Ceres Power Holdings plc

Good morning, everybody, and welcome to the ServicePower Interim Results for 2025. I'm Phil Caldwell, Chief Executive, and I'm joined by Stuart Painter, CFO, and Patrick Yao, Head of Investor Relations. So without further ado, let's go through the first half year. The first half of 2025 has been quite an exciting year for Ceres in a number of different ways. Probably biggest milestone for us is the start of production with Doosan in South Korea. That's a milestone that we've anticipated for a long time. And it really is a pivotal point for the company because it proves out R&D innovation all the way through to mass production and ultimately will lead to the payment of royalties and proves out the business model. So that's a big milestone for us achieved in this first half of the year. We're very pleased with progress with other partners as well. Delta Electronics has acquired lands and factory facilities now to begin their scale up in Taiwan committing around 170 million investment into those large-scale manufacturing facilities for hydrogen energy solutions. We've had some landmarks with Shell as well on electrolysis, the largest solid oxide deployment in India achieving record efficiencies. And our partnership with Thermax goes from strength to strength, also in India, opening the HydrogenX hub, which is going to actually test and validate systems and ultimately build systems in India as well. So a lot that we'll talk about this morning there. I think the markets are interesting as well. I'm sure you've seen the headlines, but the power markets are changing dramatically, probably in a way that we didn't anticipate 12 months ago. And it's really being catalyzed, if you like, by the near-term need for power, the time for power. driven by things like AI data centers. So that market has shifted dramatically. And as a business, that's a big opportunity that we need to respond to as well. For Ceras, we're now very much in commercialization phase. As I mentioned, we've kind of crossed the Rubicon, if you like, from R&D into mass production. I mean, that's been coming for a long time. Our teams, our people have worked incredibly hard on that. And we're getting pretty good at this as well in terms of factory builds with our partners globally. And we really have this clear ambition to establish Ceres as the industry standard in solid oxide. We have a strong balance sheet and positive cash flow in the period, and Stuart will talk to the financials in a minute. And in response to what's going on in the markets and also the transition of where the company is, moving heavy investments in the R&D phase now through to commercialization and manufacturing, we are undertaking an alignment of resources and a business transformation initiative over the next few months leading to a year which really will focus our partners more on initializing and executing on these commercial power market opportunities that we see and supporting partners as they go into mass production i just want to remind you you're probably pretty familiar with the the technology um it's the unique technologies the steel cell this is the latest larger larger footprint uh but you know high performing fundamental steel cell technology that we have at Serres that same cell now has a dual use and we will be launching next year our latest stack platform so that's a single product a single stack platform that will service both the power markets and the hydrogen markets Now that's very important to us because what that means is we have a single platform, we have a very much focused R&D and product development pathway and also the maturity, the scale, the supply chain build-out that we're doing for these first markets for power ultimately will also directly result in the maturity, the cost down and everything that we need for the hydrogen market as well. So single cell, single stack platform. On the top here, you can start to see the first products coming through from our partnership with Doosan, our partnership with Weichai in China, our partnership with Delta in Taiwan. And also we're making good progress on the hydrogen side of the business as well, particularly with Shell and Thermax in India, and also our partnership with Denso in Japan as well. So just to give you an illustration, this is now becoming very real for Serres. I think for some people, it's probably you understand the technology, you understand the potential of this, but seeing it in reality is what's now starting to happen. This is getting very real for Serres. This is the first time probably that we're sharing with you the inside of that factory at Doosan. You know, this is 300 meters long, highly automated, state of the art production facility in South Korea. It's a semi clean room environment, all based upon the Ceres technology. It's an amazing facility and we're very excited to have hit that milestone. Doosan developing the power systems that will now go into things like commercial buildings, the data center market and grid reinforcement in South Korea. We're making good progress with Weichai as well, developing larger power systems again on that commercial stationary power type applications. So very