Analyst presentation
Ceres Power Holdings plc will be
hosting a live webcast for analysts and investors on 15 April 2024
at 09.30 GMT. To register your interest in participating, please go
to:
https://www.investormeetcompany.com/ceres-power-holdings-plc/register-investor.
For
further information visit www.ceres.tech
or contact:
Ceres Power Holdings plc
Elizabeth Skerritt/ Merryl
Black
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Tel: +44 (0)7932 023 283/ +44
(0)7770 853 463
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FTI Consulting (PR
Adviser)
Ben Brewerton/ Dwight
Burden
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Tel: +44 (0)203 727 1000
Email: ceres_power@fticonsulting.com
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About Ceres
Ceres is a leading developer of
clean energy technology: electrolysis for the creation of green
hydrogen and fuel cells for power generation. Its asset-light,
licensing model has seen it establish partnerships with some of the
world's largest companies, such as Bosch, Doosan, Delta and
Weichai. Ceres' solid oxide technology supports greater
electrification of our energy systems and produces green
hydrogen at high-efficiencies as a route to decarbonise
emissions-intensive industries such as steelmaking, ammonia and
future fuels. Ceres is listed on the London Stock
Exchange ("LSE") (LSE: CWR) and is classified by the LSE Green
Economy Mark, which recognises listed companies that derive more
than 50% of their activity from the green economy. Read more on our
website www.ceres.tech
or follow us on LinkedIn.
Chief Executive's Statement
This past year was tough
economically, and particularly for the clean energy and hydrogen
industries. The Hydrogen Council's December update pointed to
"headwinds that have caused a slower development of the global
hydrogen industry than had previously been expected". Against the
backdrop of increased energy prices and high inflation, many
companies delayed investment decisions and share prices were
significantly impacted. Ceres was not immune from this wider
trend.
We have positioned ourselves to
emerge stronger from the recent downturn in the industry. Amidst
project delays, regulatory uncertainty and higher financing costs,
Ceres has made careful decisions about where to deploy capital and
resources, and where to invest for growth based upon where the
biggest opportunities present themselves for the future of our
business in an evolving global market. In 2021 we made the
strategic decision to invest in solid oxide electrolyser cell
("SOEC") technology to access the market for green hydrogen and
significantly increase the addressable market for our technology in
addition to fuel cells. This has been the right decision for Ceres'
long-term strategy, as evidenced by the recent signing of our first
SOEC licence partner, and the challenge now is to accelerate our
SOEC development while also delivering on our existing solid oxide
fuel cell ("SOFC") business.
Progress with fuel cells and existing licensee
partners
We have built our business with a
focus on our fuel cell technology and on our existing licence
partners. In 2023 together with our partner Doosan we completed the
factory acceptance testing of all equipment for the highly
automated factory at Saemangeum in South Korea. Commissioning is on
track to complete in the second half of 2024, and we expect first
production of SOFC systems and royalties to Ceres to follow in
2025.
Our partnership with Bosch remains
strong and we have developed the next generation stack technology
to support scale up of their facility in Bamberg, Germany. Major
equipment is being installed in 2024 with support from significant
European grant funding of approximately €160 million. However,
timelines for products to market have not been supported by the
geopolitical backdrop in Europe with sentiment moving away from
reliance on gas and high energy prices impacting the economic case.
We expect production will be slower to coincide with Bosch's
product launch which is still undergoing development and validation
of our second generation stack technology in the field in
2024.
Our relationship with Weichai
remains strong and they are developing 75kW stationary power units
based on the Ceres technology targeting the distributed power
market. The planned three-way China joint venture ("JV") has not
been concluded in 2023 despite the relationship between Bosch,
Weichai and Ceres remaining positive. It is now our belief that the
proposed JV is unlikely to be completed in its current form.
However, we are evaluating other options with Weichai to address
the Chinese market and we will provide an update on our progress at
the appropriate time.
