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Analyst presentation
Ceres Power Holdings plc will be
hosting a live webcast for analysts and investors on 27 September
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:
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Ceres Power Holdings plc
Patrick Yau / Merryl
Black
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Tel: +44 (0)7884 654 179
Email:
investors@cerespower.com
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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 production 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, Denso,
Shell, Thermax 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
The undeniable effects of climate
change continue to impact lives around the world on an increasingly
regular basis, including the dislocation of communities fleeing
floods and extreme weather events in Asia or the devastation to
forests, farmland and buildings caused by wildfires that have been
sweeping across parts of the US, Europe and Australia.
Many governments have responded with
decisive action on decarbonisation, putting in place specific
hydrogen strategies to incentivise the production, infrastructure
development and adoption of green hydrogen. For example, the EU is
targeting the deployment of 40GW of green hydrogen electrolysis by
2030, committing up to €470 billion in investments up to 2050 for
the hydrogen economy; Japan aims to generate public and private
investment in hydrogen worth 15 trillion yen over the next 15
years, with specific reference to the hard-to-abate sectors; and
South Korea's Hydrogen Economy Roadmap to develop its hydrogen
infrastructure and commercialisation strategies is being backed by
around $35 billion of government funding.
Ceres is committed to working in
partnership with global OEMs and systems design companies to help
nations decarbonise as they strive towards their net zero
targets. These strategies will take time
and resources to bring into effect, especially in the complex
industrial sectors where value chains are long and where fossil
fuels and feedstocks are well entrenched. A move towards
decarbonisation requires disrupting the status quo - leveraging
more advanced technologies, putting in place new supply chains and
redesigning complex industrial processes. After an extended period
of industry stagnation in the wake of high fuel costs, rising rates
of inflation and elevated interest rates, confidence now appears to
be returning as these effects moderate. In 2023 the number of
announced green hydrogen projects grew by about 35% from 1,050 in
January 2023 to over 1,400 at the end of the year, with a value of
over $570 billion. Solid oxide technology offers significant
efficiency advantages particularly when coupled with waste heat
from industrial processes.
Ceres's solid oxide technology also
has a role to play in decarbonising energy systems. As some nations
transition away from coal to liquefied natural Gas (LNG) for their
power needs, Ceres' SOFC technology can enable more efficient power
generation from a range of fuels. Closures
of coal plants are offset by increases in nuclear, gas and
renewable output. This transition is seen in regions such as South
Korea, China, India and Taiwan, supported by various government
initiatives. Currently the adoption of lower carbon and zero carbon
power generation is being further driven by the ramp in energy
demand for applications such as AI and datacentres alongside
existing opportunities in areas of stationary power generation and
grid reinforcement. In its Global
Energy Perspective 2024 report, McKinsey estimates that
the rise of cloud solutions, cryptocurrency, and AI could see
datacentres accounting for 2,500 to 4,500 terawatt hours (TWh) of
global electricity demand by 2050 (5-9 percent of total electricity
demand). This demand creates greater need for gas or other firming
sources of energy to balance out the intermittency of renewable
energy sources.
Ceres is rapidly becoming the
technology of choice for leading companies adopting solid oxide as
the licensing model enables rapid adoption as the pace for change
picks up across the global green hydrogen and power generation
markets.
Green hydrogen in hard-to-abate industries
Hard-to-abate industries such as
steel production, chemical manufacturing and long-haul
transportation, are characterized by their reliance on
high-temperature processes, the need for energy-dense fuels, or the
use of fossil fuels as feedstock. As a result, they are difficult
to decarbonise using current renewable energy sources or electric
alternatives alone. Green hydrogen offers a versatile alternative
that can address many of these challenges as it can be produced in
a zero carbon manner using renewable energy and
electrolysis.
