ITM Power plc (AIM: ITM) (ITM Power or the Company) is pleased to announce its intention to raise £25 million (before expenses) through a placing of 62,500,000 New Ordinary Shares of 5 pence each in the capital of the Company (the Firm Placed Shares), with certain existing and new institutional investors (the Firm Placing). In addition the Company intends to raise up to c.£4.4 million through an open offer (the Open Offer) of 10,896,225 New Ordinary Shares (the Open Offer Shares). The fundraising is principally to provide working capital to support the delivery of the contract backlog and opportunity pipeline.
Highlights of the Firm Placing and Open Offer
• ITM Power intends to raise a total of up to c.£29.4 million pursuant to the Firm Placing and Open Offer at a price of 40 pence per New Ordinary Share (the Issue Price).
• The Firm Placing is being conducted, subject to the satisfaction of certain conditions, on the Company’s behalf by Investec Bank plc (Investec). The Firm Placing and the Open Offer are not being underwritten by Investec.
• The Issue Price represents a discount of approximately 5.3 per cent to the closing mid-market price of an Existing Ordinary Share on 28 September 2017, the latest practicable date prior to the publication of this announcement.
• The Firm Placing and Open Offer are to be conditional on, amongst other things, (i) the passing by the requisite majority of Shareholders of resolutions to grant authorities to Directors to allot further shares for cash on a non-pre-emptive basis; and (ii) admission of the New Ordinary Shares to trading on AIM on or before 8.00 a.m. on 19 October 2017 (Admission).
• The net proceeds of the Firm Placing and the Open Offer (expected to be up to approximately £28.4 million) will be utilised by the Company to provide working capital to support the delivery of the contract backlog and opportunity pipeline, to move to new larger facilities to increase annual production capacity, to strengthen the Group’s balance sheet, and to move toward achieving positive cash flow and profitability within the medium term.
Graham Cooley, Chief Executive Officer of ITM Power plc, said:
“We are delighted to disclose our c.£180 million opportunity pipeline of highly qualified tenders, which sits behind our growing backlog of contracted orders. This demonstrates significant traction for ITM Power’s products and the growing momentum in the hydrogen energy market overall. The £25 million placing and up to c.£4.4 million open offer considerably strengthens our balance sheet and should provide enhanced confidence to our customers on ITM Power’s ability to deliver future orders at increased scale. It should also enable us to unlock further efficiencies in our supply chain. We look forward to updating the market as opportunities are converted from pipeline to contracted sales, as we near our target of positive cashflow generation.”
Reasons for the Firm Placing and Open Offer
As at 19 September 2017, ITM Power had c.£20 million of projects under contract and a further c.£16.7 million in the later stages of negotiation (c.£36.7 million in total). In addition, the Group has an opportunity pipeline of c.£180 million of commercial sales, which consists of over 50 separate projects across all three of the Group’s end markets. For each of the projects qualified within this figure, the Company has been engaged to provide a written proposal, the client is understood to remain actively interested in pursuing the project, and the Directors believe the client has the financial means and the ambition to implement the project in the medium term. The majority of these projects provide for a portion of the project cost to be paid by the client to the Company up front, with the corresponding balance of the income typically received towards the end of the contract. This results in a working capital shortfall during the middle and later stages of the contract term, when cash is used in the build phase as well as final commissioning and user testing.
The Directors intend to use the proceeds of the Firm Placing and the Open Offer to:
• provide working capital to support the delivery of the contract backlog and opportunity pipeline;
• move to new larger facilities which will consolidate the Group’s two current sites and is expected to facilitate annual production capacity of c.300MW. In addition the Group would seek the installation of an enlarged grid connection of up to 5MW, in order to be able to test larger scale electrolysers;
• strengthen the Group’s balance sheet, to assist in meeting tender requirements, in particular with regard to obtaining improved upfront payment terms from customers and suppliers; and
• move toward achieving positive cash flow and profitability within the medium term.
Cash flow remains a key consideration for the Board, and the presiding financial objective for ITM Power is the achievement of a positive cash flow in the medium term. To manage working capital demands and mitigate the impact of existing projects with cash receipts towards the end of the contractual agreement, the Company is seeking a move towards quoting for potential sales with upfront payment terms, thus reducing the initial working capital outlay of such commercial projects. On certain projects, working capital is also enhanced through working with, and receiving support from, partners on the development of electrolyser related technology.
Continued Product Development
The Directors’ immediate objective in terms of product development is to continue to focus on the scale up of proven electrolysis equipment, targeting penetration of larger markets. The Directors believe this approach to be a direct response to market demand from sales enquiries, trade fairs and marketing events. Product development, and in particular upscaling of product offering, is proposed to be achieved through securing and utilising project funding.
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