Fusion Fuel Green - Q3 2022

Transcript

Benjamin Schwarz (Head of Investor Relations)

Hello, everyone. Welcome to Fusion Fuel Green third quarter 2022 investor update. My name is Benjamin Schwarz. I am Head of Investor Relations at Fusion Fuel. I would like to first remind everyone this call may contain forward-looking statements, including but not limited to, the company's expectations or predictions of financial and business performance, which are based on numerous assumptions about sales, margins, competitive factors, industry performance, and other factors which cannot be predicted. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. They are not guarantees of performance. I encourage you to read the disclaimer slide in the investor presentation for a discussion of the risks that may affect our business or may cause our assumptions to prove incorrect.

The company is under no obligation and expressly disclaims any obligation to update, alter or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Thank you all again for joining us today. I'll just quickly run through our agenda for the next hour. We will kick things off with an overview of Fusion Fuel's value proposition. Then the management team will share, you know, actually, we'll share third quarter highlights, financial results, the latest on our commercial strategy, pipeline, market expansion plans, and finally, a very exciting technology update. We'll then revisit our 2022 milestones before ending the presentation portion of the webcast with some brief closing remarks from Fusion Fuel's chairman.

We'll then open up the floor for a facilitated Q&A. I'd like to remind everyone, as in our previous quarterly calls, questions can be entered in the chat box in the webcast platform at any point in the next 57 minutes. Alternatively, you can also submit your questions to the investor relations mailbox, which is [email protected]. Let's begin with an overview of Fusion Fuel. What makes us unique, how we are creating value. Fusion Fuel is in the business of developing and delivering cost-effective clean hydrogen solutions to accelerate the global energy transition. At its core, Fusion Fuel is an industrial technology company. We have developed and commercialized a proprietary miniaturized PEM electrolyzer that unlocks cost-competitive green hydrogen through unprecedented functionality, flexibility, and scalability.

The modularity of our electrolyzer technologies lends itself to a decentralized approach, and we've leaned into that as a source of unique differentiation. Where much of the market has gone down the path of ever larger scale electrolyzers to drive down their levelized costs, we've gone in the other direction. Small scale, mass produced. In doing so, we've been able to eliminate some of the cost and complexity of hydrogen production and distribution and deliver bespoke co-located solutions that few others can. While others are talking about developing green hydrogen projects, we are doing it. Our unique approach and differentiated tech have enabled us to build a robust commercial pipeline of tech sale and development projects.

We are producing green hydrogen today at our demonstration facility in Portugal, with many more highly actionable projects in various stages of the development cycle, including what will be Spain's first solar to green hydrogen refueling station, which we're developing for Exolum in Madrid. With that primer, I'll now pass it over to Frederico Figueira de Chaves, Fusion Fuel's CFO and co-head, for an update on the third quarter and subsequent events.

Frederico Figueira de Chaves (CFO and Co-Head)

Thanks, Ben. Appreciate that. Thank you everyone for joining once again. As mentioned last time, we have received approval of the EUR 10 million grant from Component 14 of Portugal's Recovery and Resilience Plan for Project Antunes, and also commenced work on our Exolum tech sale project in Madrid during the third quarter. In Spain, in addition to opening the Italian market with the Duferco Energia agreement. We continue to make progress on securing grants for the projects we're involved in. This time, I will enter this a little further later on. Two significant notes from earlier today and last week that are important to stress. We've now disclosed our first project in the U.S.

This is a project that has been in the works for several months now, and with the passage of the Inflation Reduction Act, it's become a key strategic pillar for the company. Zach will dive deeper into this major milestone in a little while. Last week, we also introduced the HEVO-Chain. This is the first centralized electrolyzer for the company, and it's the first that we know in the market that is based on a series of miniaturized units working together in a string. We're extremely excited by this product. It not only opens new markets to us, but we believe it will also be a true disruptor for the PEM electrolyzer market in the coming years. During the third quarter, we booked an operating loss of EUR 5.5 million, driven by EUR 4.6 million of operating expenses.

The increase in expenses from the second to the third quarter was largely driven by an increase in headcount coinciding with the go live of Benavente and then the related tax provisions required in Portugal for the holiday subsidies paid to employees. In addition, we incurred EUR 600,000 of one-off bookings related to Évora, Exolum, and Exolum expenses and various larger activities related to marketing costs, as well as various consulting and specialist engineering validation works. The results of which we've disclosed in previous quarters. Going forward, we're adjusting our administration expenses guidance to around EUR 4 million-EUR 4.5 million per quarter for the fourth quarter and also for most of 2023. Our pre-tax profit loss for the quarter was again significantly impacted by the non-cash item of the fair value movement of the outstanding warrants.

This had a EUR 3.8 million positive impact, bringing our pre-tax loss for the quarter at EUR 1.6 million. One item I would like to highlight is that we expect to book revenues and also part of the PNL impact of the Exolum project during the fourth quarter of this year. That's something to look for in the next quarterly update. We've added this slide. For additional transparency for our shareholders and analysts, we've added a slide covering some elements of our balance sheet to the financial section of our results. We'll continue to provide this information going forward. As you can see, we have a total of EUR 61 million of total assets and around EUR 15.6 million of liabilities.

