During the fourth quarter, we recorded a net increase of €6.4 million to this impairment provision and recorded a separate impairment charge of €3.3 million relating to one of our development projects. These significant impairments are for specific components included in the legacy HEVO solar bracket. When we carried out the reviews of the inventory components during the second half of 2023, it became apparent that selling these components would not be a short-term solution, as negotiations with prospective buyers have stalled. Coupled with the changes in regulation and licensing that saw us abandon the HEVO solar project and that made installing HEVO solar units significantly more complicated, management has decided to impair the full value until we have further certainty on our ability to sell or scrap these materials. Some of these components were capitalized within noncurrent assets, with the remainder recorded within inventory. We have several of our people dedicated to recovering as much as possible from the legacy inventory that has been impaired during 2023. Since we first started to scrap these legacy components, we've been able to recognize inflows of €0.6 million, which have been received between August 2023 and February 2024. We fully expect these recent impairments to close the chapter on the write-downs related to HEVO solar, and we look forward to fully turning the page to HEVO Chain. In our investor letter, we alluded to a feeling of a before and after. The impairment of legacy materials is another step forward towards the next stage of our life cycle as a company. Our operating costs decreased for the fourth consecutive quarter. We saw a reduction in our personnel-related costs when compared to the third quarter. This was mainly due to the allocation of a grant inflow against qualifying personnel costs. In addition, we recorded further reductions to legal, travel, and consulting fees. The pretax loss for the quarter amounted to €12.3 million, which was mostly driven by non-cash items relating to impairment charges of €9.7 million; share-based compensation expense of €0.6 million; and a fair value loss associated with our warrants of €0.4 million. Both the noncurrent assets and inventory balances on the balance sheet are shown net of impairment charges. The further decrease in inventory is due to the revenue recognized. Until we recognize this revenue, the equipment related to these contracts was recognized as part of inventory. Other notable movements during the quarter include a reduction of €1.5 million in onerous provisions as we utilized some of the provision that was recorded in 2022 for the above-mentioned inventory impairments and grant inflows of €2.6 million, which were received during the fourth quarter. Our bank balance was just over €1 million on December 31. Since then, we have received €5.9 million through our ATM facility. Both our capital position and use of the ATM facility have been common themes during our investor update over the last 12 months. Most recently, in our December meeting, I commented that it was our intention to cease activity with the ATM as soon as possible. This was and continues to be our position until the IPCEI award. Around that time, management was considering various short-term financing options that would provide us with a longer runway to a more strategic capital raise. Following the IPCEI announcement and the consequent trading volumes and share price spike, we acted quickly and utilized the ATM. Based on the options that we had in front of us, the ATM has effectively raised capital in the short term. We also didn't have to consider some of the drawbacks such as warrant coverage, market discounts, interest coupons, and lockup periods that would have caused greater dilution to our shareholders and could have impacted our ability to pursue a more strategic raise. This was an important milestone for the company given the challenges faced in raising capital. We have significant grant amendments expected for 2024, which will primarily reimburse expenditures related to R&D, our production facility, and engineering services for our projects. Due to the strengthening of our balance sheet in February and as we are now receiving customer inflows regularly, we are satisfied that the operational inflows, coupled with the drawdowns from the acquired facility, will provide a sufficient runway to enable us to execute a more strategic capital raise. On the €20 million Macquarie facility, we are working closely with Macquarie to ensure that all remaining conditions set at the time of entering the securities purchase agreement have been met for us to draw down the first tranche of $1.15 million before the end of the first quarter of 2024. This is in line with the expectations communicated back in our December update. We filed a notice for an Extraordinary General Meeting of the company's shareholders, which will take place on March 20. Under Irish law, the company must have authority from its shareholders to issue any securities. The company's shareholders previously authorized the company to issue securities of up to 20% of the ordinary shares of the company during any calendar year, which is equivalent to 2.9 million shares. The company has determined that it will be in its best interest to seek approval from shareholders to provide the company with authority to issue securities above and beyond this 5% cap. The reason we are making this request now is that while February's ATM sales have meaningfully expanded our runway, we no longer have ample room to maneuver what's remaining under the 20% threshold. We believe that uncertainty around our capital position is the greatest concern of the market and that resolving the capital constraints will remedy our long-standing valuation disconnect relative to our peers. As we have noted in previous updates, we have been exploring multiple options to further solidify our capital position, which may entail selling securities beyond this cap. A priority of ours is to exit cash burn by the end of 2025, and to lead this, we will need to reinforce our balance sheet. A strengthened balance sheet should not only provide comfort to our teams, investors, and shareholders that the company is sufficiently equipped to achieve its goals and targets, but also provides our customers with further assurances that the warranties being offered as part of our technology contracts can be fulfilled. It is imperative that the company can move quickly and decisively in the event of a prospective capital raise for a strategic partnership. To be clear, we are not looking to issue 100 million shares as has been inferred through direct and indirect communications with some stakeholders. We didn't want to mislead anyone by putting a specific number in the notice when we currently have no basis to support it. As noted in our investor letter, management and the Board are among the largest holders of Fusion Fuel's securities, and we are sensitive to the dilutive impact any significant financing would have on existing shareholders. We are fully motivated and aligned to ensure that any equity offering we consider creates meaningful long-term value for the company and its shareholders. We are maintaining our revenue guidance for 2024. Of the €34 million forecasted, €7.3 million of this has been contracted to date. The remainder will come from sales that are currently in negotiation. Some of these negotiations are linked to our Sines portfolio and the IPCEI progress has significantly broadened the client discussions around those projects. This means that negotiations are taking longer but are also more significant for the company. We have not included further equipment sales from our pipeline, which significantly exceed the amount left to execute for 2024. Given our experience with delivering projects, delays will happen, so we are allowing some room for further conversion of our pipeline to offset any possible delays. As a reminder, the timing of revenue recognition for each contract could be different. In some cases, revenue is recognized over the delivery phase of the project, and in other cases, it is at a point in time, usually when the full project has been delivered and client acceptance has been received. For that reason, our €34 million target will not be recognized on a linear basis or spread evenly over each quarter. From an outflow perspective, we are forecasting SG&A costs of between €14 million and €16 million and CapEx of between €8 million and €10 million for 2024. Right now, we have a lower cost base compared to our competitors, and we are working to reduce this further, without compromising the quality of our products and ancillary services. Our costs decreased in 2023, and with a lower cost base, we fully expect to achieve further benefits during 2024. Our goal continues to be reaching cash flow self-sufficiency, and as noted earlier, we expect this to happen during 2025 if we can execute our business plan. Before I pass you over to Frederico, I would just like to reiterate our commitment to our shareholders that we will continue to manage the company in a cost-effective manner and migrate from the legacy products and projects that will not create value in the near term. Frederico, the floor is yours.

