H-Power plc (HPOW) Earnings Call Transcript

Good morning, ladies and gentlemen, welcome to the AFC Energy plc Investor Update. [Operator Instructions] Before we begin, we'd like to submit the following poll. I'd now like to hand you over to CEO, John Wilson. Good morning.

Good morning. So welcome, everyone, to this introductory presentation from me, John Wilson, the new CEO of AFC Energy. And with me today is Karl Bostock, our new Chief Financial Officer. Although we've only recently joined AFC, we wanted to take this opportunity to introduce ourselves and give shareholders an overview of what we see as our key priorities for AFC. Thank you also for submitting so many questions. I look forward to answering those in a moment. Firstly, a bit about me. I'm engineering technologist by background and experience and specialize in conceiving and scaling businesses through innovation and differentiation. I joined AFC from Bulgin, which is now a private equity-backed connectivity solutions developer, where I was the CEO, having previously led an MBO for this business and then a subsequent sale. Before that, I led Elektron Technology plc for nearly a decade where I worked to transform the fortunes of the business through building a differentiated product and commercial offering that increased shareholder value by more than 10x and grew the operating margin of its largest business by over 20x. These are arbitrary successes, which I hope to replicate here at AFC. I bought and sold numerous businesses in the last 15 years also. In addition, I sat on the Board of 2 other AIM businesses, Volex, $1 billion turnover integrated manufacturers of critical data and power transmission products with a nonexecutive director and Insig AI, a scale-up artificial intelligence technology provider as nonexecutive Chairman. So I brought a lot of experience of businesses across all stages of business life cycle. I'll now hand over to Karl for him to introduce himself.

Thank you, John, and good morning, everyone. My name is Karl Bostock, I'm the newly appointed CFO here at AFC Energy. So a little bit of our me. I have over 15 years of experience as a CFO in manufacturing businesses following roles at Bulgin, when I worked alongside John and Coveris UK Food & Consumer. During my career, I've always had roles that are broader than just pure finance. I was responsible for internal sales and pricing at Coveris. And when working alongside John at Bulgin, I was reportable for supply chain and operations. On top of the usual CFO responsibilities, I really enjoyed driving improvements that either: one, made the environment in which our teams work safer; two, made the experience [indiscernible] customers better; and three, made the business we operate more efficiently. I've been super fortunate that all the business I have worked in have experienced high levels of growth. This has resulted in the need for systems and process to be developed at pace as each organization experience and overcome growing pains and to new markets or reset their strategies. AFC is on a very similar journey as it transitions from being a business focused on developing market-leading technology to, one, commercializing the benefits of that technology. And I'm super excited to have the opportunity to be part of the team to make this a reality.

Thank you, Karl. So now to move on to our business and our sector. Undoubtedly hydrogen will lead the clean energy transition, and the only question is when, not if. However, the challenge this transition faces is multifaceted, the key elements of which are: the availability and cost of supplied hydrogen, resistance to new technology adoption and the cost of hygiene fuel cell generators compared with diesel. These serve to create a barrier to mass adoption, but these challenges are not unusual in disruptive innovations. For example, it took almost 30 years for the car to be widely adopted, which was overcome to productionization and its economies of scale to rapidly reduce price entry point. My attraction to AFC was motivated by the technology the business has, the abundant talent within the team and the sheer size of the market opportunity. We are positioned to remove these barriers through our differentiated approach and our offering. Since I joined and following Karl joining, we have been focused on understanding the technical and commercial challenges to aid with the formulation of the strategy to drive commercial success and are working through our approach to this with our executive team. So when I was appointed CEO, the Board was clear in our priorities. To leverage the relationships built over the past number of years to prioritize and focus efforts on verticals with the lowest barriers to adoption and to drive scale. This is critical to accelerating commercialization and driving revenues. The construction industry has demonstrably been identified as a first mover and the vast majority of our commercial efforts and our focus on supporting our joint venture partner, Speedy, in training and building the infrastructure to remove barriers to deployment. These include the issues already mentioned but also timing of zero emission projects. For example, HS2 and Lower Thames Crossing, where new tenders clearly mandate zero emission energy sources. Undoubtedly, achieving market acceptance within this vertical will result in a level of proliferation across further verticals in which we have worked to build relationships. Secondly, Hyamtec has the potential to be transformational to the clean energy transition through its ability to disrupt conventional views around hydrogen infrastructure supply and price. A key focus for our executive team is continuing to generate IP to protect this advantage and accelerate its route to market and deployment with partners. So our primary focus at present is very much the Speedy Hire joint venture, where we are working to unlock obstacles to deploy further generators to customers and meet the demand there is from the U.K. construction industry to diesel-free generators. I've already had a number of conversations that confirm this demand. However, replacing incumbent technologies and existing contracts at a significantly higher price point takes a high degree of pragmatism, and we are working with Speedy to accommodate this. We continue to work with all partners that are previously announced, such as ACCIONA and ABB. These trials have been invaluable improving our technology and verifying, it's not the limiting factor. The technology works. And these ongoing partnerships have been and continue to be critical as we evolve our product offering. Our focus is on early adopters and the revenue-generating opportunities these provide. Elsewhere, we are increasing engagement with government recently hosting our local MP, Jeremy Hunt, holding meetings with MPs in Parliament and looking forward to a site visit from Beznez next month. This is key given the incentive schemes are in place for our industry and the potential for further incentives given the government's net zero ambitions. Our view, however, is the government's approach to subsidizing the production of hydrogen is inherently wrong. We are proving we can provide hydrogen at scale substantially below current market costs and believe subsidies should be applied to capital equipment, therefore, removing this barrier to entry and certainly to accelerate economies of scale benefits. We must also continue to engage with government to educate them regarding the benefits of ammonia as a fuel. We are lobbying to make this point heard. The hydrogen revolution has already begun, but widespread adoption has yet to occur. The prize, therefore, available to AFC is commercialization of a disruptive end-to-end technology product and service offering, delivering on this is vital in creating and maximizing shareholder value. We recognize that the share price performance is a frustration. Our focus will be on delivering as a business, giving realistic guidance and communicating effectively with the market. If we deliver on that, we believe the share price will respond.