Hydrogen can be used as a fuel to
generate power efficiently; as a feedstock to decarbonise
industrial processes; and as an energy carrier. Importantly, it can
be deployed using modified versions of existing industrial
equipment, reducing transition costs and time-to-market. Bloomberg
New Energy Finance believes that by 2050 around 49% of total green
hydrogen consumption will be accounted for by the production of
green steel, ammonia and sustainable aviation fuels, expected to be
approximately 191 Mt per annum.
Ceres' SOEC technology, based on
over 20 years of solid oxide innovation and development, enables
the highly efficient production of hydrogen, particularly where
by-product industrial heat can be harnessed for the electrolysis
process. In tandem, the company's business model has been
established to help accelerate decarbonisation across these
hard-to-abate industrial sectors. As the partner of choice for
leading global OEMs and systems developers, Ceres offers a faster
route to market and efficient zero carbon hydrogen production. This
saves our partners the time, effort and resource needed to develop
their own solutions and allows them to focus on their strengths in
industrial manufacturing and distribution. Ceres believes this
synergy is key to enabling industrial decarbonisation at scale and
pace.
Commercial acceleration into SOEC bearing
fruit
In 2021, Ceres made the strategic
decision to accelerate development of its electrolysis technologies
to position the company in the rapidly expanding green hydrogen
industry. Over the last three years continuing innovation of the
company's core solid oxide technology has created a highly
efficient and lower cost mode of hydrogen electrolysis for the
hard-to-abate industrial sectors. At the same time the Company
invested in its Commercial teams to implement new customer
programmes for SOEC; this emphasis on building commercial
relationships across the hydrogen industry is now starting to bear
fruit.
In January 2024 Ceres and Delta
Electronics signed a global long-term manufacturing collaboration
and licence agreement for both SOEC and SOFC stack production.
Headquartered in Taiwan, Delta employs over 80,000 people across
approximately 200 facilities worldwide, with a Taiwan Stock
Exchange market capitalisation of approximately US$23 billion. It
provides solutions to customers across a range of sectors including
chemicals, energy, transportation and steel.
This dual licence agreement is the
first of its kind for Ceres, underlining the efficiency that Ceres'
solid oxide stack technologies can bring to both power generation
and green hydrogen production. These capabilities complement
Delta's current expertise in mass manufacturing, power electronics
and data centres for customers like Microsoft. The partnership also
enables its move into turnkey decarbonisation solutions and the
development of smart buildings, energy infrastructure, grid
balancing and energy storage for customers such as Tesla. The deal
will generate a total revenue of £43 million to Ceres through
technology transfer, development licence fees, and engineering
services, of which approximately half is expected to be recognised
in 2024. Delta is expected to start manufacturing by the end of
2026 with strong ambitions for future scale-up. Royalty revenues
are separately covered in the scope of the agreement and will be
generated when Delta products are sold into their end
markets.
In June 2024, the Company extended
its relationship with Shell to design a SOEC demonstrator module
for use in large-scale industrial applications such as synthetic
fuels, ammonia and green steel. This builds on the initial contract
to deploy a 1MW SOEC system at Shell's R&D facility in
Bangalore, India focusing on the development of a 10MW pressurised
module to produce green hydrogen at 36 kWh/kg. It is intended that
this design can be scaled to hundreds of megawatts and be
integrated with industrial plants to produce sustainable future
fuels.
Separately, Bosch and Linde started
work on a 1MW pressurised stack array module based on Ceres' SOEC
technology. This will be a repeating unit and form a building block
for larger scale electrolysis systems. The two-year demonstration
project is anticipated to showcase that SOEC provides a highly
efficient pathway to low-cost green hydrogen production for
industrial applications.
As the Company has accelerated
commercial delivery, the momentum of the first half of the year has
continued into current trading. In July 2024, Ceres announced that
it had signed a long term SOEC manufacturing licence with Japan's
Denso Corporation, a Fortune 500 company employing over 160,000
people in 35 countries and regions worldwide. Denso aims to
leverage the expertise of system control and thermal management it
has built in automotive system development to develop technology in
hydrogen production.