Thank you, Gavin, and good afternoon or good morning to you all. I'm pleased to share with you today the latest news from the numerous activities we have going on. Firstly, and I would be remiss if I didn't start with such an important piece of news. We were informed that our Sines project portfolio, which we submitted in 2020 for IPCEI consideration, finally received its approval. This is a major milestone for us, having worked in the background on this project for nearly four years now. For many reasons, we've been quiet on the IPCEI and the Sines front, given the uncertainty and its potential to significantly distort any figures we would publish. We made that mistake in our early years and decided to be substantially more cautious on how we communicate regarding this project going forward. At the same time, we put substantial effort into building a business that was not solely dependent on this large project and the IPCEI decision, something that, given the long lead times on these megaprojects, was a very prudent approach. I'm pleased to note that today we have a business that counts the IPCEI project as a boost to our plans rather than the foundation to them. Today, we want to clarify what the project is and what it means for the company. Firstly, the IPCEI includes three phases, the first two of which have already been awarded grants totaling €32 million from Portugal's Resilience and Recovery Plan. We have announced these awards in recent years, and we have already received inflows from these €32 million. The third and last phase is substantially larger, with a total of 530 megawatts, and is expected to take nearly to the end of the decade to execute. With its three phases, we expect this portfolio to be a driver of long-term value for Fusion Fuel. Being designated an important project of common European interest means that the company can now enter into bilateral agreements on funding plans with local governments beyond the existing grant programs, and we can also enter into discussions with the European Investment Bank for possible financing solutions and support. Financing large green hydrogen projects today is not possible without this type of support, given the early stage of the industry. Therefore, having these options is of immense value for any project investor; it makes a project of this dimension viable, which makes it incredibly valuable. The project foresees the production of green hydrogen to make green ammonia in Portugal, with the eventual shipping of a significant part of this production to northern Europe. It is a truly ambitious project, enabling the avoidance of around 650,000 tonnes of CO2 in the process and producing more than 300,000 tonnes of green ammonia. This project is led by Fusion Fuel but will be executed with several partners. It's simply not possible to execute a project of this size by ourselves, and a key consideration of the IPCEI conditions is the engagement of several partners across multiple countries, which will provide substantial spillover benefits to the local economies. As noted, we expect this to be a significant contributor to our business over its long lifetime. However, we will only provide guidance on the expected amounts or parts to be implemented by Fusion Fuel once we've gone through the various negotiations with partners, governments, and financing players. This will still take many months to see through, and we will look to update you as we have more information. In the meantime, we continue to relentlessly execute on our 2024 and 2025 activities. Last quarter, I provided some information regarding our engineering capabilities and the benefits they bring to our business and relationships. Today, I would like to elaborate on this point further. As outlined in the slide, we offer engineering advisory services for one, two, and three studies, procurement services for balance of plant equipment. This encompasses everything a plant needs beyond the electrolyzer, and in Iberia, we handle construction planning, supervision, and plant legalization. This full suite offering positions Fusion Fuel as a true partner and advisor for clients, many of whom are not CASP operators or developers and require close support to bring a project to reality. Already in 2024, within the €34 million revenue guidance Gavin mentioned, we expect €2 million to come from pure engineering services alone, and around €10 million to be generated from the procurement and supply of balance of plant equipment for plants that we are designing for and with clients. This allows us to capture a significantly larger share of the wallet of the total spend on each hydrogen plant. The electrolyzer can at times be less than 50% of the overall plant cost, so being able to deliver the remaining equipment and services can be a large contributor to our top line, although we recognize that the equipment provision has lower margins but also lower warranty and product-related risks. With each plant we deliver and design, our expertise grows and further pulls us ahead in this early-stage industry. It allows us to be a trusted partner and capture repeat business from clients. It's noteworthy that to date, every client we have has the potential for repeat business, and for nearly all our clients, we are already designing and submitting proposals for follow-on plants. To share some of the latest information regarding the HEVO Chain offering, I note that this is a highly customizable and modular solution where we produce cubes of various sizes, as well as containerized solutions for larger projects. I will pause here and just address a question I've seen come up. We haven't, in the past, provided the data sheet openly on our website since we effectively design the projects to the customized scope for the client. This is something we engage in directly with the client because given that it's such a modular solution, we truly tailor each