I'd just like to take this opportunity to touch on the financials. As disclosed in the year-end trading update, we had cash of EUR 15.4 million as at the 31st of October 2024, and revenue recognized in the 2024 financial year was EUR 4 million. Based on my first 2 weeks in the organization, I am pleased to be able to say that it appears that John and I have inherited a robust reporting system along with a talented and energized team. It is clear that my predecessor Peter significantly strengthened the finance team as well as introduced key business processes as AFC began its transition from a startup to a scale of organization. In my opinion, there is still significant opportunity to make the organization more efficient, and we will continue this journey in the current financial year with the goal of being able to accelerate financial reporting in future years, although this year, we expect to announce the full year results in March as usual. So that's been a quick introduction, but we do want to underscore our commitment to maintaining effective communication with shareholders and recognize from the questions that have been submitted, this has been a concern in the past. We have many, many questions pre-submitted, the majority of which cover similar themes. So we've attempted to merge these into fewer questions in order to address the main topics and concerns.

Okay. So we'll start to take some questions. There's been a number of questions that come in as I mentioned. So we've had several questions on the status and progress of the Speedy Hire joint venture. I will take that one. So as I've mentioned, this is our #1 priority, the first run of generator sets are built, and we sell those into the joint venture. It's important to note that Speedy are responsible for the customer deployment and we're working with them to support those deployments. So matters such as health and safety, for example. It's also important to note that Speedy are very committed to this. They're well invested, and there is significant demand from their end customer base. And so we're working together to overcome any barriers to deployment so this can be accelerated. We're focused on displacing diesel gen sets in the U.K. construction industry as this is the fastest route to commercial scale up, driven by customer net zero targets and regulation. And the largest construction projects across the U.K. are committed to 0 carbon, as I mentioned, such as HS2, the heater expansion and many others. And we have first-mover advantage in this space. And our strategy is to prove the business plan in the U.K. before looking to replicate it across other geographies. A question on Hyamtec. You've asked when we expect to see initial revenues and whether is a plan to spin out Hyamtec? So alongside Speedy, Hyamtec is an area of focus moving in parallel with our fuel cell business. Continuing to generate IP and file patents is critical to protecting our commercial advantage. And this has been the priority of the business thus far. One of the key challenges for the hydrogen industry globally is the lack of cheap and plentiful supply of hydrogen to the site where it's needed. Hyamtec can solve this problem. And for AFC, it will allow us to offer customers such as Speedy's clients an end-to-end one-stop solution. Although the Hyamtec brand is new, the technology is well advanced, and we aim to fast-track its commercialization. There's no plans to spin out this business, we created a separate brand to raise awareness and for marketing purposes. And we've also created a structure, which enables us to look at bringing in funding at the Hyamtec level rather than the TopCo plc level. But Hyamtec is and will continue to be a part of AFC Energy. To be clear, the fuel cell and the fuel processing parts of the business are symbiotic mutually beneficial in driving our efforts to disrupt the hydrogen processing and off-grid energy from hydrogen supply. The hydrogen industry struggles with pricing compared to existing fuel sources. And so we need to focus on scaling up our cracker business as this is one of the solutions to widespread industrial adoption of hydrogen. So our target is to provide cost competitiveness with diesel without the need for government subsidies. Next question. A number of people have asked for an update and an outlook on the various memorandums of understanding and joint ventures that have been announced in the past. So to be absolutely clear, our current focus is on the Speedy joint venture and Hyamtec because that's where the quickest revenues and commercialization opportunities are. And that will be the focus for the foreseeable future. That said, the previous collaborations have been very useful to raise the profile of the business, the technology and to get feedback and will likely lead to commercial opportunities in the future but they are not first movers in this space. And as I said, the focus is very much on how we generate revenues and drive those revenues most quickly. So now we're targeting our resources on revenue generation from. So another question, which I think I'll ask Karl to answer. So we've been asked to comment on cash and revenue expectations the next couple of years, karl?