Ceres Power Holdings plc

Power Holdings PLC four-year results investor presentation. Throughout this recorded meeting, investors online will be in listen-only mode. Questions are encouraged and can be submitted at any time using the Q&A tab just situated on the right-hand corner of your screen, simply typing your questions at any time and press send. Before we begin, we'd like to submit the following poll, and if you give that your kind attention, I'm sure the company would be most grateful. I'd now like to hand over to the management team from Sellers Power. Phil, Eric, Elizabeth, good morning.

Good morning, everybody, and thank you for joining us for the full year results presentation. I'm joined by Eric Lakin, CFO, and by Elizabeth Skerritt, head of IR. And we just want to talk you through last year's results and also give you an update on company strategy for this year. So without further ado, let's move on. So what we're facing, I think, now at Ceres is actually a very strong outlook for 2024. 2023 had some challenges. But actually, if you look at where the company is right now, we're in good shape. both on the current SOFC business and also into the acceleration of the SOEC business, which was a big strategic decision we took several years ago, and they're starting to actually pay dividends. So in summary, what we've achieved in the last 12 months, we see progress with Bosch on the power units that they're developing, backed up with 160 million euros of EU funding. We've got a lot of exciting progress at Doosan with the factory build, in south korea 50 megawatt factory and actually during this presentation we'll actually give you a video insight into that factory being built which is fantastic and that's on schedule for commissioning um our relationship with hui remains very strong and we're actually developing larger power units now 75 kilowatt stationary power units so we'll give you an update on hui um Technically, there's a lot going on. We've developed our next generation of stack technology, which is a larger footprint stack, higher power density to really scale as we go into modular sizes of tens of kilowatts to hundreds of kilowatts to megawatts, and ultimately for SOEC into hundreds of megawatts to gigawatts scale. To that point, we're making very good progress on our first megawatt scale demonstrator, which is now on site with Shell in Bangalore in India. And we ended the year with a strong cash position and a growing pipeline of commercial partners. So that's where we got to at the end of 2023. Many of you will be aware that we were progressing on a new license deal towards the end of last year that actually came in in the first few weeks of 2024. And that was with Delta Electronics, a really exciting partnership for us. Anybody that knows Taiwan and knows Delta, fantastic manufacturer servicing the TMT market. And what that deal meant for us is a license deal of 43 million for technology transfer Most notably, not just for SOFC, but also for SOEC. So our first licensee in the EC space, which is, I think, a strong validation of our strategy because it's only a few years since we actually formally started moving into the electrolysis space. And also somebody that can, again, scale at pace. So they're targeting initial production by the end of 2026. And so we're getting pretty good at building these factories at pace. If you think about Bamberg in Germany, think about Doosan in South Korea and now Delta, what we are building at Ceres is a global footprint of manufacturing capability at scale. So I think 2024 will be a strong year, as I've said, for the company, and we'll give you updates throughout the year on commercial progress. But that's a brief introduction from myself. What I will do now is hand you over to Eric to actually talk you through the financial performance of 2023. And then we'll come back to the business strategy after that. So Eric.