Our property, plant, and equipment is mainly composed of our Évora plants, our Gijón school Sines projects, and our Benavente facility. Regarding Benavente, several months ago, we initiated a process to do a sale leaseback of the property. We can now inform you that this is a transaction that we expect to close in December, which will also generate substantial cash proceeds for the company. Important to note, we currently hold EUR 12 million of inventory and around EUR 3 million of advanced payment to suppliers. This is a result of measures taken late last year and at the beginning of 2022 to secure our supply chain. We've recently seen several cases where competitors were unable to deliver due to supply issues, and we have had the opportunity to step into projects in their place.

Over the coming months, we will be working to transition this inventory into revenues and have a positive impact on our cash flows. Our receivables also include EUR 3.7 million of grant requests that we are awaiting payment on. In the third quarter, we continued to hold substantial VAT receivable balance of EUR 6.5 million. I'll highlight that we have submitted reimbursement requests for parts of this balance. These requests have been approved and those inflows will be reflected in the fourth quarter. During Q3, we continued to pay for some materials ordered not only for inventory and for our Évora and Exolum projects, as well as investments into our intellectual property and our EUR 4.6 million of operational expenses.

Our liquidity position is something that we as a team have been actively managing with the various tools that are available to us, including, as mentioned, the reimbursements of all our VAT and the grants receivables, the sale-leasebacks of Benavente, and as our projects progress, traditional revenues. We are a company in an aggressive growth trajectory, and the recent announcements and projects may require certain capital in the future. As we've noted before, we'll continue to consider all possible options for the company to ensure that we continue to execute along our growth plan. Our outstanding shares and warrants balance is relatively unchanged at EUR 13.4 million shares. As announced at our last earnings release, during Q3, we did tap into the ATM facility and sold around 300,000 shares at an average price of $7.35.

During the fourth quarter, we also used the ATM facility and sold nearly 400,000 shares at an average price of $4. Year to date, we have raised around EUR 3.7 million through the ATM facility at an average price of $6.3 per share. With the sale of these parts of Benavente, the receivables mentioned in the previous slide and the other capital options being explored by the firm, in addition to normalizing of our project activity and revenues over time, we expect to have less use of the ATM facility going forward. As highlighted previously, we have a strong track record of securing grants for our project portfolio. We have applied for nearly EUR 80 million of grants excluding our IPCEI submission.

As of our last update, we had, during our last update, we had EUR 19 million of grants approved and EUR 3.5 million of grants reimbursements already requested. As of today, we can share that we have secured another EUR 30 million of grants for another one of our projects. We expect to be able to disclose information regarding this award in the coming relating to that, hopefully still this week. As announced last week, we are technology providers for four projects in Spain that were preselected for grants. We expect to get the final results of those submissions early in 2023. This grant portfolio and the related projects are a very significant asset for the company and establish a very strong basis for our order book for the coming years.

Now to dive a little deeper into those, I will pass to Zach to share more information with you regarding our commercial activities.

Zach Steele (Co-Head)

Thank you, Federico, and nice to see everyone, and everyone that is in the U.S., I hope you had a great Thanksgiving weekend. Federico, go to the next page, please. A key focus going into next year for Fusion Fuel is to turn the dreams of the hydrogen market into a reality. The market is being created which requires projects to be permitted and attracting customers with providing attractive economics and confidence in our offering. We're targeting over $40 million gross revenue next year. We plan to achieve this target through technology sales to third party customers and sell most of our existing Fusion Fuel-owned projects to financial investors. We've been focusing on de-risking our pipeline in 2023 and beyond by concentrating on a few key characteristics. First, does the project have the land secured?

Secondly, does it have grants? Third, completing permitting. Finally, does it have a customer? These four characteristics, as simple as it may seem, allow us to rank opportunities that will have a high likelihood of reaching final investment decision and lets us prioritize our resources appropriately. Virtually our entire pipeline has grants and land secured for 2023. This allows for our pipeline to commence permitting and have a higher probability of reaching FID due to the fact that we can subsidize our projects via grants to make them more attractive to third-party customers. We received or started permitting on over 50% of our 2023 pipeline, and the balance is planning to start. Permitting takes approximately 6 to 9 months to receive the necessary permits to reach FID.

Our team is focused on initiating permitting on the balance of our 2023 pipeline by the end of Q1, 2023. Next year's pipeline is broken down by approximately one-third being already established third party customer sales. The balance of them are Fusion Fuel-owned projects, which are all located in the Iberian Peninsula that we plan to sell to third parties. Having our 2023 pipeline being focused on Portugal and Spain allows for a higher chance of success due to our company has most of our employees located on the Iberian Peninsula. As we're focused on 2023, we're also looking ahead into expanding our reach into other core markets. We're excited to announce that we are expanding into North America and the Italian markets. Both markets have strong incentives, especially the Inflation Reduction Act in the United States.

We've secured early stage opportunities in California and Southern Italy, a total over 75 megawatts of capacity for 2024 and 2025 production. These projects, combined with the balance of our portfolio in Portugal, the is over 138 megawatts of HEVO-SOLAR and HEVO-Chain units for 2024 and 2025. HEVO-Chain is a product that Frederico will go into next, but it's a new product that we have developed and will be in production in 2024. HEVO-Chain is our own centralized PEM electrolyzer that Fred will discuss shortly. To take advantage of the Inflation Reduction Act in the US, our team is actively evaluating if we can supply units for our USA projects from Benavente, or do we need to build an additional production capacity in the USA.