project delivery to the client's needs. The HEVO Chain, which began its commercialization in mid-2023, has already started full production at our Benavente facility, and we continue to see strong interest in the solution. We are delivering proposals and project designs nearly on a weekly basis at this point. We will be delivering the remaining cubes during this month to our first HEVO Chain installation at the client site. This project includes full plant delivery and allows us to see client bookings to the tune of three times the electrolyzer value with the provision of other equipment and services. This is a very interesting project where we are delivering a system that permits the use of hydrogen in their industrial furnace, enabling them to change the fuel mix they currently use and significantly reduce their carbon footprint. The savings generated from the carbon reductions and the change of the fuel mix are sufficient to offset the cost of the plant without the need for grant support. This shows us that the HEVO Chain solution is, in certain cases, economically viable even without grants at this early stage in the industry. To conclude, I'll briefly cover our strategic priorities for the year. In 2024, we plan to deliver and install six to seven full HEVO Chain systems for southern European clients. Of these, five are expected to be full plant deliveries. Additionally, we will already begin work on engineering and preparatory activities for certain projects to be delivered in 2025. These projects range from 300 kilowatts, as the one I just mentioned before, all the way to 5 megawatts, and we expect to also start work on the 10 megawatt project this year. One of our priorities for this year, as already mentioned by Gavin but inferred from much of last year as well, continues to be strengthening our balance sheet. We are laser-focused on reaching cash flow breakeven, and we need to be properly capitalized to achieve this milestone. A stronger capital position allows the company to have confidence in front of clients to close mid-sized project sales, and to provide credible warranty backup. In addition, now that we are booking revenues, we believe this is the last step to addressing the significant valuation disconnect to our peers. The Macquarie facility provides the company with a strategic line to tap into as it needs capital and as opportunities arise where we see significant value that would be additional to our base plan. We have been in longstanding discussions with several capital and strategic partners that can bring additional value to the company. The Macquarie facility is a great complement to these potential capital sources, and we believe the combined effect will generate substantial shareholder value. With the facilities at hand and the recent ATM raise, we continue to be able to pursue the value-adding capital strengthening activities that we launched some time ago. We have been cautious to do the right deal for the company. As we've noted, broadening the target addressable market is important for us. With the HEVO Chain, we have a great solution to achieve just that. We not only want to sell to northern European markets, but in 2024, we also plan to certify the solution for use in North America and Australia. We are already delivering multiple proposals and plant designs for both regions, so ensuring the solution is duly certified for local regulations will be part of our 2024 activities. As part of our focus to reach cash flow breakeven, we will continue to push cost reduction efforts to add to the significant savings already achieved. Additionally, we will continue to adjust our resource allocation and investments to ensure they align with our strategy. In such a fast-moving industry, we must make adjustments, and we view reassessing our spending and investments as an ongoing priority task for our Executive Committee. In the past, we made the costly mistake of building inventory for projects that were in advanced stages but could later be cancelled or impacted by regulatory changes. This serves as an example of a resource allocation mistake we will not make again. We will not provide working capital advances to projects or clients, and we will ensure that the capital deployed is aligned with our short and mid-term revenue targets. Lastly, regarding strategic partnerships; partnerships are a key component of our value creation and range from commercial collaborations with developers and system integrators, such as those we've mentioned for Spain, Italy, and North America, to technology partnerships like those with Fraunhofer and Toshiba. Additionally, we are forging close relationships with suppliers of balance of plant equipment, including power components and compressor solutions. Our IPCEI project brings a completely new scope to potential partnerships. Given its size, the type of counterparts we're engaging with are of a very large scale and can have a broad and long-lasting impact on the company. Therefore, we are taking our time with these relationships to ensure that we find the right partner and fit for Fusion Fuel. These discussions started several months ago and will continue throughout 2024, and we look forward to providing you with more updates on the partnership front during the year. In closing, I want to note that it has been a very eventful few months for the company. It would not be an understatement to say that we have reached a 'before and after' moment with the closing of the HEVO Solar legacy, the ATM raise, the Macquarie facility, and the IPCEI approval. We are now fully focused on delivering on what we have mentioned today and what has been in work for some time, including many client projects that have begun to move forward once again. We are excited by the opportunities ahead and the progress we see in the overall hydrogen market in the last year. Now, with that, we'll open up for some Q&A.

