Ceres Power Holdings plc

Welcome to the Seris Power Holding PLC Interim Results Investor presentation. Throughout this recorded presentation, investors online will be on listen-only mode. Questions are encouraged. They can be submitted at any time using the Q&A tab just situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And as usual, 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.

Good morning, everybody. And thank you for joining us. I'm Phil, chief executive, and I'm joined, obviously, with Eric Lakin, our CFO, and Elizabeth, director of investor relations this morning. I'm very pleased to talk you through the interim results for the period ending 30th of June this year. So the business continues to make good progress, both operationally and strategically. We've got a number of key activities going on, particularly with our two main licensee partners, Bosch and Doosan progressing towards start of production. A significant milestone this year was Bosch receiving IPSE funding of around 160 million euros for their facility in Bamberg in Germany. So that's obviously a big step forward. And we're very active with Doosan, which we'll talk about during the presentation. We made a big move into electrolysis just under two years ago, really, and I'm very pleased, in fact, that the testing that we've done so far, the progress we've made has surpassed expectations, and we've signed a number of collaborations. Obviously, we are already working with Shell, and earlier this year, we signed a collaboration with Linde Engineering and Bosch, and we'll talk further about electrolysis during this session. And we're in active discussions with a growing number of potential licensees, both on the SOFC side and, interestingly, more and more on the SOEC side. We're seeing very strong interest in this technology, and we've strengthened our global commercial footprint now in terms of the business development team that we have pursuing these opportunities. On the technology side, we passed some critical milestones this period. We have a new second generation stack, which is designed for the industrialization and the scale up, and that's gone to a critical design review, and we expect that to go into production in our facility next year, and obviously moving on into partners shortly after. And not insignificantly, we are pleased to say that earlier this month we achieved FTSE 250 indexation. Having been on the AIM market for quite a while, we've successfully graduated to the main market. I would like to address the issue of the Weichai China JV. We're going to talk a lot today about a lot of the advantages of the licensing model and terms of its ability to scale its gross margins the one downside is we're not always in control of our own timeline and we have a continued delay as we've said uh between bosch and hui on the the sign off of the the jv so as per the statement we made earlier uh this year we've actually taken the associated revenue with the jv out of this after this financial period um But I would like to also point out, though, that our relationship with both Bosch and Weichai remains very healthy. We've this year been supporting the development of larger 120 kilowatt stationary units at Weichai in China, which are now on test at several sites. We have a new board director appointment we've announced this morning with Dr. Sun, who's one of the leading technologists in Weichai joining the service board. So the Weichai collaboration is very much remains strong. And we'll obviously update you when we can on progress on the collaboration between Weichai and Bosch as we go. So with that introduction, I'd like to hand over to Eric to go into the numbers of the first half in more detail, and then I'll talk to you again about the strategic direction once we've been through the numbers. Eric?