This could be a step change in our production capacity due to the early successes that we've had so far and the massive increase in the total adjustable market size via entering the United States and Canadian markets. We believe our product offering, along with our approach, will be attractive to third-party customers and financial investors to expand into these exciting markets. In summary, we have a strong plan to utilize our 2023 production capacity, focusing on a region that we know very well, the Iberian Peninsula. Already we've established anchor projects in two core exciting and strategic markets to ensure the growth in the future for the company. 2023's technology sales, as I just noted, are focused on Iberian Peninsula.

We have over 18 MW of capacity of projects that total 743 units with an estimated potential revenue of over $45 million to Fusion Fuel that have $15 million grants attached to those projects. We are concluding the construction, as Frederico just noted, of our first technology sale in Madrid with Exolum. I've built a team to be able to execute our projects in this region, working closely with our third-party external partners. These capabilities allow us to either do a tech sale or a turnkey project that includes engineering, procurement of the balance of plant equipment, construction of the facility, as well as the operations. This allows us to not only make returns on the tech sale, but also on the overall project and potentially recurring revenue from operations if we operate the facility.

Our tech sales in Portugal are with the same company, QIMA. Both projects have secured grants, have the land, and the first QIMA project is already under environmental permitting. Anticipate QIMA 1 reaching FID in the first half of 2023. As Frederico noted, we already have inventory available to execute this project. The Spanish portfolio has been pre-selected for the PERTE program and finalizing their respective grants. These projects are going through a final evaluation to receive formal award of the grants, which is noted as awaiting grants in the table. We're focused on supporting these respective projects and receiving their grants so they can initiate permitting in the first quarter of next year. Some of the projects do not require offtake because the company is the end-use customer or already has secured a customer.

I cannot emphasize enough that that helps de-risk these projects knowing that they already have a customer in hand. Alcalá is the most advanced project, most advanced Spanish project, and is finalizing permitting with anticipation of reaching FID in the first half of 2023. Again, we have inventory available for this project already to execute it. Also, we have a backlog of projects for 2024, which include additional technology sales in Spain that also apply for other grant programs, and the Duferco project in Italy and other projects we're currently in negotiations on throughout North America and Europe. We have two key themes as we touched on the last investor call. First is that we are building a mobility backbone not only in Portugal, but now in the Iberian Peninsula.

Second is decarbonizing industrial applications to sell to customers throughout Iberia, with our initial focus on the Sines region of Portugal. We've secured grants and land for all the projects we plan to reach FID in 2023, which includes 2 mobility projects and 3 industrial-focused projects. Our focus is to build out our footprint in the Sines region through 3 phases to reach a total capacity of 85 MW. Our first phase has already received its environmental permits and is finalizing feasibility phase to reach FID in the first half of 2023. Again, we have the inventory available to do these projects. Our second phase has initiated environmental permitting, and is planned to reach FID in the second half of 2023.

We continue to do pre-feasibility work on the balance of our portfolio to be in a position to commence permitting in the coming months and reach FIDs in the second half of 2023. As noted on our last call, Portugal is the blueprint for the rest of the markets that we're currently focused on. This blueprint is already being utilized to build a pipeline of over 175 megawatts of development projects in California, Portugal, and Spain for 2024 and 2025. I cannot emphasize enough how the expansion into North America is truly a game changer for Fusion Fuel. North America has significant momentum due to the IRA and infrastructure bill that create hundreds of billions of dollars in subsidies for hydrogen and other renewables in clean tech manufacturing.

Most of you probably already know this. I will emphasize it anyways. These subsidies include a $3 per kilogram production tax credit that can last up to 10 years, a 30% to possibly 40% investment tax credit on the capital cost of the solar components of the project, $ billions in subsidies for clean tech manufacturing and hydrogen, and development of hydrogen hubs to further advance the growth of key areas of hydrogen production and demand in the United States. We also have significant state level subsidies, such as a Low Carbon Fuel Standard credit in California, focused on the mobility industry.

Lastly, Canada has also recently announced a 40% investment tax credit for the upfront capital cost of hydrogen production, which makes Canada a very attractive market for Fusion Fuel's HEVO-Chain product we plan to roll out in 2024. This legislation, combined with our expanded technology offering, create a strategic shift in our focus to accelerate our plans to grow in North America for 2023. Securing our first project in North America in Southern California was strategic due to our technology offering and maximizing the incentives to have the highest likelihood of reaching a successful FID. Our first project is in partnership with Electus Energy, a developer of hydrogen projects with operations in California. We're excited to work with Electus, which brings commercial relationships and boots on the ground in California.

Our first project is planned to be 75 megawatts of capacity of green hydrogen production, located on 320 acres in Bakersfield, California, off of Interstate 5. Bakersfield is a strategic first location due to its existing heavy industry and located to nearby distribution facilities that connect to areas such as Los Angeles. We've commenced pre-feasibility work with Black & Veatch as the lead contractor, and we'll update as we make progress on this exciting development project. Our target is to have an FID on this project in 2024 and have commercial operations in 2025. We're actively building out our team in North America to be able to execute this opportunity, as well as identify and secure additional opportunities in 2023.

