Ceres Power Holdings plc

Good morning, ladies and gentlemen, and welcome to the CERES 2024 full year results meeting. In a moment, Phil Caldwell, CEO, and Stuart Painter, CFO, will take you through the results. Just a reminder, there will be a Q&A session afterwards. So if you're in the room, please wait for a microphone to reach you before asking your question. And if you're participating online, please type your question into the box provided. And we'll address those two at the end. With that, I'll hand over to Phil to talk you through our record year.

Good morning everybody and thank you for joining us this morning. I was just thinking on my way in, this is probably my eleventh or twelfth year of doing the full year results for Serres and it's an interesting time to be doing it because what we're reporting today is a record year for Serres in almost every metric. The business has never been in a stronger position than it is now despite quite a few economic uncertainties and headwinds and I think we can dive into that this morning into why I think the business is in really good shape now and for the future. Many of you know the business, but just a quick reminder, we are world leaders in solid oxide technology for both power and hydrogen generation. And I think that's fundamental. We have unique IP, because what we do is difficult, unique, and valuable to many nations looking to decarbonize, many companies looking at how they reinforce power grids right now. And it's protected by over 150 patent families. Because it's unique, difficult, and well protected, we can apply a licensing business model that is able to go cross borders at a time where we have tariffs and trade wars going on around us, where we're seeing more localization of production, where we're seeing more shortening of supply chains. So we have a very strong position, not just in technology, but in the way we apply the technology to the business model. And we continue to collaborate with some of the world's leading companies to deliver clean energy technology at the scale and pace that we believe we need to tackle the urgent need for decarbonization globally. We have a platform technology and the uniqueness in the cell we're not going to go into too much this morning, but the fundamental architecture is based upon low cost, highly available materials that give us the metal supported solid oxide technology that we can apply in two directions. So on the one hand, we have licensees applying this for power generation. So that's Doosan in South Korea. Weichai has a license in China. And we added Delta in Taiwan this year. And that side of the business is addressing some markets such as AI and data centers, which is starting to see rapid pickup, distributed power, and decarbonization of shipping. You run that technology in reverse, you can produce green hydrogen for industrial decarbonization. And for those parts of society that you don't have an obvious alternative for decarbonization of things like green steel, green ammonia, synthetic fuels, this technology integrated into production facilities gives one of the lowest electricity burden or the highest efficiency that there is in terms of solid oxide electrolysis. And again, we've attracted two partnerships in the past year for electrolysis, Delta in Taiwan and Denso in Japan. And we continue to work with end-user and system partners such as Shell, such as Thermax in India, such as Linde. And I think this is a very important part of the business. As we've seen, some uncertainty, some slowdown on green hydrogen in some parts of the world, and some pushback towards oil and gas in other parts of the world, you have both of these strands to the business. We have the power generation side with licensees there, and we have the green hydrogen side, which provides something of a natural hedge for the business as we go forwards. So like I said, I've been doing this quite a long time, and this is a year to be proud of. It's a record year, and Stuart will take you through the numbers, but it's record year in terms of revenue, record year in terms of order intake, record year in terms of gross margin. And the business has a very strong financial position. and a global footprint. So key milestone we've been working on for a number of years is in South Korea with Doosan. We expect that factory to come on stream in the second half of this year and really start to produce products which will prove out this business model all the way through to royalties. We're very excited about our relationship with Delta in Taiwan, really world-class manufacturers who've taken the license for both the FC and the EC side of the business, targeting already markets they're in like data center equipment and also industrial hydrogen markets. In Japan, Denso, one of the world leaders in manufacturing, has completed the upfront technology transfer having taken the license in the middle of last year and is really looking at, again, industrial decarbonization in Japan and beyond. And then India has huge ambitions for green hydrogen, converting green electrons into green molecules such as green steel, green ammonia, etc. And we have a system license arrangement with Thermax that takes us into that growing market. So lots of positive steps last year. Since last year, we have to acknowledge we've had the disappointing news of Bosch stopping the collaboration for production of SOFC in Germany. And Bosch's statement is pretty clear. They've stated they have no concerns over the technology, the technology had reached a high level of maturity, and the relationship with Ceres was good. This has been taken at a more high-level strategic decision, and there's more reflection of the economic pressures, I think, that are prevailing in that industry and also in Germany at the time. It does create a short-term issue around the shareholding, and we are working with Bosch and its advisors in how they divest their shareholding. It will obviously maybe create other opportunities as well in the future for us. The portfolio effect of our manufacturing partners and our system partners largely mitigates the impact of Bosch's decision for 2025. With that, I'm going to hand over to Stuart to go through the numbers in more detail.

