Ceres Power Holdings Plc (CWR.L), a leader in the development of solid oxide fuel cell (SOFC) and solid oxide electrolysis cell (SOEC) technologies, reported significant financial growth and strategic advancements in its recent interim results presentation.
The company showcased a 144% year-over-year increase in revenue, reaching GBP 28.5 million, and a gross profit surge of over 200%. These results are underpinned by nearly GBP 47 million in order intake for the first half of the year and strategic partnerships aimed at expanding Ceres Power's market presence.
Key Takeaways
- Ceres Power's revenue climbed to GBP 28.5 million, marking a 144% increase from the previous year.
- The company achieved a gross profit of over GBP 22.9 million, a rise of more than 200%.
- Order intake for the first half reached nearly GBP 47 million, with the total exceeding GBP 100 million by the end of August.
- Three significant licensing agreements were signed, including with Delta Electronics and Denso Corporation.
- A 1-megawatt demonstrator project with Shell (LON:SHEL) is progressing, with aims to scale up to 10 megawatts.
- The EBITDA loss was reduced to GBP 9 million from GBP 23.5 million the previous year.
- Ceres anticipates full-year revenue to be between GBP 50 million and GBP 60 million.
Company Outlook
- The company's strategy is centered on commercial acceleration, technological leadership, and sustainable growth through partnerships in the hydrogen and decarbonization sectors.
- Ceres Power expects full-year revenue to fall between GBP 50 million and GBP 60 million, supported by a strong order intake of over GBP 100 million.
- Ongoing cost optimization is projected to save approximately GBP 10 million next year.
Bearish Highlights
- The company acknowledged a slowdown in the hydrogen market, which may impact the pace of technology adoption.
- There is a need for UK government support to ensure the country's competitive position in the global clean energy market.
Bullish Highlights
- The company has formed critical partnerships with global entities like Delta Electronics and Denso Corporation, positioning it for expansion in key markets.
- Technological advancements are on track, with the megawatt-scale demonstrator expected to begin testing by the end of 2024.
Misses
- There is a discrepancy between cash flows and revenue recognition, with hardware invoicing occurring upon shipment.
- Achieving breakeven EBITDA is contingent on securing two significant stack license partners.
Q&A Highlights
- CEO Phil Caldwell emphasized the importance of UK government incentives for R&D and manufacturing in the hydrogen sector.
- It's too early to confirm firm orders for electrolyzers, but the company remains optimistic about future growth.
- The transition to new CFO Stuart Paynter was announced during the call.
Ceres Power Holdings Plc continues to position itself as a key player in the clean energy sector, with its recent financial results and strategic partnerships underscoring the company's growth trajectory.
The company's licensing model and focus on technological leadership in SOFC and SOEC technologies are set to capitalize on the expanding opportunities within the hydrogen and decarbonization markets.
Despite market slowdowns and the need for supportive government policies, Ceres Power's proactive approach and strong financial health indicate a promising future for the company and its stakeholders.
Full transcript - None (CPWHF) Q2 2024:
Operator: Welcome to the Ceres Power Holdings Plc Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and they can be submitted at any time using the Q&A tab just situated on the right hand corner of your screen. Before we begin, we'd like to submit the following poll, and I'm sure the company would be most grateful for your participation. And I'd now like to hand over to CEO, Phil Caldwell. Good morning.
Phil Caldwell: Good morning, everybody, and thank you for joining. I'm joined by Eric Lakin, CFO. And this morning, we're going to talk you through what I believe is a very strong set of interim results for Ceres Power. So we've been having a fantastic year this year. We've signed two new stack licensed partners, major manufacturers, and one system licensed partner this year to date. That's resulted in a record first half year revenue increasing by 144% to GBP28.5 million and gross profit increasing also by more than 200% to GBP22.9 million. That's backed by a record order intake of just under GBP47 million in the first half and we've been busy since then as well. So order intake as we stand at the end of August is actually over GBP100 million. We now have four global stack manufacturing license partners progressing towards scale production. And it's not just that we have four, but it's the quality of these people that we're working with, with the addition of Delta and Denso this year on top of Bosch and Doosan. As a licensing business, it's essential we maintain technology leadership, and I'm very pleased that our development on SOEC has gone very well. We have the 1-megawatt demonstrator currently being commissioned with Shell as we speak and we've entered into a joint development with them on scaling that to 10 megawatt pressurized electrolyzer modules and then enabling scale up to 100 megawatts to gigawatt scale plants. So this year has been all about commercial acceleration. We started the year in January in Taiwan with Delta Electronics. This is a manufacturing collaboration for both SOFC and SOEC, so that's very important. It's the first one we did for SOEC, but also has the SOFC side to the license as well. We followed that up with the second manufacturing license for purely for SOEC with Denso Corporation in Japan. And then since then, we've also signed a system level license. So a smaller level license, but equally important with Thermax Limited in India. This provides us entry into the dynamic high-growth Indian market. So three new major partners taking us into three new geographies. On top of that, we continue to support both Bosch and Doosan as they continue to implement their initial volume manufacturing and there's great progress there as well. And we have strong business momentum going into this year with additional license agreements leading to what we believe will be record order intake, revenue, and gross profit, not just at the half year, but at the full year also. I mentioned the technology leadership. It's been a relatively short period since we entered into the SOEC market and I think this year is the first year where we start to see the benefit of the investments we've been making over the past few years coming through now in commercial agreements. So as I mentioned, I was in India just a few weeks ago for the inauguration of the 1-megawatt electrolyzer at Shell Centre in Bangalore, India, and we're very busy getting on with the next level of the design of pressurized SOEC modules, which I think is quite unique in the industry. This architecture scales readily to 100 megawatt plus building blocks that can take us into gigawatt scale and we've done some work there with AtkinsRealis that we shared I think earlier this year as well. And also we're sustaining our leadership position in fuel cell technology. You know, there's very few players in the SOFC market and we have that leading position. And we've been working obviously with Bosch and Doosan and Weichai on that technology and we've added Delta to the SOFC portfolio as well this year. So very strong progress on technology and on the commercial acceleration. And that's really underpinned the results that we're going to take you through this morning. So with that, I'll hand over to Eric, our CFO, to talk you through the finances.