Green hydrogen strategy
Over our 20 years of operation, we
have made several key strategic transitions as the market has
evolved, going from a domestic heat and power product company to a
licensing business for power systems and now with the addition of
SOEC providing electrolyser technology for green hydrogen
production.
License opportunities for SOFC have
given us a great foundation, and the market for green hydrogen
produced by electrolysis is a high growth market that is predicted
to be significantly larger over time. New licensee partners are now
likely to come from the markets for green hydrogen where we are
seeing robust future demand for our technology. Therefore, we are
accelerating the pace of development and commercialisation of SOEC,
whilst ensuring we maintain our leading position in SOFC
markets.
Reflecting strong interest in our
technology for green hydrogen production, we were pleased to start
the new year by signing our first licence partner for both green
hydrogen and power generation with Delta Electronics in Taiwan, a
global leader in power electronics supplying the information and
communication technology industry and operating manufacturing sites
globally. The agreement includes revenue of £43 million to Ceres
through technology transfer, development licence fees and
engineering services, of which approximately half is expected to be
recognised as revenue in 2024. There is potential for additional
revenue from the sale of Ceres development stacks to Delta and the
agreement also includes future royalty payments to Ceres on future
commercial production and sale to end customers by Delta.
Technology introduction and factory construction will start from
2024 and the initial production by Delta is expected to start by
the end of 2026.
We anticipate that licensing
revenues from new partners will offset near-term delays in fuel
cell royalties and we have confidence at this early stage of the
year to approximately double revenues in 2024, compared to 2023,
based on existing contracts. In addition to top line growth through
near-term licence revenues, we are also managing our cash,
directing more of our investment to growing our SOEC business
alongside SOFC. Through the licensing model, these in turn
translate into longer-term recurring revenues with royalties from
electrolyser manufacturing representing additional upside to
royalties from our SOFC business.
Market opportunity
We see China, Europe, South Korea
and the wider Asian markets being among the largest markets for
power generation - areas for which we have good coverage with our
existing SOFC licensees and further complemented by the addition of
Delta.
Across the global market, we believe
that green hydrogen production from SOEC will play an essential
role in industrial decarbonisation in order to meet net zero.
Hard-to-abate industries such as green steel and ammonia will be
the first to develop followed by synthetic fuels. Ceres' SOEC
technology offers distinct advantages of efficiency when coupled
with industrial processes where it can utilise waste heat, and so
naturally couples with the exothermic Haber-Bosch process used
globally to produce ammonia as well as the heat-intensive
requirements for steel production.
Many of the top ammonia and steel
regions - India, Australia, Europe, the Middle East and North
America amongst them - have announced green hydrogen strategies,
and several have gone further to publish derivative strategies for
ammonia and steel. In fact, green steel is a product that in the
coming years will go a significant way to delivering a low carbon
Ceres stack. In a world where traceability is becoming ever more
important, soon all products will be measured on their "carbon
footprint" and we believe Ceres' technology, which is made from
common steel and material sets, will have a significant competitive
advantage over technologies which utilise hard to source rare
earths and more expensive materials.
What is clear is that the future
demand for electrolysis for green hydrogen exceeds supply,
stimulating new entrants into the market who need access to the
best technology and can scale manufacturing through global supply
chains. This ideally positions Ceres for growth as the only company
offering access to world-leading solid oxide technology under
licence. Ceres has moved to place commercial representatives in the
US, Asia, Europe and India over the past 18 months, and we will
continue to build commercial strength and credibility and consider
presence in other markets with the aim to sign new licence partners
that will convert longer term into a significant share of the SOEC
market for green hydrogen.
Foundation of research and innovation
Ceres has a culture that is founded
on science, engineering and individuals who are highly talented and
passionate about the Company's purpose - to deliver clean energy
for a clean world. We would not be the business we are today
without the foundation of research and innovation generated over
many years by our industry-leading team.
Technology alone is not enough and
our success depends on our ability to be responsive to the changing
market and to mature from being a technology-led organisation to
one laser focused on commercialisation through global partnerships
with some of the world's leading manufacturing companies. Hence, we
are building on the foundations of our SOFC business and the
experience gained in maturing and scaling our technology, targeting
new partners and moving at pace to capture the market.