The partnership will enable Denso to
produce Ceres' current and future generations of stack technology
under licence, in line with its aim to establish a hydrogen supply
chain. In common with other manufacturing licence partnerships,
this agreement provides revenues for licence fees, engineering
services and hardware over multiple years, as well as future
royalty payments.
In addition to securing new
manufacturing licences, Ceres also signed a new system licensing
partnership with Thermax, one of India's largest process equipment
manufacturers with an extensive industrial portfolio that includes
clean air, clean energy, clean water and chemical solutions. The
partnership is driven by accelerating system development for
commercial use within the hard-to-abate green ammonia,
petrochemical and steel industries in India where Thermax already
has established market presence.
System licence fees are more modest
than manufacturing licences, but this partnership is of high
strategic importance for Ceres. First, it gives the company a
foothold in the fast growing Indian hydrogen market, a major new
territory for the Company that is well supported through India's
$2.3 billion National Green Hydrogen Mission incentives. Secondly,
the relationship will seed Ceres technology into the market with
key end market customers, leveraging Ceres' highly differentiated
electrolysis technology and Thermax's experience and market
position in the industrial process market, to enable it to become a
vertically integrated SOEC system solution provider.
As well as helping our partners to
speed up market entry of their decarbonisation products, Ceres has
been working with AtkinsRéalis, a world-leading engineering,
procurement and construction (EPC) services group, to deliver the
front-end engineering design (FEED) for a commercial multi-megawatt
modularised hydrogen production system based on Ceres' SOEC
technology. This design will provide commissioners of green
hydrogen production plants with a blueprint of the optimum system
architecture for a 100MW+ electrolyser system to produce green
hydrogen. This will be a key building block for GW-scale plants
based on Ceres' robust, low cost and highly efficient SOEC
approach.
While Ceres has focused on
generating commercial momentum in its electrolysis activities we
continue to work closely with existing SOFC partners to support the
implementation of their respective solid oxide cell and stack
manufacturing facilities. Both Bosch and Doosan are progressing
towards mass manufacturing and the Company continues to anticipate
initial royalty payments from Doosan to be received by the end of
2025. We continue to support the system development of 75 kW power
modules by Weichai who have a leading position in China's gas
engine market and Delta is the latest addition to our SOFC
licensees.
Financial review
The Company reported revenue for the
six-month period ended 30 June 2024 of £28.5 million, compared to
£11.71 million in the same period in 2023. Most of the
revenue was from the technology transfer licence fees associated
with the Manufacturing and Collaboration Agreement signed with
Delta in January 2024, this revenue has no associated cost of
sales. Revenue from existing partners Bosch and Doosan continued as
we supported them through ongoing development activities leading up
to commercial launch. Revenue from the Manufacturing and Licence
Agreement with Denso signed in July 2024 will commence in the
second half of the year as we anticipate record revenue for the
financial year.
Gross profit of £22.9 million in the
year (H1 2023: £7.2 million1) increased when compared to
the prior year due to the impact of increased licence revenue which
has no associated cost of sales. Consequently, gross margins remain
high at 80% (H1 2023: 62%1), which illustrates the
Company's asset-light, licencing business model.
Operating costs were comparable to
H1 2023 at £37.9 million (H1 2023: £37.1 million) as Ceres
maintained investment in core technology to drive future growth,
including the development of the second generation of stacks to
operate more effectively in electrolysis mode and further
development in modular stack designs for output efficiencies.
R&D costs of £23.3 million were lower than the £26.8 million in
the prior year period, as the business achieved significant
technology development milestones and passes peak investment
needs.
Adjusted EBITDA loss for H1 2024
reduced to £9.0 million (H1 2023: £23.5 million1).
Adjusted EBITDA is a non-statutory measure and is detailed in the
Alternative Performance Measures section in this review. The
decreased loss is primarily due to the high margin revenue
recognised explained above.