Okay, thanks, Phil. So for the six months ending June this year, revenue is 11.3 million. So that reflects an increase of 17% from the same period last year. And that reflects primarily progress with our commercial partners as they move towards industrialization. And we meet some milestones and KPIs during the half. Gross margin was up at 61% compared to 49% for the first half of 2022. And that reflects a combination of an increase in revenue and also an evolving mix and maintaining industry-leading sector margins. Gross profit of 6.9 million compares to 4.7 million in the first half of last year. That increase largely reflects the increase in revenue as well as the improved gross margin year on year. Adjusted EBITDA loss of 23.8 million in the half compared to 20.8 million loss last year. That reflects an increase in our expenditure on targeted investments for the future, which I'll come on to later. As a reminder, We made a change to our P&L reporting last year, and we're being consistent with that now. And the R&D expenditure credits, which is becoming quite significant following an increase in the rates from those, we show as other operating income no longer show within cost of sales. That's a separate line. So our headline revenue um is our kpi but other operating income um we we pull out separately now includes our deck this reminder of that and we've made a like-for-like comparisons for the prior year In terms of the balance sheet, 30th of June position is £161 million. So healthy, strong cash position and employees of 586 compared to 570 at the end of the prior year. And that reflects a reduced growth in headcount as we reach critical mass and we're really targeting investments. And so we're going to see a slowdown in the growth of our headcount continuing through the year. Order backlog of 61.1 million compares to 67.8 at the end of the prior year, and that reflects a reduction from the revenue recognised in that backlog offset by some new order intake in the half. And the other key metric for us was the planned partner capacity unchanged at 250 megawatts, and that reflects 200 megawatts factory being constructed by Bosch and 50 megawatts from Doosan. In terms of the development and trends for revenue, gross profit and margin, as you can see, the revenue is relatively lumpy and a lot of the variability reflects the timing of license fee income and revenue recognition. And that will continue to be the case until the point where royalty revenue income becomes a significant part of the overall revenue mix. And the gross profit margin, as I mentioned before, is a combination of total revenue, level of absorption of our factory costs, revenue mix. So this slide here shows the different revenue components. I'll just give a reminder of what they are. Many of you will be familiar with this, but we've currently got three main contributions to our top line. Engineering services, which is really time of our engineering team as we support our partners with collaboration and joint collaboration for system developments and manufacturing progression. That is relatively predictable, and that's charged on a sort of hourly, daily rate basis. Supply represents prototype technology, so the provision of sales and stacks and components for our existing partners for developing systems, but also new partners who are looking to test the product and with the consideration of potentially becoming new licensees. And that is recognized at point in time, at the point of shipment of stacks and components, and that's a relatively stable line. It was high this half compared to this time last year as we're supporting our partners moving towards start of production next year. license fee income so that's a high margin can be 100 margin that includes both upfront license fees for technology transfer as well as ongoing development license revenue this the latter is the largest component of that right now so typically with bosch and doosan as we continuing with the joint collaborations with them for the under the collaboration license agreements Royalties, we note here, that is not yet part of our revenue. That is longer term, high margin revenue. And as a reminder, we receive royalties at the point of commercial sale of systems into which our stacks go. So it's not triggered by stack production by partners, but ultimately by revenue. So we're not expecting material royalty revenue next year, even though our partners are moving towards start of production next year on series mass manufactured production. But it become more material in 2025 when those stacks being manufactured go into systems which are ultimately sold to end users. So that's the trigger for our royalty income, which we expect to be increasing component of our business going forward. As I mentioned earlier, we continue to invest in a targeted way for the future. Investment in the future is defined by us as being our research and development spend, as well as our capital expenditure or capex, as well as capitalized investment. So together, that reflects investments in capacity and capability for future revenue. It's increased year on year and a lot of the investment now is going into projects, particularly SOEC. It includes investment in our demonstrators, the SOEC demonstrators. We've got two, one first one for Shell, the second one for Linde and Bosch. It also reflects significant investment in our test capability, including the outsourced test with Hariba Myra. There's an image on this slide which shows that new test facility in Uneaton, which was inaugurated this year. And also development in fuel cells, particularly investment in future fuels compatibility. And as Phil mentioned earlier, the next generation of cells and stacks, which provides performance improvements and reduced costs. The spend is down from last six months. We are, again, as I mentioned before, having very focused targeted investments and the level of growth of our investment in the future will be less than prior years as we get to critical mass. And some of these one-off projects, such as the system demonstrated at SOEC, they will effectively come to an end towards the end of next year. In terms of the cash outflows or cash burn, it is reduced from this time last year and certainly the prior six months as well. And that is a reflection of partly we had some one-off benefit. We reduced receivables in the half. There was a significant outstanding receivables balance at the end of last year with existing partners, which got paid down early in the half. So that's a one-off benefit that won't repeat in the second half. But having said that, we expect the cash outflow in the second half of this year to be less than the second half of last year. So still second half loaded, but the overall cash outflow this year, we expect to be lower than prior year as we manage our cash carefully and ensure it's being vested on the right with the areas of highest return. It's also worth noting we are benefiting from having a strong cash balance and higher interest rates. So we're making sure we safeguard our funds and deposits with only very high investment grade counterparties, but ensuring a reasonable economic return for those in the Effective interest rate has improved significantly year on year. So we had interest income of 2.8 million in the first half compared to just 0.7 in the first half of last year. And we expect a similar type of interest income for the second half as well. And with that, I'll hand back to Phil.