We believe the announcement of HEVO Chain expands the market opportunity significantly for us in the US and Canada, specifically in markets such as Northeast and Pacific Northwest of the United States and British Columbia and Ontario provinces in Canada. These markets have existing or planned hydrogen incentives that make them attractive markets to apply the HEVO Chain technology. The size of Bakersfield project alone justifies building a new manufacturing facility, in particular for the HEVO component. As this project matures to reach a final investment decision, along with other projects in our pipeline, we'll need manufacturing capacity in the US to be able to obtain the benefits from the IRA. The majority of the equipment that you produce has to be made in the USA.

We're in the early stages of identifying our needs and starting to look for possible locations to put a manufacturing facility or two in North America. This growth would be an increase of our existing business plan for Benavente. We're excited about the challenge to grow in such an important market as the United States and Canada. We are also excited to have expanded to the Italian markets. We think the Italian market is a natural expansion of our core and strategic markets in Europe due to its excellent solar irradiance, existing natural gas infrastructure, and ambitions to add hydrogen production in the coming years. Italy also has an existing natural gas grid from northern Africa to southern Italy, and is seeking to, by 2030, have a significant increase in its hydrogen use for heavy industries and long distance truck transport.

This is ideal for Fusion Fuel's mobility and industrial decarbonization strategies we are already employing in the Iberian Peninsula. Our partnership with Duferco Energia is exciting because Duferco's core business is energy trading, steel manufacturing, and shipping businesses. The joint agreement has been established between Duferco and Fusion Fuel with the following goals, to develop a footprint in Italy and the MENA region for technology sales and project development. Fusion Fuel will utilize Duferco's existing operations and will be the boots on the ground for expansion into Italy and possibly Algeria and Tunisia. The interesting aspect of Algeria and Tunisia is that there's an existing pipeline that connects northern Africa to the Italian markets. The other interesting part is that Duferco has significant operations in both those regions. The perfect way to start any partnership is to focus on a project and execute it.

We're doing this through the development of a pilot plant at Duferco's Giammoro site in Sicily. We plan to install 50 HEVO-Solar units. Where the green hydrogen will be used to feed a molten carbonate fuel cell system that the technology of Duferco wants to test. The project is planned to be installed during 2024 and will allow us to showcase the HEVO-Solar potential in a strategic country. Following our successful strategy in Iberia, Fusion Fuel will now use the same blueprint as I noted earlier in mobility and the industrial segments. Our target is to have up to four mobility hydrogen refueling stations in southern Italy by the end of 2024.

Separately, we see northern Italy in areas such as Bologna, Brescia, Verona, and Ravenna as key areas similar to Sines to focus on decarbonizing the steel, glass, ceramic, and refinery industries as examples. These are ideal locations for our new HEVO-Chain technology that can scale with our customers, decentralized or co-located, and more efficient than our peers. We'll work with Duferco to use this technology at the Brescia Steel Mill as one of the initial targets in this region. I'll now pass it back to Federico to go through our exciting new technology developments of the HEVO-Chain.

Frederico Figueira de Chaves (CFO and Co-Head)

Great. Thanks, Zach. Innovation hasn't stopped at Fusion Fuel and obviously Zach and the team and all the whole commercial area is keeping us well on our toes with all these opportunities. I'm happy to be able to share with you some of the great things the team has been working on today. For those of you who have followed our story for some time, you know that this all began with our first generation of our miniaturized PEM electrolysis, the HEVO. This 2020 model was a 1 bar of pressure and required 664 HEVOs per HEVO-Solar unit. We then consolidated 3 HEVOs into 1 in 2021, and this is the model that's been installed in Évora. This year, we further consolidated our HEVOs so that we only require 144 per HEVO-Solar.

This version, while still taking advantage of the cost benefits of the miniaturized system, can work with 4 bars of pressure and has an increased hydrogen output and a 50% cost reduction from the 2021 version. We're already in testing of the 2023 version of the HEVO. This not only sees further consolidation, but still maintaining overall similar size. This is able to work with 2 membranes per unit, permitting us to improve the performance further and also reduce unit cost by another 20%. This 2023 unit is not only highly competitive, it's also a game changer for Fusion Fuel. We've recently taken the step into a new market for us, the centralized PEM market. Using this 2023 HEVO, we connected several units on an integrated string of miniaturized PEM electrolyzers.

With this, we've created a modular system that is easy to install and operate and can work in sites with limited available space. It's able to work with any energy source, thereby broadening our addressable market substantially and no longer limiting us to markets with high solar radiation. This system takes advantage of the attractive cost benefits of using a miniaturized system, which we've covered before. This allows us to bring to make even small systems cost-effective rather than what can be seen in the market today, where electrolyzers need to be very large to be cost-efficient. We are bringing affordable hydrogen solutions even for small scale users. As it is modular, it's also easily scalable, making it competitive already with our first generation for many different types of projects.