Eric Lakin: Thanks very much, Phil, and good morning. I'm very pleased to announce a first half financial results, which are consistent with the high end of the trading update guidance we gave in July this year. And also, as Phil said, these are record sets of financial results in Ceres history. We have revenue of GBP28.5 million relative to the guidance we gave at GBP27 million to GBP29 million and that represents 144% increase from the first half last year. With the high growth and the strong revenue mix with a high contribution from license fees, that resulted in an 80% gross margin at the high end of the trading update guidance, and that represents a significant increase from the margin in the prior year period. As a consequence, gross profit of GBP22.9 million is over three times higher than the first half last year. As a result of high revenue and margin and whilst maintaining the cost base at comparable levels to last year, there's a significant reduction in the EBITDA losses from GBP23.5 million last year to GBP9 million loss in the first half of this year. We finished the half with a cash balance, including short-term investments of GBP126.1 million compared to GBP140 million at the end of December last year. That represents a cash outflow of approximately GBP14 million, so a significant reduction in the outflow in the same period last year of GBP21.1 million. And as Phil mentioned, as a consequence of the Delta contract, plus some other orders, the total order intake for the half was GBP46.9 million compared to GBP15.4 million order intake in the first half of last year. And on the back of the Denso contract that's won at the beginning of the second half, we're today reaffirming the upgraded guidance of revenue for the full year to the range GBP50 million to GBP60 million. So I just wanted to talk through the development of revenue and gross profit for the last four, six month periods. And as can be seen, there's a significant uptick in the first half of this year, and that was largely driven by the recognition of revenue from the technology transfer for the Delta contract as well as revenue contributions from other existing partners. As a reminder, our revenue segments are comprised three elements. At the moment, we have engineering services, which is effectively consultancy for our partners to support them to start a production in their stack manufacturing licenses, but also providing support for system development. There is supply, which is provision of prototype stacks and components from our Manufacturing Excellence Center in the UK to our partners. And then we also have license fee revenue, which is very high margin and that can be recognized upfront in the form of technology transfer, but also elements over time through development license through the period of the manufacturing collaboration license arrangements we have. As shown here, the significant growth in the half was due to the license fee revenue recognition from the Delta contract. The fourth element of revenue in the future will come from royalties and that will be effectively 100% margin. And that's derived when our partners sell stacks or systems to third parties on commercial terms and we get a royalty from that. And we expect the first royalties to occur by the end of next year as Doosan stack factory comes online and they have commercial sales from their existing pipeline. Despite the very strong growth, we're also ensuring we're managing our cost base. And that's a good example of the operational leverage of the business and also the asset light model. And as can be seen from this chart, which shows at the last seven, six month periods, the evolution of our costs. And by costs, we include everything, including operating costs, capitalized development and CapEx. We have invested a significant amount in our SOEC and SOFC technology in recent years. And during that time, we've met a number of important milestones through R&D and also in our new product introduction for both sides of the business. And that's enabled us to a position where there's a natural reduction in spend on some of those projects, some of which are nonrecurring in nature, such as test and infrastructure build, the investment into our prototype factory and also the first of a kind 1-megawatt demonstrator that Phil talked about, which is in the commissioning phase. So as a result, we're in the position, as we indicated earlier in the year, that our cost base will stabilize this year compared to growth in prior years. But in addition, we're in a position to optimize our cost base and we're announcing today we have effectively implementing a restructuring in the business in this quarter, which will result in approximately 15% reduction in headcount and also our overall cost base, which will reduce our run rate of cost through into next year and again demonstrating the ability of the business to grow the top line whilst also managing its cost base. As a result of that, we finished the half on a confident note and we are well funded for future growth. With that I'll hand over back to Phil. I'm sorry, one more slide. So as a result of the revenue growth, the margin improvement and also managing the cost base, we show the cash outflow of the business is reducing and the GBP14 million outflow in the first half of this year compares favorably to the GBP21 million in the first half of last year. I should note, in the second half of this year, we expect the cash outflow to be more than the first half. There's a number of variables within that. It also includes the one-off restructuring costs in the half. But I should emphasize the overall cash outflow this year is expected to be less than the total cash outflow last year. So with that I'll hand back to Phil. Thank you.