Deep expertise in solid oxide
technology has allowed us to prosecute an ambitious programme for
hydrogen over the past 24 months, strengthening our conviction that
SOEC offers distinct advantages of efficiency and cost, with
potential to reduce capital and operational project costs to
produce green hydrogen by 25%. Our first megawatt-scale
electrolyser demonstrator has arrived at our partner Shell's
R&D centre in Bangalore, India, where in collaboration with
Shell, we will validate the performance, cost and operational
functionality of the technology. Our technology team is now focused
on developing the next SOEC product concept for a 4-5MW modularised
system, which is supporting further commercial discussions and will
facilitate the deployment of larger installations essential to meet
the scale challenge for the decarbonisation of industry.
The
year ahead
Green hydrogen will not be a silver
bullet, but it does have an important role to play in the
decarbonisation of industry, where it can deliver obvious and
economic advantages. Advancements in electrolyser technology,
manufacturing economies of scale, design improvements and further
reduction in renewable power costs will all make electrolytic
hydrogen more viable.
Despite current disruptions in
Europe, we believe that natural gas will have a sustained role to
play in the decarbonisation of the global energy system, as China
and Asia more broadly transition away from dependence on coal. We
have strong power partners through Doosan, Weichai and now Delta in
the region and when it comes to manufacturing at scale, the Asian
economies excel.
We've made a strong start to 2024
with revenues for the year expected to be approximately double that
of 2023. We are well positioned for growth with new partnerships as
a result of our investment into SOEC for electrolysis. Our SOFC
partners are continuing to scale manufacturing and build global
supply chains which can service both our SOFC and SOEC
markets.
At Ceres we continue to focus on the
levers within our control: careful capital allocation, investment
in valuable skills and building strong and sustainable partnerships
that have ambition to play a meaningful role in our future energy
system. I look forward to providing further updates on our progress
over the course of the year and as ever, we thank you for your
support.
Phil
Caldwell
Chief Executive Officer
Financial Review
Revenue
The Group reported revenue of £22.3
million in 2023, compared with £19.8 million1 in the
prior year. Most of the revenue was from existing partners Bosch
and Doosan through ongoing development activities as we support
them with factory build and prepare for commercial launch. Revenue
is a combination of development licence revenue, engineering
services and the provision of technology hardware. £21.5 million of
the revenue in 2023 relates to SOFC (2022: £19.6
million1). Our SOEC business segment recognised revenue
in the year of £0.8 million (2022: £0.2 million), the majority of
which is licence revenue from signing a collaboration with Bosch
and Linde announced in March 2023 to validate our electrolysis
technology. Revenue from the Shell test evaluation partnership will
commence once the demonstrator is commissioned at Shell's facility
in Bangalore, India in 2024.
Gross margin
Gross profit of £13.6 million in the
year (2022: £10.7 million1) increased when compared to
the prior year due to the impact of high margin licence
reallocations from the restatements impacting 2022. There was a
similar level of revenue and revenue mix in terms of the proportion
of engineering services and hardware. Consequently, gross margins
of 61% also improved compared to prior year (2022:
54%1). These margins remain much higher than industry
norms due to the licensing nature of Ceres' business
model.
Other operating income
Other operating income increased
significantly in the year to £3.7 million (2022: £1.3 million),
which reflects the level of R&D Expenditure Credits ("RDEC")
claimed in the year compared to the prior year. As of 2023 all
Ceres' R&D tax relief is in the form of RDEC as Ceres no longer
qualifies for SME R&D tax credit schemes. In 2022, SME R&D
tax credit was recognised within the taxation credit.
Operating costs
Operating costs increased to £76.6
million (2022: £66.1 million1) as Ceres increased
investment in core technology to drive future growth, including the
second generation of stack and a significant investment in the
megawatt-scale electrolyser. The largest category of spend is
R&D, which increased to £54.0 million (2022: £48.5
million1). The average number of persons employed by the
Group in the year increased to 590 (2022: 536). Now that we have
critical mass of engineers, scientists, electrochemists and other
technical employees, we don't anticipate headcount increases in
2024.