All of this together gives us the HEVO-Chain, a truly revolutionary product in the hydrogen market. Now we'll show you a short video on the technology. Our HEVO-Chain solution is able to work with any energy source, making green hydrogen from any renewable energy. This is a stark new world for Fusion Fuel and a very exciting one at that. It is a solution that can be containerized. It's usable for small to large scale use cases. It's all based on our HEVO miniaturized PEM solution, all working in tandem on a string. The system is easy to install, highly modular, and highly efficient. By using our HEVO, we can make the most of our cost-efficient design to bring a highly competitive product to the market.

We believe this will truly disrupt a lot of the existing small, especially small and mid-size projects in the market today. What you're seeing here is a real-life version of the HEVO-Chain unit that's in our lab. We're running tests to be able to bring this to market in 2024. We need to first thoroughly test the system and then industrialize it for production. This solution will truly revolutionize the centralized electrolyzer market. The HEVO-Chain hydrogen unit, which I have with me here today, you might be able to see it right now next to me to get a sense for the size, is made of 16 HEVOs, all integrated and linked, but operating independently. In a rack to be able to service larger projects. It boasts one of the highest efficiency rates for PEM systems to date.

Again, this is all based on what we learned in the creation of the HEVO-Solar. This new addition to our product portfolio puts us in a strong position to be competitive for a wide range of projects. Focusing the HEVO-Solar on projects with large-scale grants, land availability, and very high solar radiation, and the HEVO-Chain on markets with land constraints and requiring a range of energy sources. In 2022, we developed the first HEVO-Chain hydrogen unit, again, right next to me here, allowing us to now begin planning projects using this technology. The first version uses the existing water and power systems from the HEVO-Solar and the HEVO-Night technologies. In 2023, we'll subject the hydrogen unit to further testing and also focus on making the water and power systems suitable for inclusion in the rack and container solutions.

In 2024, we expect to start industrial production of the HEVO-Chain and commercial operations, offering both rack and containerized solutions. In order to do this, we will start planning projects and kicking off the required licensing and permitting processes for these projects already in 2023. I'd like to briefly update you also on our production status in our Benavente facility, where we continue to ramp up production of the HEVOs each month. We currently hold EUR 12 million of inventory, as I mentioned previously, together with another EUR 3 million of prepaid orders to suppliers. This puts us in a very strong position to be able to deliver products to our projects, as Doug mentioned earlier, and in several cases, even step in where competitors have not been able to deliver. This significantly de-risks our 2023 production and also project portfolio.

In the first half of 2023, we expect to install and start activities on both our solar concentration and module production lines in Benavente to complement the existing HEVO production line. We want to have Benavente with a 100 megawatt annual production capacity by year-end. In 2024, we expect to install and operate our HEVO-Chain production line and gradually increase our production capacity, so that by the end of 2025, we reach 500 megawatts of annual production capacity, and going into 2026. As always, we'll close covering our main milestones. To note, we continue to make strong progress across all fronts of our major milestones for the year, all while significantly ramping up our team and ensuring the comprates the company operates smoothly as one unit.

Whereas we would have liked to have seen faster development in licensing and permitting processes for some of our projects and some of our markets, we've been positively surprised by the large movements governments around the world are making in the hydrogen market, building up significant momentum for the industry. For us, the IRA in the U.S. in particular marks a strong game changer in the hydrogen market, we could not be more thrilled about the timing of our entry into this region with the Bakersfield project. The introduction of the HEVO-Chain is also another product that is likely to have profound positive impacts on the company, both in terms of the markets available to us, as well as solving solutions that in the past, we simply had to pass up on.

We're ramping up to close 2022 in a very strong position for the upcoming years. With that, I'll pass it to our chairman for some closing remarks before moving on to Q&A. Thank you.

Jeffrey Weiss (Former Director and Chairman of the Board)

Thanks, Federico. This investor presentation has been chock-full of important developments at Fusion Fuel. Therefore, I'm sure we're going to have lots of questions, so I'll not take up much of your time. Quarter after quarter in my remarks, I've emphasized that what has been my formula for success as an investor, finding companies with a strong management team, a differentiable and superior technology, and serving a growing market. As I read Wall Street research discussing Europe's impending economic winter of discontent, the uncertain timing of any relaxation of China's COVID zero policy, and the likelihood that the Federal Reserve will need to bring on a recession in order to break the back of inflation in the U.S., I'm greatly comforted knowing that Fusion Fuel operates in a market that is, and for the foreseeable future will be, the beneficiary of huge tailwinds.

The financial incentives for green hydrogen, which will exist for years to come in both Europe and North America, give me the confidence to say that despite the highly uncertain global macroeconomic environment which most businesses are facing, the market opportunity for Fusion Fuel has never been brighter. With that, I'll turn it back to you for Q&A, Ben.

Benjamin Schwarz (Head of Investor Relations)

Great. Thanks so much. A lot of questions came through, so appreciate your engagement. We'll begin with a couple questions from Chris Souther at from Wolfe Research. With respect to the breakdown of revenue between HEVO-Solar and HEVO Chain looking out into the latter half of the decade. Can you provide any guidance as to which product would likely be Fusion Fuel's main source of revenue by 2025 or by 2030?

Zach Steele (Co-Head)

Federico, do you wanna take that one?