Phil Caldwell: Thank you, Eric. So I just wanted to take the time to update you on the business strategy. Fundamentally, it's built upon three main pillars, commercial acceleration that we've started to talk about this morning, technology leadership, and how we execute both at scale and pace. On the commercial acceleration, we've been putting a lot of work in over the last few years on the SOEC side. And we have a very compelling case, when you look at the business case for hydrogen, for green steel, green ammonia due to the high efficiency this technology brings, particularly in the areas for industrial decarbonization. On top of that, we're also seeing new licensees coming in both on SOFC and SOEC applications and we're seeing demand on both sides of the business. On technology leadership, as I mentioned, we've got the demonstration with Shell and also the optimum architecture as we scale up towards hundreds of megawatts to gigawatts offering with this technology. And the execution at scale and pace is about how we operate. The business model of this company is different. We're not a pure-play manufacturer. We're a licensing business. And therefore what we essentially do is we leverage other partners' capabilities and balance sheets. And we have a compelling offering, not just do we have the world's best technology in solid oxide, but we can provide a factory blueprint. We can give people the means to how they can actually localize production and also localize supply chains and that's quite unique in the industry. This is not purely a local play for us. This is a global play and I think we're probably the only company of our nature in this sector that is actually addressing the global market. So let's go into a bit more detail on some of these partnerships. So the first one was Delta, and this is a dual license for both power and hydrogen. So it was our first licensee partner to take on the SOEC license in addition to SOFC. You may be less familiar with Delta in Taiwan, but Taiwan, as you probably know, has a heritage in high volume, high quality manufacturing. Delta employs over 80,000 people. It operates 200 facilities worldwide, has manufacturing obviously in Taiwan, but also in China, Thailand, India and has strong ambitions to diversify into decarbonization solutions for energy infrastructure, grid balancing, energy storage. It's already a big supplier into the data center and power electronics markets, so it's a natural partner for Ceres. This agreement included revenues of GBP43 million through the technology transfer and licensing and they're going quickly. So they are targeting initial production by the end of 2026. The second major manufacturing license partner we added this year was Denso in Japan. This is a nonexclusive global license for cell and stack production. Again, the same kind of structure as Delta, including license fees, engineering services, and hardware over multiple years and it's of a similar quantum of value to our other licensed partners. Denso is a Fortune 500 company, again, employing over 160,000 people and it's a world-famous original equipment manufacturer with expertise in system control, thermal management, automotive supply chain. So again, a very high quality partner to add to the service portfolio. We talk about getting into different markets. Japan has always been big in hydrogen, but recently it's now mobilizing JPY15 trillion equivalent to $98 billion over the next 15 years of public private investment. Japan obviously has some limitations in terms of its net importer of most of its energy. It's renewable constrained, and therefore, hydrogen and things like green hydrogen, green ammonia are essential to part of its energy policy. So having a partnership in this key market for us in Japan is key with Denso. But again Denso is a global player with operations worldwide, so we expect this partnership will address not just the Japanese market, but beyond. And it's our first pure SOEC licensee as well. So I think that's a testament to the quality of the technology that we've developed on the SOEC side. More recently, we announced the partnership with Thermax in India. This is a system level partnership and system licenses are while they're lower value than our manufacturing licenses, they're important in how we build out the ecosystem. When you think about the hydrogen value chain, we need partners all across that value chain that create the pull for this manufacturing technology that we have with our major partners. Thermax already has a very well established market presence in India and India is again is one of the key markets for us as it moves from being a net importer of energy with ambitions to export green ammonia, green steel to the rest of the world. And Thermax is already a big provider of equipment into the process industry. It has a lot of experience with thermal integration. It does things like chillers for cooling, which is interesting on the SOFC side. It has capability on EPC in terms of plants. So we think this is a great partnership for Ceres as well to address the Indian market. And just taking a moment to explain the differences here. So we have two types of licenses. We have manufacturing partners and we have system partners. So on the manufacturing side, we now have four partners with the manufacturing license, Bosch, Delta, Doosan, and Denso and there we provide the cell and stack IP for manufacturing. And cells are integrated into the stacks, which are then ultimately integrated into systems and we get royalties per kilowatt sold of stacks. That feeds into our system level partners and there we provide different IP. So we provide system level IP for production of modules, electrolyzer designs, etcetera, and for fuel cell systems as well. So that enables us to go into these industrial processes through these partnerships we talked about. Again, same structure with royalties and upfront license fees and then royalties per kilowatt sold. Well, as you know, we've been more advanced on the SOFC side. It's a more mature side of our business and now what we're seeing is our partners developing power modules for various different applications. Doosan scaling to 