Thank you, Phil. Good morning, everyone. So unlike Phil, this is my first results, full year results for Ceres. So I'm extremely excited to be here, especially in the year which Phil has described as being a record for us. And let me take you through some of the numbers and then some detail around how we generate some of those numbers and a bit about our business model. So as you can see, I mean, full reference to record year, revenues, 51.9 million, that's a record, generating a gross profit over 40 million, also a record, and importantly, the order intake. The order intake of more than 110 million pounds is generated by these, the majority of which is generated by these two big licensing deals we did with Denso and Delta. And that is the fundamentals of the business we're in now. So we've said that we're targeting one new manufacturing license a year, and that really is the driver of both revenue profitability and gross margin within this business. So that continues to be our number one focus as we move forward. From a cash perspective, north of 100 million as at the end of the year is a strong financial position to be in. And you'll see that both in some of the actions we've taken and the momentum we've driven through the commercial activities, we're looking to reduce the spend in the business through the restructuring we did in Q4 2024. And obviously you'll see the cash burn coming down largely driven by the number of partners we've signed. So from a revenue and gross profit perspective, that's the evolution over the last few years. You'll see how affected our numbers are by signing licensing agreements. We're a licensing business. We need to sign licensing agreements. It's what we're focused on. You'll see it's one of the areas of investment in terms of our cost base. And that's the right area to invest. We need to attract these great clients like Denso and Delta. And they're going to be royalties generating in the future. But as Phil said, we need a portfolio, a large portfolio. We need to keep attracting clients. And that's driving revenues in the short term. So we'll continue to try and meet this trend. The licensing model affords a very flexible cost base. As you saw, the gross margins are in the high 70s. So when you look at this cost wheel, the cost of generating a revenue is very low. So you'll see that it was 9 million in 2023 and 12 million in 2024. um that's driven by the increase in revenue so that that's a good place to spend with high margins and then you can see the the sort of characteristics of our cost base elsewhere so the r d numbers come down by 5 million between 23 and 24 and that really reflects the sort of peak investment post the fundraise we did in 2021 in generating the technology we need to attract licensing partners for soaec And then you'll see on the on the admin side, we kept that flat, which is what people are looking for. And then on the commercial side, you see we've made the investment. So we're investing in those places that make a real difference to the to the top line. None of this includes the impact of the change we made at the end of Q4 2024 that we see flow through the 25 numbers. So, you know, cost management is a very important thing for us in the markets we find ourselves in, and we're taking that very seriously. So from a cash outflow perspective, what does that mean? Again, you'll see that we peaked in 2022 with the investment in getting the SOEC technology ready. And that's crystallized into licensing partners in 2024. And again, you know, this cash is largely driven by the number of deals you can do. So it's rather binary. But everything behind that we can control. We are controlling both on a cost perspective and a cash management perspective and investing in those areas which give us the best chance of generating the revenues. This is an interesting slide. This is a new slide for people. People were asking us sort of, you know, how an MLA, a big manufacturing license agreement, sort of accrues over a number of years and the ongoing impact it has on our revenues. And you've seen with both Denso and Delta, the license fees were in the 40 millions, mid 40 millions. And this is roughly how the license fee is split over a three year period post signing. Not calendar years, but it depends when you sign it in the year, but this is just supposed to be indicative. So the first year, first 12 months after signing is about 50% of the revenue and then 25 for the next two 12-month periods. And you can see some of the activities which go on in that three-year period with the aim of getting them to start production in a condensed timeline of three years. And this is exactly what Delta said they can do. So they signed with us beginning of 24, and they publicly stated they're aiming to be on the market end of 26. And that's a testament to the number of times we've done this now, the condensing of the timelines of swapping the information, sharing the information, building their supply chains, and helping them get to market with the right systems. So we are getting better at this as we do this, and the portfolio effect of this offering to partners is what we're selling going forward. And this is the longer term. So right now we're at that stage where it says Doosan on this chart. So we're expecting our first royalty check this year from Doosan, the first commercial sales of the SOFC offering that they're giving to the market. But in the longer term, we're looking forward to being able to reap the benefits of being a licensing business, which is that the royalty base and the royalty revenues will grow and become a more and more substantial part of the royalty base. And then that's a far more predictable, sustainable, profitable company you can generate. At the moment, we are... our success is dictated by the number of manufacturing licenses we can sign to keep that three-year momentum going you saw in the previous slide but over time that will transform itself into a royalty model and that's what we're looking forward to and the more clients we can have the bigger portfolio effect as Phil said we can have the more chance we have of being successful. So to finalise, we continue to develop new partnerships. As we've said before, one manufacturing partnership a year, which is the cost base we've set. The cash burn would be between 20 and 25 million. With two in a year, we'd look to be breaking even at this point as we add momentum to that three-year cycle you've already seen. We're well placed for that growth. The existing licensees are really going flat out. And future partnership prospects, the pipeline is looking good and we're seeing more prospects in the SOFC world with data centers, et cetera. The cost base rationalisation we did at the end of last year will pull through into this year and we'll see decreased costs. So I think we're in a strong position to both maintain that cash balance, manage cash throughout and be able to get to that profitable royalty generating status without needing any more funds. With that, I'll pass back to Phil.