Frederico Figueira de Chaves (CFO and Co-Head)

Sure. Absolutely. From our side of things, in the short run, HEVO-Solar will be taking the bulk of that, given that that's the production facility available. In the future as we ramp up, most likely HEVO-Chain will likely overtake HEVO-Solar. The target addressable market is much larger for the HEVO-Chain opportunity. It's not limited by solar radiation nor by land than in their niches. It's just that the available market for the HEVO-Chain is just that much larger.

Benjamin Schwarz (Head of Investor Relations)

Just as a follow-on question, are there any plans to introduce other products across the hydrogen production chain?

Frederico Figueira de Chaves (CFO and Co-Head)

From our side, we're currently obviously playing still on the advantages of the HEVO with the miniaturized electrolyzer. We'll continue to look at solutions that could operate with that as its base. It's no accident that one is called HEVO-Solar, the other one is called HEVO-Chain. HEVO is the base of both. We don't foresee in the short term any product that is not HEVO centric, although there may be variations of solutions that could combine the HEVO. Primarily, we see the HEVO-Solar and HEVO-Chain as our two major products, at least for the midterm.

Zach Steele (Co-Head)

Certainly, Federico, the potential to add oxygen capture system is would be incremental revenue.

Frederico Figueira de Chaves (CFO and Co-Head)

Absolutely. Very good point. Yeah.

Benjamin Schwarz (Head of Investor Relations)

Switching gears to commercial for the H2 Pioneers Program in Spain, that was announced the other week. Is it all or nothing for the four projects, for which Fusion Fuel is involved as a technology supplier? Or can one project be selected while the other three are not?

Zach Steele (Co-Head)

It's the latter. Every project stands on its own. If the one project moved forward and received the grants, the other three did not, we would still move forward with the one project as a third-party technology sale.

Benjamin Schwarz (Head of Investor Relations)

Thanks, Zach. There's a subsequent question about breaking out the number of HEVO-Solars for each project. I suspect we will disclose that information.

Zach Steele (Co-Head)

That's correct.

Benjamin Schwarz (Head of Investor Relations)

Bakersfield likely be a mix of HEVO Chain and HEVO-Solar?

Zach Steele (Co-Head)

Was that the question? Is, will it be a mix of HEV... The section kind of broke up.

Benjamin Schwarz (Head of Investor Relations)

It, the question was whether we anticipate Bakersfield being a mix of HEVO Chain and HEVO-Solar or one or the other?

Zach Steele (Co-Head)

We've engaged Black & Veatch to do the initial conceptual study and pre-feasibility work. We are gonna evaluate both options. Do we do a HEVO-Solar project, or do we do a, you know, a centralized or centralized HEVO Chain with traditional solar or a combination thereof? We'll update you on the progress of that as we get closer.

Benjamin Schwarz (Head of Investor Relations)

Thanks. There's another question about milestones in order to take FID on that project, but I suspect that your answer that at Black & Veatch is kind of answers that as well.

Zach Steele (Co-Head)

Maybe I'll just touch on that for a second. I mean,

Benjamin Schwarz (Head of Investor Relations)

Yeah.

Zach Steele (Co-Head)

As we've noted in previous calls, we put in concept Pre-FEED, FEED, and then this FID final investment decision. We're in the concept stage of this project. In the coming months, we hope to make a decision to move into pre-feasibility, which we would start with initiating permitting on the project. We are, and hopefully can make an update on that in our next quarterly call.

Benjamin Schwarz (Head of Investor Relations)

Thanks, Zach. Can you touch on the JV with Electus Energy? Is it a 50-50 JV? Additionally, with respect to funding that project, given the hefty price tag, how do we plan on funding the expected capital investment? Would it come from cash, or other?

Zach Steele (Co-Head)

We are planning to have a 50/50 joint venture on the project. We have a current arrangement on funding the development costs for the project. We are already in active discussions with our own financial investors to kind of come in and partner with us on that project. The plan is, as we get closer into to reaching FID, we'll lock down and secure our financing for it for our position, which as I noted earlier, we'd sell our units to. Look like a third-party technology sale with equity upside. Then Electus has arranged their own financing for their position.

Jeffrey Weiss (Former Director and Chairman of the Board)

I just wanna just emphasize how attractive the economics of we expect this Bakersfield project to be. So we think that, the ability to get this financed will not be particularly challenging.

Zach Steele (Co-Head)

The IRA and the California Low Carbon Fuel Standards really make this a very attractive project.

Benjamin Schwarz (Head of Investor Relations)

Thanks. One last question here from Webber Research. Touching on the partnership with Duferco, is the agreement final for the 50 HEVO-Solar pilot project in Sicily, or is that not yet committed or?

Zach Steele (Co-Head)

Um.

Benjamin Schwarz (Head of Investor Relations)

Well, Zach, you're on mute.

Zach Steele (Co-Head)

Good.

Benjamin Schwarz (Head of Investor Relations)

Yeah.

Zach Steele (Co-Head)

We're working jointly with them to develop a do the engineering work to submit for an upcoming grant program in Italy. The plan is that once after we've submitted the grant, we will enter into a third party technology sale agreement with them. Right now it's under a memorandum understanding or letter of intent, but we plan to convert that into a binding agreement in the coming months.

Benjamin Schwarz (Head of Investor Relations)

Great. Thanks. Couple questions here from Erwan Kerourédan from Royal Bank of Canada. With respect using commercial operation date as guidance for the revenue recognition timeline or, will we be recognizing revenue kind of prior to that date?