600 kilowatt modules, Bosch at the 20 kilowatt going into 100 of kilowatts and we're working with Weichai on scaling to 75 kilowatt modules that can go into megawatt scale. Add to that the recent addition of Delta. What's interesting, I think, on the power side is we're starting to see particularly in Asia and other parts of the world, more and more interest in distributed power generation and a trend that's coming about with increased power demand through AI starting to put pressure on constrained grids that need to generate your own power is meaning that this is becoming again quite an interesting market for our SOFC business on top of what we're now developing on the SOEC side. And then as we get into the electrolysis side, which is the more recent development, I've already talked about the megawatt scale demonstrated. That will come online by the end of the year and we've already signed the follow-on contract how we scale that into these larger systems. We did a lot of work earlier this year with AtkinsRealis, which has taken us through how this technology can be modularized. There's certain aspects of our technology which are compelling. Because of our lower temperature, we're able to centralize a lot more balance of plant. It means that overall plant costs can be lower, the materials that you use can be lower, and it lends itself to, like I said, centralization of some of the key peripheral auxiliary equipment that you would need as you scale. We're also going into pressurized because we see that as giving a big advantage in the balance of plants on the compression stage for hydrogen as well. And the model that we have is very similar to ARM in terms of we're building out an ecosystem particularly to go after the green hydrogen market. So we operate with end users like Shell who can see the compelling business case for this technology and they want to pull this technology through. To do that, we need to work with EPCs and system integrators, but we also now have a growing portfolio of manufacturing suppliers that could supply that industry as well. So if you're looking at SOEC and you look at the service technology, you could have quite a diversified supply chain established with world-class manufacturers coming from Asia or Europe and hopefully in the future beyond that. So we think this business model scales probably better than anybody else's. It's asset light. It's highly leveraged and the quality of the partners that we have, I think, is second to none. And that's emphasized if you look at the global map now from British technology, which we're very proud of. We've now got factories concurrently being built into Germany, South Korea, Japan, and Taiwan and these are the manufacturing powerhouses around the world. On top of that, we obviously have the relationship with Weichai on the systems side to address the growing Chinese market and also now starting to look at how do we access interest in markets like India. I think also you know there's lots of estimates around the demand for green hydrogen. Some of those have been coming down in recent years. I think what is clear though is when you look at the market for green hydrogen, about 50% of this market is going to be for industrial decarbonization. So hydrogen is talked about as being compelling for lots of things, but for some things, it's essential. So if you want to decarbonize steel, if you want to decarbonize ammonia, if you want to decarbonize future fuels, you will need green hydrogen as a feedstock. And that's where most of our partners are focused. And the good news is, with SOEC technology, that's where we have this clear advantage on efficiency, about 25% or more clear advantage on cost and the thermal integration lends itself very well to most of those industrial processes. I think from an investment point of view, if you're only playing in the European market, you're only addressing 6% of this global opportunity. The service business model is a cross border model. So we do business globally. And if you look at where the decarbonization is going to happen, it's going to happen in China, it's going to happen in India, it's going to happen in Southeast Asia, it's going to happen in Europe and the US and the rest of the world. With this business model from the UK, we license technology globally and I think we're unique in the industry and being able to say that. So the outlook for the remainder of the year is extremely positive. You know three new licenses to date, two manufacturing licensees, very high quality and system licenses as well. Bosch, Doosan, Delta and Denso now progressing towards scale production. So again they all have incredible capability in manufacturing and scale up. We continue to grow the relationship with Weichai in China, particularly for the stationary power market and we're seeing that trend I talked about of increased electrification, now starting to put pressure on power grids and starting to create, I think, a more robust market for the SOFC technology. We have demonstrated programs on track for green hydrogen, both with Shell in India and also with Bosch and Linde (NYSE:LIN) in Germany. We're reconfirming today the guidance, which we upgraded in the middle of the year. So we've already upgraded once and we're on track to achieve that with GBP50 million to GBP60 million of revenue, supported by the existing contracts that we already have and the order intake this year, which is over GBP100 million coming into the business. And don't forget, because of the asset light model, that's a GBP100 million of order intake of very high quality margins. There is nobody else in the industry that gets anywhere near the margins that we get. So we have a very strong financial position driven by this increased order intake. We are now optimizing the cost base and I think that's because we want this business to emerge in the strongest position we can after a couple of years, I think, of a difficult trading situation in the hydrogen industry. As this industry starts to grow and we're starting to see that I think Ceres is well positioned from a very strong business model and cost base to exploit that. So with that I will take any questions.