Great, thanks, Frederico. Now speaking with a couple of questions from analysts, beginning with Erwan Kerouredan from Royal Bank of Canada, who asks whether the company has reviewed and adjusted its U.S. ambitions due to the 45V guidance update of the Inflation Reduction Act? As I sit here in the U.S., I'll take that one, but I'll invite Frederico or Gavin to chime in if they'd like. I think that guidance is certainly more stringent than the market expected. It's important to note that it remains kind of still in the definition phase, and we need to see what will happen following the current U.S. election cycle. The proposed additionality and time correlation rules mirror those outlined in the European Renewable Energy Directive Delegated Acts, which I think were implemented and adopted early last year. As such, we are very familiar with operating within those constraints. The U.S. and North America more broadly remain a near-term priority for us, and we continue to engage in commercial discussions with counterparts in that essential geography. Another question from Jeff Grampp at Alliance Global Partners. This one is for Gavin. Gavin, can you discuss gross margin expectations for 2024?

Sure. Thanks, Ben, and thanks, Jeff, for the question. For 2024, we expect our gross margins to be in the region of 15% for projects that will include our HEVO Chain product, along with balance of plant equipment and EPC services. The three core elements of these projects all have different margins, but in combination, a margin of approximately 15% is forecasted. As we look ahead to 2025, we expect this average to increase closer to the 20% mark, particularly as we increase production volumes within our Benavente facility.

Thanks, Gavin. Let's stick with you, but Frederico can join in. What are the main risks you see to hitting our 2024 guidance, and what potential mitigants do you have in place to address those?

Sure. As I've said many times over the last 12 months, and in this call, the biggest risk is time and how long it takes from the tender stage to signing contracts and then executing. That's probably our major risk at the moment. As both I and Frederico mentioned earlier, with the IPCEI process, there's a lot more interest in our projects. We have a larger potential client base for those now. So that brings with it more negotiations and discussions, which just extends the timeline a bit. But I think we need to be patient because the conversations are likely more positive now following the IPCEI announcement. To navigate those potential delays, we have a strong project pipeline. I think we've been prudent in our guidance by not including a proportion of the potential contracts that we could, or discussions that we could convert into contracts.

Great, thanks. You mentioned the IPCEI project. This was also asked by one of the audience members, what are the next steps or milestones to keep an eye out for regarding the IPCEI project?