Finance income and expense
Finance income increased
significantly to £7.1 million (2022: £2.8 million), which reflects
improved interest rates on our bank deposits and short-term
investments in money market funds in a higher interest rate
environment. We maintain a stringent treasury policy to balance
appropriate market returns with the security of funds including
only high investment grade, and diversification of, financial
institutions. Finance expense increased to £1.3 million (2022: £0.3
million) mostly due to a foreign exchange losses of £0.8 million on
currencies held in non-sterling denominations (2022: gain of £0.2
million).
Taxation (charge)/credit
Taxation charge in 2023 of £0.4
million reflects payment of withholding taxes from overseas
earnings. This compares to a taxation credit of £3.9 million in
2022, which represents SME R&D tax credits, as described in the
other operating income section above.
Loss for the financial year
The Group posted a loss of £54.0
million (2022: £47.6 million1) for the year, which
reflects the increase in operating costs and no taxation credit in
2023, partly offset by higher other operating income and interest
income compared to 2022.
Adjusted EBITDA
Adjusted EBITDA loss for 2023
increased to £50.3 million (2022: £45.7 million1).
Adjusted EBITDA is a non-statutory measure and is detailed in the
Alternative Performance Measures section in this review. The
increased loss is primarily due to the increased operating costs
explained above.
Reconciliation between operating loss and adjusted
EBITDA
Management believes that presenting
Adjusted EBITDA loss allows for a more direct comparison of the
Group's performance against its peers and provides a better
understanding of the underlying trading performance of the Group by
excluding non-recurring, irregular and one-off costs. The Group
currently defines Adjusted EBITDA loss as the operating loss for
the year excluding depreciation and amortisation charges,
share-based payment charges, unrealised losses on forward contracts
and exchange gains/losses.
Total capital investments
Total capital investments comprises
capital expenditure (property, plant and equipment) and capitalised
development (intangible assets). In 2023, total capital investments
declined to £14.7 million (2022: £18.2 million) due to a
combination of reducing investment requirements for our
Manufacturing Innovation Centre in Redhill, a deferral of some test
capacity expansion from 2023 to 2024, and a prioritisation of spend
as we emphasised cash discipline during the year.
Working capital movements
During 2023 working capital
decreased by £10.0 million (2022: increase of £3.0m1,2),
which had a favourable impact to reduce the cash outflow in 2023.
The two largest components of this was the reduction of Trade and
other receivables by £7.3 million, including significant invoice
payments from partners in January 2023, and a £2.9 million
reduction in inventories during the year that partly reflects the
consumption of first generation stacks, and an increased focus
matching our pilot plant production levels to partner demand. The
net movement of contract assets and contract liabilities was a
decrease in net liabilities of £1.1 million.
Cash outflow
Cash outflow (change in cash, cash
equivalents and short-term investments) was £42.4 million (2022:
£67.3 million). This improvement, despite the increase in the
Adjusted EBITDA loss, has driven by the reduction in working
capital, reduced capital investments and, to a lesser extent,
increased finance income.
Cash, cash equivalents and short-term
investments
The Group ends the financial year in
a strong position with £140.0 million in cash, cash equivalents and
short-term investments (2022: £182.3 million) to support future
investment as we drive revenue growth, manage costs and expenditure
in a disciplined way, and track towards profit and cashflow
break‑even.
Outlook
We end 2023 with a strong financial
position and continue to invest across the business to build a
sustainable competitive advantage in highly differentiated solid
oxide technology. As we move into 2024, we expect revenues to
approximately double compared to 2023, based on current contracts
with existing partners and licensees including Bosch, Doosan,
Weichai, Delta, Shell, Linde and others. Signing additional licence
contracts in the year represents potential upside to this outlook,
and although the timing of these incremental opportunities is
uncertain, we are well-placed for future growth from both existing
and new partnership prospects.
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