Operator: Phil, Eric, thank you very much indeed. Just a reminder for those online to submit their questions using the Q&A tab on the right hand corner of the screen. Patrick, if I may, just hand back to you just lead the Q&A.
Patrick Yau: Thank you. Thank you, Mark. We now open the floor to questions. If you'd like to ask a question, please raise your hand and wait for the microphone to arrive. And then let's just the team. Thank you.
Ken Rumph: Thanks, all. Excuse me. Ken Rump from AIB Goodbody. A couple of questions. One for Eric on the costs. So last year the costs were about 90-odd million. As you say, you're on track for that, including capitalized and the CapEx. You're on track for a bit less this year. The cost saving program in the final quarter just is that going to be kind of finished and therefore, you know, we can expect 12 million, 13 million off next year or is it going to take a bit of time to come through? I'm sorry and for Phil you've and Doosan have said that they're going to be in mass production next year. Do we know where Bosch are at? Have they simply not said they, you know, they've sort of rethought their approach and sort of scaled up what they want to do in terms of size, but do we have any kind of timetable for that? Thanks very much. And congratulations by the way on three new licenses and a great set of results.
Eric Lakin: Great. Thanks, Ken. Yes, so your question around the cost base, the reorganization cost will all be absorbed and completed by the end of this year, so in Q4. And therefore, the run rate of cost will the benefit of that will feed into next year. I won't give a precise number. There's a number of moving parts and obviously we continue to invest in the business with third parties. And particularly one of the major programs ongoing is the Stack Array module activity with Linde and Bosch. But to give you an idea of order of magnitude, we expect overall cost to be 10 million or so less than this year.
Phil Caldwell: And the second question, Ken, was around the plans of Bosch and Doosan. So as you're correct. Doosan have officially said they're going to launch product and we expect first sales next year 2025. Bosch are making progress, but they haven't officially said what their plans are as yet. And I think that there is development there in terms of what the scale of their products looks like in the future. But that again a consequence of this business model is we can't actually speak on behalf of our licensee partners, which I'm sure you appreciate.
Sean McLoughlin: Thank you. Sean McLoughlin, HSBC. A couple of questions. Firstly, on the cost cutting, just to understand what is giving here. Is this just some of the R&D projects that have come to a natural end? Are you, let's say, cutting around the edges on admin and procurement? You know is the R&D effort effectively continuing? How should we think about that cost cutting drive?
Phil Caldwell: I think the R&D effort is obviously continuing and I think we have one of the largest R&D teams in the industry on solid oxide. I think that we've over the last couple of years, we've invested heavily in new stack platform, conversion of some of our infrastructure for testing towards electrolysis, some of the first system development. So a lot of engineering manpower has gone into that. Some of that is going to come down and pro rata across the business, some of the support functions will also come down as we come down on the headcount as well. So it's going to be across the board, but it's going to be driven by the completion of some of the major nonrecurring engineering projects that we've now gone through. And when we actually last raised capital in '21, it was explicitly for this move into SOEC. We're more or less on track in terms of what we actually said we were going to deploy and that's now coming to a natural roll off. What we're now focused on is what's the steady state kind of cost base for this business. And again to stress the licensing model, you shouldn't expect this business to grow linearly cost and top line. So we should be able to service a couple of new licensed partners a year with the cost base that we have and maintain the world class R&D.
Sean McLoughlin: Thank you. Second question is around the, well, the partnerships and the US specifically. There's a clear pivot towards Asia, which obviously is an area where I think we'll see a lot of hydrogen driven growth. Just thinking about solid oxide fuel cells and the natural gas opportunity that we're seeing in the US around data centers, you know, are your partners, how are your partners targeting the US? Are you still looking at US specific partnerships beyond what you have already just, yeah, around the US?
Phil Caldwell: Yes, look, we follow the market. So we follow the market demand of our partners and I think this is a trend that's just emerging on the fuel cell side. We're definitely seeing it coming through in Asia. And I think what's maybe slightly different in Asia, you're seeing a transition from coal to natural gas before you get to renewables and hydrogen. So even that trend is there. And in some geographies like Taiwan, China that's more pronounced. But obviously the US and other markets are a key target for us as well on this as well. So the business model that we have lends itself to partnerships in all geographies really. But we, you know, this like I said I think this is an emerging theme that's not going to go away now. So it's something that we're going to obviously look at quite hard as a business.
Sean McLoughlin: Thanks.
Nick Walker: Thanks. Nick Walker from Peel Hunt. Couple of questions, please, Phil. First one is on partnerships. I think it's been mentioned in the past few times that there's sort of plenty more opportunities in the hopper. I wonder if you could just sort of comment on sort of how you see them sort of coming through to fruition. Does the sort of the role that you're now on in terms of commercial partnership deals signed? Does that help with other partners in terms of speed of getting on if you like? And just on that, you mentioned, I think it was about a year ago sort of in terms of a global infrastructure for Ceres and with respect to sort of stack and system partnerships. I think you said something in the order of sort of five to six stack partnerships potentially globally is a reasonable number, supporting perhaps 20 to 30 long term system partnerships. Is that still a sort of configuration that you that you see sort of medium to longer term? And in terms of the hopper, if you like, is the build out sort of progressing towards that if you like?