Capital expenditure in the half
reduced to £2.8 million (H1 2023: £3.1 million) as there was
reduced requirement to invest in prototype manufacturing capacity
and test stand infrastructure. Capitalised development costs
reduced to £1.3 million compared to £3.4 million in the prior year
period mainly due to the second generation of stack design
development working towards completion.
Cash outflow in the period (change
in cash, cash equivalents and short-term investments) was £13.9
million (H1 2023: £21.1 million). This improvement was driven by
customer receipts, reduced capital investments and increased
finance income. Ceres therefore ends the period in a strong
position with £126.1 million in cash, cash equivalents and
short-term investments (H1 2023: £161.2 million, 31 December 2023:
£140.0 million). This will support future investment as the Company
drives revenue growth, maintains discipline over costs and
expenditure and tracks towards profit and cashflow
break‑even.
Principal risks and uncertainties
The Directors have reviewed the
principal risks and uncertainties that could have a material impact
on the Group's performance and have updated the risks from those
described in the Ceres Annual Report, 2023. The Directors have
determined that cyber security is now an elevated risk and that
there is a risk that a cyber-attack or breach of system security
could disrupt our operations, cause the loss of, destruction of, or
unauthorised access to sensitive IP and trade secrets. The
Directors have also determined that the risk of detrimental partner
actions has reduced to no longer be considered a principal risk. A
summary of the Group's principal risks can be found at the end of
this report.
Restructuring and cost optimisation
Following significant investment in
the development of SOEC and SOFC programmes in recent years, some
projects have passed peak investment requirements and there is now
a natural reduction of future investment requirements. Since the
end of the period, management has reviewed roles and
responsibilities across the company to ensure the business is
optimised to accelerate its growth strategy and has implemented a
new organisational structure to take it forward. The proposed
changes will result in a headcount reduction of approximately 15%
in Q4 2024, and also a reduction in the overall cost base by a
similar level, whilst also delivering on our commitments to our
partners and maintaining our strong competitive advantage as a
leader in clean energy conversion technology.
Board change
In September 2024 the Company
separately announced that Eric Lakin will step down as CFO and from
the Board to pursue other interests, to be replaced by Stuart
Paynter. These changes will become effective on 1 October 2024 and
Eric will remain with Ceres for sufficient time to ensure a smooth
transition of responsibilities. Previously CFO of advanced
therapies innovator Oxford BioMedica plc, Stuart has extensive
financial and commercial experience across a range of advanced
technology sectors, as well as a strong capital markets, UK
governance and transformation delivery track record.
Outlook: building commercial traction
Ceres is progressing well on the
path to commercialisation with our partners. The biggest global
manufacturers and systems developers looking to enter the dynamic
hydrogen market have chosen to partner with Ceres to leverage our
world-leading technology and a highly flexible licencing business
model to gain rapid access to the growing hydrogen
market.
In a short period of time Ceres has
progressed from investment phase in SOEC to commercial
partnerships, validating our business model and strategy. This
acceleration of our commercial success is reflected in the recent
upgrade to financial guidance and positions us well to deliver a
record year in revenues for the Company. Record order intake of
£103.3 million since the start of the year to 31 August 2024 was
achieved by the Company due to the higher levels of commercial
activity. Given the recent restructuring and commercial progress we
are now well positioned for the future and expect continued
momentum for the full year performance as we continue to grow the
business to meet the needs for industrial decarbonisation and
reliable clean power generation.
Phil Caldwell
Chief Executive Officer
Responsibility Statement
The directors confirm that to the
best of their knowledge:
·
the condensed set of financial statements has been
prepared in accordance with UK adopted IAS 34 'Interim Financial
Reporting'; and
·
the interim management report includes a fair
review of the information required by DTR 4.2.7 (indication of
important events and their impact, and a description of principal
risks and uncertainties for the remaining six months of the
financial year) and DTR 4.2.8 (disclosure of related parties'
transactions and changes therein).
The full list of current Directors
can be found on the Ceres website at https://www.ceres.tech.
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