Zach Steele (Co-Head)

That's a great question. We'll put the presentation after the call on our website. We'll update that to show final investment decision date instead of COD. Our, our plan going forward is that we aren't gonna carry all the working capital for all the projects. We are gonna be getting installment payments as projects make FID. We wanna keep our working capital inventory close to a net zero. We'll update that to show the FID date, which can be where you actually recognize the revenue. We're not gonna hold the working capital for the projects until they reach commercial operations. We'll, we'll update that.

Frederico Figueira de Chaves (CFO and Co-Head)

Just to note also on the accounting procedure and how we operate also with Exolum. When it's a tech sales, we'll start recognizing the revenue as we deliver the unit. So, by the dates that are fair on the COD, we should have recognized pretty much all of the revenues or if not the vast majority of the revenues. As Zach pointed out, the revenue recognition probably starts at FID onwards.

Benjamin Schwarz (Head of Investor Relations)

Thanks, Federico. One more for Zach here. Was the IRA in the U.S. a major driver for the partnership with Electus and the project in Bakersfield? Or had commercial discussions started prior to the announcement of that legislation?

Zach Steele (Co-Head)

We started talking with Electus back in the spring of 2022. It was before the IRA passed. Obviously when the IRA passed, that solidified and crystallized, you know, $3 production tax credit. Our system right now is roughly HEVO-Solar component. HEVO-Solar is roughly 50% solar, so we also qualify for a solar investment tax credit up front. As Jeffrey noted, the Low Carbon Fuel Standard credits range anywhere between $3-$5 a kilogram. Just the economics, when you added in that production tax credit, was just so attractive that it accelerated discussions with Electus that, you know, have an anchor project so we can start to really develop a business in North America.

Benjamin Schwarz (Head of Investor Relations)

Thanks, Zach. Sticking with you here, a couple questions from Torkell Jordan Holm from Fearnley Securities. Can you provide a breakdown of the EUR 40 million revenue estimate for 2023?

Zach Steele (Co-Head)

Because we have not secured the, we're finalizing arrangements on the financial investors for the Fusion Fuel owned projects. We took a 90%, you know, close rate of our third party tech sales. I would use the third party sales pipeline as kind of the reference page. And the next quarterly update, hopefully we can talk more about financial investor participation on our own projects, and then we can, you know, update that projection and give more granularity.

Benjamin Schwarz (Head of Investor Relations)

Thanks, Zach. A question here for Federico. Just a quick one. How much has been invested in the Benavente facility thus far? I believe there's roughly EUR 13 million, but I'll let Federico chime in on that.

Frederico Figueira de Chaves (CFO and Co-Head)

Did we actually have it here? EUR 10.1 million so far. It's actually in on first footnote of slide 9 for anyone who wants to refer to it. We do expect to probably invest another EUR 15 or so million in during 2023 into that facility. That EUR 10.1 million also includes part of the real estate investment. As I mentioned, we will be doing the sale leaseback, which we expect to close in December. Part of that EUR 10.1 million will be converted to cash proceeds for the company during Q4, is our expectation.

Benjamin Schwarz (Head of Investor Relations)

Thanks, Federico. Sticking with you and pivoting to capital strategy, capital planning. What's the most likely or optimal path and timeline to raising capital?

Frederico Figueira de Chaves (CFO and Co-Head)

For us, the ideal way would obviously be to, or the two best choices we have is obviously converting a bunch of our receivables into cash inflows, which is the items that we're working on, both with the VAT, the grants, as well as the RC tech sales, to Benavente, sorry, to Exolum. The other is, and as Zach mentioned before, we have a substantial amount in inventory that we'd like to convert into cash and kind of proceeds. That will significantly help our capital position. However, as I mentioned before, we have the sale-leaseback as options.

What we'd like to see is as the market recognizes the position we're in, that we're able to potentially raise capital through whatever means available to us, which we'll consider whether it's debt, equity or so on, to be sure to fund our growth plans of 2023 and onwards.

Jeffrey Weiss (Former Director and Chairman of the Board)

Zach, I just want to jump in for a moment. We're very focused on cost of capital. As an example, the Benavente sale leaseback would be at, effectively a very attractive equivalent of cost of debt. I apologize about the feedback. Additionally, when Zach mentions... subjects, we will look at... We understand that our cost of capital right now is higher than that of, well, higher than that of traditional infrastructure investors. That would be a very attractive source of financing for our fusion projects. At some point in time, once we have developed a little bit of a track record, we expect that that project financing, debt-based project financing for those fusion projects becomes a reality.

I want our shareholders to understand that we are very focused on trying to identify the best way to fund the growth of the company for the benefit of Fusion Fuel shareholders. We think there are multiple levers for us to be pulling and we imagine that, you know, we will be using, you know, some from column A, some from column B, and some from column C.

Benjamin Schwarz (Head of Investor Relations)

Great. Thanks. Sticking with Federico, if you could just quickly to point here, current production capacity for the company for this year and I guess expectations for 2023.