Phil Caldwell: I'm not going to comment on the hopper because it's very difficult to forecast. If you think about the kind of deals that we do, these are major corporate development type deals, and we've always guided, you know, if we a way to think about this is if we do one major manufacturing license partner a year, this the cash burn of this business is pretty low, and we're building that market share and we want to be, you know, have that we want to have the biggest market share in solid oxide. If in any year we get two partners, this business is more or less cash breakeven, you know, and I think people need to get their heads around this. This is a very asset light model that we have. So that's the way we look at it. Now it's very hard to predict when we get these major deals a bit like London buses. You might not have one for a while and then you might get three at once. So I'm not going to be drawn on that because, you know, it creates a bit of an issue for the business. But in terms of the opportunity, we expect more end users than manufacturing licensed partners. But actually what we're seeing now is depending on incentives and national policy, you can start to see localization of manufacturing and we're nowhere near the capacities that the market could sustain. So I think we're going to look at this both on the EC and the FC side going into the future. But for this year, we've already contracted sufficient to give us the confidence on the upgrade to the guidance we have, but we obviously continue to chase partnerships and chase license deals all the time. That's what we do.
Nick Walker: Okay. Thanks. Second question. On the EC side, you've referenced obviously key markets that you're targeting or your partners targeting steel, ammonia, e-fuels, et cetera, et cetera. With respect to sort of timing of the maturation of the technology and getting the end user customers and it's also your partner's end user customers in terms of those steel manufacturers, the ammonia producers, the e-fuels producers. Obviously you've got your test happening commissioned or commissioning now in India with Shell, which I presume will produce some, you know, some meaningful results. And obviously Shell is a really solid sort of partner in the refining market and other markets. Question is, I suppose, with respect to the other technologies that are out there in the market, you've got mature alkaline, you've got PEM obviously doing its thing, you've got AEM sort of doing bits and pieces at smaller scale, and you've got one or two other solid oxide players. What's the sort of speed with which you can foresee these trials, the sort of 1-megawatt turning into 10-megawatt turning into a sort of slight thing and then getting into steel plants of maybe 20 to 50 megawatt scale then going into the 100? So like how do you see the maturation and in terms of the sort of deployment in real world you know hard to operate that sectors?
Phil Caldwell: I think that's, it's a great question. I think the what we're doing is, we're doing things in parallel. So you know really the megawatt scale demonstrator is really a test base that we can do lots of things with a partner like Shell and we can also share that data with other partners like Bosch, Linde and others. The some of the images you saw in the slide deck are the pressurized modules, which we're intending to have you know on test by the end of next year. And again that will give us a whole other level of technology and that's moving quite quickly. So while we're, you know, building and testing the first of a kind, we've already through partnerships through the voice of the customer like Shell, through the work with Atkins, working on the next generation of this technology. Now what you say about maturity is key. I think a few years ago, everybody was saying, well, the hydrogen market's going to go so fast that if you're not in the market already, you're going to miss it. And it's all going to be alkaline and PEM. We've seen a major slowdown in rollout of that. Maybe that's not bad for solid oxide technology. What we're also seeing is when end users look at the business case, the business cases for solid oxide with the thermal integration is so compelling that they want to pull this technology through. Now the people who are licensing at the moment, you could say, are early adopters, because it hasn't been deployed at scale, but they're still very credible organizations like Denso, like Delta. I think once we actually get to those proof points on maturity then you'll get some fast followers and that's where I think the hopper point that you asked about earlier can start to probably accelerate a bit on the electrolysis side. But I think we have work to do on the technology side to demonstrate the maturity. Now that maturity, don't forget, is built upon the 20 years or so that we've invested in the FC technology because this is broadly speaking the same cell and stack technology. So we have a really strong starting point and I think that's enabled us to go, I think, relatively rapidly into this market from a standing start of just three years ago. So I think the time line, if you look at Delta, Denso, et cetera, you're probably talking about 27, 28 onwards where you start to see solid oxide, I think, being in that scale. But already we're talking about, well, how do you demonstrate this at 10-megawatt blocks because if once you have the 10-megawatt blocks then it's very easy to go 10, 100-gigawatt. So it's modular. It's very modular like I said.
Nick Walker: Thanks.