I'm happy to take that. Apologies for the technical difficulties with the camera. It's a great question to note regarding the IPCEI; there are many fronts that need to work in parallel now. We have to move forward with negotiations with our partners. As you can imagine, for a project that started nearly four years ago, there's been a substantial amount of changes and evolution in our relationships with partners. We also need to begin discussions with the Portuguese government on financial support, as well as with the European Investment Bank. This is going to take several months to clarify, and we'll be working on those in parallel. But I don't expect us to provide concrete guidance on what the IPCEI will mean for us in detail for at least one or two quarters. Again, I want to manage expectations; all IPCEI projects, including those announced a few years ago, take considerable time to take shape. I want to emphasize that this will be a significant driver of long-term value for us, evidenced by the interactions we're having with clients. It has created a lot of positive spillover effects onto our other projects and their credibility. However, it will not be the driver of our success in 2024 and 2025.

Thanks, Frederico. You mentioned the green ammonia partner for that project. There was a question about the estimated production cost for green ammonia to be sold in Northern European markets. Could you clarify how that fits into the broader ecosystem of the HEVO Portugal project?

As part of the IPCEI, we have two main roles: one as the overall project developer and the other as the hydrogen component of the project. We have a partner for the ammonia front with an established green ammonia project. This is a longstanding partnership. To clarify, this is not merely a Fusion Fuel endeavor; it is a collaboration with our partner. We are hopeful to disclose details in one of our future quarterly updates. The green ammonia produced there is competitive, also backed by the fact that the green hydrogen production in the Sines region is powered by very cheap renewable energy, making it an exceptionally competitive raw material for that production.

Thanks. Let's discuss efficiency and cost improvements to subsequent generations of the HEVO technology. Does this remain an ongoing program, or are efforts primarily focused on the commercialization of the existing generation?

It's both, Ben, an excellent question. We believe there is a pathway to reduce stack costs by a further third, which represents a substantial cost reduction. However, we remain fully committed to the commercialization of the current version of the HEVO Chain in order to achieve those cost savings, as there is still some R&D work to be done. We have a competitive product today that we believe is relevant for the current and upcoming market.

Great, thanks. There is a question about the fees paid to the banks for selling shares in the marketplace. I'll quickly cover this. If I recall correctly, the placement agent fee for the ATM facility is around 3%, which is considerably lower than the fees that would typically be paid to investment bankers in a conventional equity offering. This may clarify a misunderstanding. Now, let's discuss the cost of production of green hydrogen at the Evora project. Frederico, could you comment on that?

We have two Evora projects. The one that is active is a small project. This facility acts as an extension of our R&D facility. Currently, we have installed our HEVO Chain units at the site to test various cubes in a connected series. Therefore, the cost of hydrogen there remains somewhat fluid as we continuously update the technology. It serves primarily as a non-commercial operations site primarily focused on R&D activities for large-scale testing.

Thanks, Frederico. A couple of questions in the chat regarding the status of the Bakersfield project in California.

The Bakersfield project, like any major project, has an extended timeline. Similar to the IPCEI, we have made a deliberate decision to avoid regular updates on large projects. For those who have followed us, you'll have heard of other significant projects that we are actively working on in the background. If and when there is meaningful news, we will communicate it. There is a substantial risk that these projects can yield binary outcomes; they could be halted at any point. Notably, in 2024 and 2025, we are focusing on delivering small and medium-sized projects. We are actively engaging in offers in both Australia and the North American market, emphasizing projects in the 10 megawatt and under space where we believe execution timelines will be considerably shorter than those for larger projects like Bakersfield or the IPCEIs.

Thanks, Frederico. Sticking with you, what aspects are you most excited about concerning the strategic partnership process we've referred to at length, and what are the timeline expectations, if any, that shareholders should have for meaningful progress in this area?

The most exciting part has been the IPCEI effect, or halo effect from the IPCEI, as it has led to a heightened sense of urgency from our counterparts to accelerate discussions. Previously, we drove the urgency, but now the competition aspect of it is prompting our partners to engage more proactively in order to secure opportunities. This involves various possibilities, such as general project development and financing partnerships, not specifically tied to Sines but pursuing strategic investment in both project portfolios and the company itself, which would ideally be the best outcome. We're also exploring partnerships specifically for something as substantial as the IPCEI portfolio.

Thanks, Frederico. What feedback have we received regarding the market demand for the HEVO Chain solution, and do you see any commercial momentum that could assist the company in getting out of its current cash constraints?