Great. Thanks, Phil. Well, first of all, apologies for the delay in the publication of our results for the financial year 2023. As we informed the market in mid-March, the auditors informed us they needed more time to complete the audit. The exercise is now complete. We are now a main market listed company. As a result, we are designated as a public interest entity. There is even more scrutiny from the auditor and the auditor regulator on our accounts. So it's been a very thorough process. It also involved going back to historical treatment of certain revenue contracts, and other items, including dilapidations provision. And we have made certain prior period adjustments, which are explained in more detail in Note 1 to the accounts. So with that, let's move on to the financial summary for the year. Overall, the results are consistent with the guidance that we gave in the January trading updates with revenue at the top end of the range given and of twenty two point three million. That reflects an increase on the prior year. owing to progress with our commercial partners as they move towards industrialization of stack supply and scale manufacture. Margin improvement to 61% reflects the revenue increase. Also, in fact, there's a reduction in the warranty provision and relates to the mix of revenue as well. The gross profit increase reflects the revenue increase and the margin improvement as well. And the adjusted EBITDA loss of 50.3 million is an increase on prior year, which was 45.7 million. And that reflects an increased planned investment, particularly in SOEC, but also improvement in our SOFC technology, as Phil also mentioned earlier. We finished the year with a very strong cash position of £140 million, again, as guided in January, and the cash burn of £42.4 million is a significant reduction from the £67.3 million in the prior year. In fact, 2022, we believe, reflects a peak cash burn for the business and the Cash outflow for 2023 reflects a continued discipline around cash and cost management, particularly in the economic environment. And in particular, in the year, there was a reduction in working capital of around 10 million pounds relates to trade receivables and also inventory and also reduction in the tax debtor through in the year. The order backlog of 64.2 million pounds is a reduction from the prior year period of 71.1 million. And that reflects the revenue recognition and the fact that we didn't sign a new license partner. There wasn't a significant new order intake in the year to offset the revenue recognized in the year. Obviously, that situation changes or changed in January this year with the contracting with Delta. Headcount of 591. Again, it's a modest increase, a much reduced increase from prior year periods. We now believe we've got critical mass, importantly, across the business, whether that's engineering, materials science, commercial technicians, and we would not expect any headcount growth this year. In terms of revenue trends over the last four years and gross margin, it's been again, the margin development is a combination of revenue mix, actual revenue overheads, factory cost absorption, and we've got modest revenue growth in 23. But more instantly, looking forward, we have given guidance that we anticipate revenue in 2024. We approximately double that of 2023. And that's just based on the existing order backlog and contract signs. Obviously, any additional contract signed entered into in the year subject to revenue recognition timing could represent upside to that to that guidance. In terms of the mix, many of you will be familiar with the different revenue streams, but just as a reminder, and for those that are new to the business, we've currently got three different revenue streams. So license fees in yellow there, that is a very high margin, can be 100% margin, which can be recognized upfront or over time, depending whether it's a right to use or right to access a recognition of license fees. And that can be recognized through initial technology transfer, such as what we're undergoing currently with Delta this year, or it can be an ongoing annual development license, which we currently have with Bosch and Doosan, for example. Supply represents providing prototype hardware or components to enable our partners to develop systems and also to support their factory developments. So that's a lower margin. That's provision of our stacks and cells that come out of our CP2 facility in Redhill. Engineering services is associated with the development license I mentioned earlier, and that's joint development collaboration with partners to support their activities, can either be preparing factories for commissioning or developing systems. And we have that with multiple partners at the moment. Again, that's the lower margin Business was an important part of getting ready for ultimately for stack production and commercial launch. The final segment we don't yet have is royalties. That's longer term. Again, that'll be high margin, if not 100 percent margin revenue from partners. And that's based on when a stack is sold commercially. We get a royalty from that or a system if we have a systems license. So that requires a stack to be to be sold. manufactured, installed into a system and sold to a third party for commercial use. And that's the point at which we get royalties from that. As I've guided previously, we're not expecting any royalties this year. We anticipate it starts at some point in next year, particularly from Doosan. Crucially, we've got, again, significant planned investment in R&D, a significant part of our overall cost base. It's important to continue to innovate, remain competitive and support our partners. So the R&D investment overall increased 11% to $54 million. last year. That includes investment, ongoing investment in fuel cells, including developing and testing the next generation of fuel cells, but also increasingly investment in SOEC technology That also incorporates the design and build of the one megawatt containerized system, which is now in situ in Bangalore, but also now investment in the next stack array module, which is more of a commercial pilot that is a modular repeatable unit that demonstrates the ability to get to 100 megawatts plus, as Phil mentioned earlier. And the capital investment is is generally water term programs. It includes investment in test and infrastructure and the capability of our pilot plant in Red Hill. And again, the facility there has evolved to now manufacture the second generation fuel cells for the first time in recent months. Overall, we anticipate the investments to plateau for this year. So we're not expecting any material growth in operating costs or indeed CapEx or capitalised development. And then same for R&D. We've got a critical mass and we expect the current cost base to be similar this year, even taking into account inflation, as again, we look to costs and focus on the priority programmes. In terms of cash burn, you can see from this chart here, it shows the last four years, this is total cash, effectively cash on cash movement, cash being for the full description, including cash equivalents, short-term or long-term investments. And it reduced significantly last year, supported by the reduction in working capital. And we anticipate looking forward, as noted here in the final bullet, on an underlying basis, based on adjusted EBITDA, less capital investment, so CapEx and capitalized development, to materially reduce this year on account of revenue growth and therefore reduced EBITDA losses based on a consistent cost base. We will not, it's worth noting, we won't have the same benefit as we had last year of a significant reduction in working capital. That's a one-off benefit. We do expect an underlying basis to show improvement. And with that, I'll hand back over to Phil.