James Carmichael: Hi, there. James Carmichael from Berenberg. Just a couple from me. So just on the Delta agreement, I guess, you're sort of nine months into that now. Can you provide any color on how it's progressing just in terms of tech transfer? Are there any sort of additional challenges of having both the SOEC and SOFC involved in that? And obviously I think you mentioned they're still on track for sales in '26. Going back to Bosch as well, I know you can't sort of speak for them specifically, but progress on the SOFC side is a little bit slower than maybe we hoped, but they're obviously still very engaged on the SOEC side. So just wondering if you're seeing a bit of a shift in emphasis in Bosch maybe towards electrolysis over the fuel cell market. And then lastly maybe just quickly for Eric. I guess given the Denso deal that came in July, I think, what sort of gross margin outlook for the decision?
Phil Caldwell: Okay. So taking those in order, on the Delta side, the technology transfer has gone extremely well. We had a very large and it gives you an insight into how we do this. We had a very large delegation from our Taiwanese partner living in Horsham for about three months, which is quite an interesting dynamic. And interestingly for us as well, we had some of the, you know, world class manufacturing people that they have who operate plants in Taiwan, China, and everywhere else and looking at levels of automation, et cetera, that go far beyond, what our limit is etcetera. So I think it's gone very well. It's on track. In terms of the FC versus EC side that's their domain in terms of their system development. But that -- so at the manufacturing cell and stack level, it's the same factories will service both. So I don't think there's any additionality issues there. And on Bosch, the question on Bosch, I'm not seeing any diversity of thinking on moving from FC to EC. I think what we've seen on the fuel cell side in the past few years with Ukraine situation has been there has been a bit of a cooling in Europe towards natural gas based power products, et cetera. However, I think, as I said, the trend globally is somewhat different. So I still think the FC side is the main priority for Bosch right now. And if you go on their website and you see the deployment, the testing that they're doing, it's on the FC side to date. The EC side is a new initiative, which, again we will test with Bosch in conjunction with Linde and that will follow. But FC is the main priority.
Eric Lakin: And your third question about outlook for gross margin for the year. So on the back of the Denso. So the Denso arrangement, similar to Delta will involve tech transfer at this half. So that significantly supports both the revenue underpins the full year guidance, but also provides high gross margin. It's worth noting though also in the second half there will be a high component of stack shipments to support existing partners. You'll see the balance sheet at the end of June this year. There's an increase in inventory to support that. So the mix will be different even though there's still a high component of technology transfer license fee income. So the second half gross margin, while still high, will be less than the first half. So for the full year, you're looking in the range of 75% to 80%. They're still very high, but not as high as the first half.
Skye Landon: Skye Landon with Redburn Atlantic. You've got four manufacturing partners across EC and FC now, which means that, there's four companies out there developing equipment based on your technology, which is great. But going forward, does that change your conversations that you're having with potential new customers around how they're thinking about entering the market? And are they worried by the fact that their new products would be competing with existing technology that's already out there in the market? And does this mean that you need to be more selective with partners going forward? And then secondly just more of a clarification on the 50 million to 60 million revenue guidance. Is this a total revenue guidance for the year, including any new partnerships or is this more of an underlying guidance from existing partnerships? Thanks.
Phil Caldwell: Do you want to talk to the guidance?
Eric Lakin: Yes, sure. So, yes, thanks for the question. So the revenue guidance is based on the existing contract base including Denso. So any material new contracts would be upside to that. At that point in time, that's the right range, so supported by contracts.
Phil Caldwell: On your question about manufacturing partners, again, you have two sides to this. One is I think people are coming to service because of the company that we keep. So, you know, the quality of our partners means that if you're serious about solid oxide and you're wondering how to do due diligence on this? Does it scale? Can it be mass produced? Can it be done at cost? Is there a supply chain? Then you kind of look it up look beyond service to our partners and go okay. That's it's good enough for Bosch, it's good enough for Denso. They know what they're doing. It's good enough for Delta. So that effect is starting to happen and, you know, early adopters, fast followers I think that is there. Now then you get a little bit of, well, do they want to compete necessarily with some of those high quality partners? And we have been somewhat selective or self-selective because, let's be honest, if you're going to enter this market, you need very strong balance sheet. So the self-selection tends to be Fortune 500 type global mass manufacturers. A lot of those guys are not necessarily intimidated by some of the competition. But I think what you start to see is this regional effect as well, which is, for example, Denzo operating in Japan is, you know, is covering potentially a slightly different market than say Bosch would in Europe and again have different licenses at this time. Delta in Taiwan obviously have a, you know, an outlook that goes far beyond Taiwan into Southeast Asia and globally. So I think there's room for more of these Fortune 500 type mass manufacturers globally. Can they coexist with some of our existing ones? Yes, I think they can, but they need to be of a similar caliber I think is the key.
Operator: Any more questions from the room? No. Perhaps, Patrick, I may hand back to you just to take any online questions that have come through.
Patrick Yau: Thank you, Mark. We have time for one or two questions I think. Just picking up on that point, Phil. Can you confirm what level of exclusivities, manufacturers may have, if any? Is there anything on a country by country or regional basis?