The interest is substantial—it's significant. As I mentioned during my update, it feels like we're continually preparing proposals and designs for new plants and projects nearly every week. Therefore, there is considerable demand, in addition to the exciting developments where clients we engage with are pursuing multiple projects. For instance, we recently received a request for a third project from the same client who is currently under contract for two projects. The client benefiting from the 300-kilowatt system has many plants where such a system could also be employed. The momentum we have been experiencing in the last six months is unprecedented, and I attribute this not only to our technology launch for HEVO Chain in mid-2023 but also to a general uptick in the hydrogen market. Many previously dormant projects are now returning to life, pushing into the implementation phase. Thus, we observe a significant demand for projects involving engineering support and for the HEVO Chain itself, keeping both our commercial team and engineering team very busy.

I would like to involve Gavin here. What is the current runway in light of the proceeds from February's ATM activity?

Sure, thanks, Ben. I appreciate not feeling left out! Following the activity in February, our priority now is to operationalize the Macquarie facility, ensuring it is running effectively, and drawing down Tranche 1. Once we can operationalize this, it should allow for greater flexibility in accessing the facility as needed going forward. As I previously noted, we anticipate cash inflows from client contracts and grant agreements throughout 2024, most of which will be received on a monthly basis. Concerning our runway, given the stage of discussions with various counterparts regarding financing solutions and strategic partnerships, it may not be appropriate for me to discuss specifics right now, but we hope to provide some updates between now and our next quarterly update.

Thanks, Gavin. Back to Frederico. This is our final question; if anyone else has additional questions, please add them now. What is the operational status of the refueling station in Madrid for Exolum, and what feedback has the company received from that client?

Yes, it is operational. However, I don't have the exact figures or the number of buses being refueled. This is a plant we have delivered to Exolum. While we are aware that it produces hydrogen and refuels buses daily, we will be in a close collaboration with the client for the first two years of that plant. We have a team actively engaged, spending a considerable amount of time in the field with the client. Like any electrolyzer deployment, there have been some initial challenges. This is where we note the advantage of our modular solution. Many electrolyzer systems, when encountering issues, often lead to a binary outcome: the plant either shuts down or continues running. In our case, our modular solution allows us to shut down parts of the plant, resolve any emerging problems, and keep the plant operating. For whatever initial challenges have arisen, hydrogen production can persist, and our hydrogen refueling station can continue functioning. We are pleased with the performance in this regard and with how our partnership with Exolum is progressing.

Thanks, Frederico. One more important question: with the proposed increase in the number of issuable securities that we will vote on at the EGM later this month, does management expect those additional shares will be drawn down in a single transaction or over a period of time to maximize value, as the share price ideally appreciates?

Gavin, I'll answer part of that, and then feel free to jump in. The request we're making here from management and the Board's perspective is to provide us with the flexibility to pursue the right deal with the capital partner and strategic partners that emerge. This is, as you can imagine, particularly crucial for a small company of our size. Stakeholders may be reluctant to invest significant effort and resources into a process if there is any uncertainty about whether management or the board can execute it. Therefore, we believe having the flexibility to proceed with the best possible deal for the company is vital. As we noted in the letter, we are highly aware of the dilution impact that any capital raise may have on shareholders. However, we want to be able to execute the best possible deal for the company and for shareholders. We believe that the past capital concerns have been significantly eased with the ATM and the Macquarie facility, and addressing these issues will unlock significant shareholder value in our view. The information on our approach will depend on our counterpart. With some deals, such as the Macquarie piece, dilution may occur on a tranche-by-tranche basis, which assists in addressing any valuation gap without representing a massive dilution hit to shareholders all at once. However, if we have a strategic partner offering long-term value both to projects and the company, a one-off transaction could represent the optimal choice for enhancing overall shareholder value. Thus, the type of transaction will depend on the partners involved. We have been cautious with our capital-raising efforts for what feels like nearly a year and a half now. We have received several term sheets that we believe would be destructive for the company. Our management team has prioritized avoiding these arrangements while managing tight budgets and monitoring our cash flow effectively, ensuring that we are not pressured into unwise deals. I can assure you that the management board has been diligently focused on ensuring any arrangements have significant value for shareholders and the company. We are actively pursuing these discussions and negotiations, and we now require the ability to execute as these plans mature.

Fantastic. Thank you, Frederico. In the absence of any additional questions, I think we can conclude our fourth quarter investor update. Thanks to everyone who joined and asked questions. If you have additional inquiries or wish to speak with myself or management, please reach out to the IR team at [email protected], and we look forward to seeing you again at our next update.

Thank you all.

Thank you all.