Frederico Figueira de Chaves (CFO and Co-Head)

Sure. So for 2022, we expect our production, I wouldn't say capacity, but the available production to us for the full year would be closer to somewhere between the 40 to 50 megawatts of production. We will note we will only produce what the project can take. We, we'll avoid producing just for stock. We have a significant amount of inventory right now, we do realize that, for example, right now we are producing at less than we could produce if everything was licensed and permitted. We are holding back some of the production capacity. The production capacity for next year, go out Benavente lines go fully live, would only be in theory between sort of 40 to 50 megawatts.

How much of that we produce will depend on the projects going forward. As Zach mentioned before, we have a very healthy project pipeline, and a lot of inventory to service those. We hope to be in a good position to be able to deliver on that. I really just want to highlight it's also important for our capital. Back to what Jeffrey said on cost of capital, inventory is expensive for us, so we want to produce what is needed.

Benjamin Schwarz (Head of Investor Relations)

Thanks. A couple questions on grants came in with respect to the EUR 30 million estimate under listed under other grant applications. Is that referring to Component 5?

Frederico Figueira de Chaves (CFO and Co-Head)

I will answer that mysteriously, which is to say that, unfortunately we cannot disclose what project that is related to. As I mentioned in the slides, that is secured. The, until the respective entity allows us to actually disclose the further details of what the project relates to, we will then communicate that to the public. We expect to be able to do that this week. That is our target to still do that within this week.

Benjamin Schwarz (Head of Investor Relations)

Thanks. Sticking on that topic, the potential size of the IPCEI grant that was excluded from the table. I know it's something that we've been, we've not commented on in some time, but it's still hanging out in the background, if you have any clarity on that?

Frederico Figueira de Chaves (CFO and Co-Head)

Sure. The IPCEI grant, the total IPCEI project was over EUR half a billion. With the grant, if I'm not mistaken, it was put in the sort of EUR 150 million range, I believe. It distorts, it can significantly distort all of the numbers. We're in the third tier of the IPCEI submissions. It's the next one to be communicated. Unfortunately, we don't define that timeline. Given that uncertainty and given the potential volatility and impact of that one single line item, we removed it from the list. That doesn't mean we're not pursuing it. I just want to be clear, this is very much a project that we still pursue, that we still work on.

It's just something that we don't want to create an expectation with such a single large item that can be such a binary outcome.

Zach Steele (Co-Head)

Federico, I just want to clarify. When you say third tier, what you really mean are there are different tranches depending on what the funding is for.

Frederico Figueira de Chaves (CFO and Co-Head)

Right. You're right. It's not third tier, it's third wave. My apologies.

Benjamin Schwarz (Head of Investor Relations)

With the few minutes we have remaining, just wanna pivot over to a couple commercial questions for Zach. Based on the advantages of our HEVO-Solar technology in high DNI regions, are we seeing any increased demand or interest in our technology from the MENA region? Are we actively pursuing potential opportunities in that, in those countries?

Zach Steele (Co-Head)

That's a great question. We've not put that on the last two presentations, not because that we're not actively pursuing them or they're not still opportunities in the MENA region, but until we've secured kind of the necessary components, you know, initiating permitting, those kind of things, we didn't wanna disclose it because the number, the size of it can skew everything else we're working on. The answer, with all the caveats aside, still working on Morocco. Still a couple opportunities we're looking at in Egypt. As I noted, Duferco has they have some potential opportunities with existing partners in Tunisia and in Algeria.

Benjamin Schwarz (Head of Investor Relations)

There's a question here about those pipelines, a trans-Mediterranean pipeline from Tunisia to Italy. Are those pipelines natural gas? Are they hydrogen? Do you have any understanding of what percentage of hydrogen those pipelines can transport?

Zach Steele (Co-Head)

Natural gas. My understanding is they're looking at, you know, under 5% to be blended as hydrogen. Capacity will be TBD, but because we've been focused more on the Italian aspect of it, but there's significant land available in those countries, and those are more, those are similar to the Morocco opportunities that as they kind of advance, we get land, we know more about the projects and we can have more definition, we'll share it.

Benjamin Schwarz (Head of Investor Relations)

Thanks. With our last minute here, estimated revenue for 2022, Federico.

Frederico Figueira de Chaves (CFO and Co-Head)

I would say its revenue will be likely under EUR 2 million. We will be booking the Exolum revenue. The Exolum project is a EUR 2 million project. We'll be booking a portion of that. To note, as we go on into 2023, what we want to do is with our many of our projects, which currently are born as HBAs, we want to pass them to a financial investor, ideally a financial partner, and as Zach mentioned before in his section, so we can recognize all of those as revenues. We expect in the future to be able to book revenues for both the slides that Zach showed on Tech Sales and Exolum projects.

For Q4, the only revenues will be, likely booking will be, related to the partial component of Exolum.

Benjamin Schwarz (Head of Investor Relations)

Perfect. Thank you, Federico. Well, that will do it for our third quarter webcast. Thanks to everyone who joined for your engagement. If you have any additional questions or if we did not get around to answering your questions, please feel free to reach out to me and the IR team at [email protected]. We look forward to seeing you all again in our next update.

Zach Steele (Co-Head)

Thank you, everyone. Have a good day.

Frederico Figueira de Chaves (CFO and Co-Head)

Thank you.

Zach Steele (Co-Head)

Take care.