Phil Caldwell: We don't have any exclusivities with manufacturing partners on the sell and stack. So we tend to operate on a nonexclusive basis because once you start to grant exclusivities, we limit the scope of the business, and it starts to get very difficult in how you actually write these license agreements because you have you start to have to kind of carve out. So our standard is a nonexclusive basis.
Patrick Yau: Great. Thank you. And a couple of financial ones for you, Eric. Firstly, in a typical license deal, when do you expect to receive cash compared to the timing of revenue recognition? Is there a difference there? And secondly, do you have any thoughts about when the business might become EBITDA positive?
Eric Lakin: Yes. On the first one, of course, the accounting standard for revenue recognition, IFRS 15 dictates that we recognize revenue as we perform on our obligations. It doesn't necessarily tie with the cash receipts. But so it varies by contract. And you can see the movements and the difference on the balance sheet with contract assets and liabilities. So that's the effects of the accrued and deferred revenue, but it broadly follows. So for example, a typical license is a significant element of upfront technology transfer and will have invoicing milestones and payments that are broadly consistent with that. The timing obviously vary and there's payment terms, but it's broadly consistent. Similar with development license and engineering services, the cash flows and billing milestones broadly follow the revenue recognition with some timing differences. Hardware is more straightforward. We invoice on shipment. So there'll be some catch up on any given period end on between cash and revenue. In fact some contracts we're getting cash ahead of revenue, so deferred income and some it's the, we're getting the revenue ahead of the cash, accrued revenue, it depends. But it is broadly consistent with rev rec. And the second question on EBITDA positive, not going to give any medium term guidance. But as Phil said with the current revised optimized cost base in a year where you get two material stack license partners, we should expect to be broadly profit breakeven.
Patrick Yau: Thank you, Eric. And a couple for you, Phil, on government policy. So how's the new labor government given any financial incentives towards electrolyzed production in the UK? And what sort of incentives would be helpful for service and how is the company engaging with government to try and make this happen?
Phil Caldwell: I think to answer the first part not yet. I think it's too early to say. What would help, I think, is government support, not just in terms of looking at the UK, in terms of, you know, offtake for hydrogen in the UK, but actually look at the business opportunity that companies like Ceres represent. If you at this industry and you think it's a trillion dollar industry, all our licensed partners see clearly a big business opportunity. They don't see a cost. They see an opportunity. And I think in the UK, we need to start thinking that way, which is what's the next industry for growth in the UK? And if clean energy, clean tech is going to be part of that, we've got some world class companies here in the UK, which the government should get behind I think. So any help that they can give towards R&D, manufacturing, scale of these businesses would be very well appreciated. We're seeing this happening elsewhere. You know we're seeing it with IPCEI funding in Europe, IRA funding in the US. I talked about Japan. I talked about India. We are we indirectly benefit from other countries' government policies because of our licensing model. So when we license technology to, you know, our partners, they are often also benefiting from local government support, but that's because of our business model. Without that I think the UK is in danger of being disadvantaged because proactively other countries see this as being strategically important for them. So I think the UK needs to also follow suit and make these companies strategic areas of investment for the UK going forward.
Patrick Yau: Thank you. Final questions are really around electrolysis. So can we offer any insights as to why Denso only choose to take out an SOEC license? Do they have any activities in SOFC? And then finally have any of our partners book firm orders for electrolyzers?
Phil Caldwell: I think it all depends on the business case and opportunity that our partners are looking at. So with Denso, they're clearly focused on, as I mentioned, that green hydrogen opportunity in Japan. I can't again I can't talk for those people. But if you start to look on their public material, you start to see the arrangements that they've got in place with off takers and some of the business that they're starting to target. So they're all publicly traded companies. You can see that for yourselves. So I think what's the second part of the question?
Patrick Yau: Have any of our partners booked firm orders for the electrolyzers?
Phil Caldwell: I think at this stage, that's too early to say. I think when they do, it's up to them where they disclose that.
Operator: That's great. Thank you very much indeed, Patrick. Eric, Phil, thank you very much indeed. I'm shortly going to redirect those online to give you a feedback, but perhaps before doing so, just ask you for a couple of closing comments.
Phil Caldwell: Yes. Certainly. Look, I think, today we presented a very strong set of results. We're very proud of these results. I think it's a testament to the hard work that the organization, the wider business has put in over the last few years. And I think we're starting to see, an emergence, a very strong emergence from the last few years for Ceres and I think the industry opportunity is very significant going forward. So I think we're looking forward to the full year and beyond and our job here is to position Ceres from a position of strength to really grow. And I think that's what we're talking about here. I'd also like to thank Eric because we are going to a transition at the CFO. So this will be Eric's last interim results and we also have Stuart Paynter here in the room today introducing our new CFO. Very excited to have Stuart on board and there'll be a very smooth transition and handover there as well. So thank you to Eric as well.
Operator: That's great. Thank you, Phil, Eric, Patrick for updating investors. We'll now redirect those online to provide their feedback.
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