good progress in China. And then I mentioned Delta in Taiwan. This is a picture of the facility that they've recently purchased, which is just to give you a sense of scale. It's probably 4x the size of the Doosan factory as well. So you can start to see the potential of the scale up of our partnerships. I want to say a few words about the two markets that we serve, the power market and the hydrogen market. If we start with the power market, AI-driven data centers, you've seen it in the news, it's driving what we believe is a killer application for solid oxide power. You can't go anywhere without seeing headlines about investment in infrastructure, not just here in the UK, but in the US, in places like on here, South Korea, Thailand. And one of the key themes of this is the need for power. We believe that this represents a very attractive market opportunity for solid oxide. In a near-term opportunity by 2030, we see the potential market for this being about 22 gigawatts. And it's a very underserved market today. Probably the only player that's addressing this market today is Bloom Energy in the US. which has a multi-billion dollar market cap. But we're starting to bring in to our partnerships competitors that will actually enter this market. So we see that as very much the near-term focus. There's a clear market opportunity there. If you look at the 22 gigawatts, about 50% is projected to be data center, but also commercial buildings, industrial power, shipping as well. And the split is 50% Asia Pacific, about 25% US, 25% less to the world. Why do we believe the salt oxide is a killer app in this market? It's all about time to power. If you look at what's going on today, if you want to buy a gas turbine, you're waiting up to about seven years now for gas turbine. There's been a lot of talk, particularly in the UK, about small modular nuclear. You're not going to see small modular nuclear until about 2030. If you're lucky, probably 2035. High voltage grid connections, 5 to 15 years. So while there's a lot of talk about time to power, there's a gap. There's a near-term gap in the market. You could build a solid oxide fuel cell factory and develop products in under three years. That's what our partners are doing. Far faster than you can address this time to power. In terms of resiliency, we have a very mature offering now that gives you 24-7 baseload and a long stack life. We have low noise and very importantly, low emissions. So when you're talking about some of the things that you've seen in the data center market, like deployment of gas turbines on a temporary basis, very quickly they come up against emissions regulations. You can't deploy those kinds of things for long. So it's a low to zero emission technology. It lends itself very well to carbon capture as well. And it's highly fuel efficient. So it's over 60% electrical efficiency. So as efficient as any gas turbine. But also when you combine that with the heat or the cooling that you get off the back end of it, you get something which is 85, 90% efficient. It's fuel flexible, natural gas today, hydrogen tomorrow, and it's modular, which means you can build out rapidly. And also it's starting to benefit from policy decisions. We've seen this recently in the US. You've got the one big, beautiful bill, gives a 30% tax credit for solid oxide fuel cells. We see it in places like South Korea and many other places as well. It starts to have positive policy decisions to enable this time to power. This is just an illustration of how some of our partners are very much in this ecosystem. You may not be less familiar with Delta. Delta is now the third largest company in Taiwan. So when you think that the biggest company is TSMC, Taiwan Semiconductors, Delta is a very impressive company. This comes from their website. So you can see that they are already providers of things like power conditioning equipment, UPS equipment that feed into the data center market. And this schematic, I think, illustrates it very well. You have a fuel flexible input into solid oxide you can combine it with carbon capture on the top absorption chilling for cooling and also with the rest of the equipment you have a ready-made solution that can service things like microgrids ai data centers semiconductor manufacturing is really interesting as you go down onto you know, lower and lower nanometer kind of wafers, you need more and more power. So you're starting to see this whole electrification industrial loading increasing this need for a time to power. We have a lot of experience on this. This is with one of our partners that we did a hell of a lot of field work with. So we got over 100,000 hours of real world data center type application data for this. and 28,000 load cycles. So because of the nature of our technology, we can load cycle very well. So we have a very mature offering for this market. A few words about electrolysis. While we see the data center market and the power market as being the near-term market opportunity, we also are making good progress on electrolysis. I think we've seen headwinds on hydrogen, and I think that will continue for the near term. However, it does open up a window of opportunity for solid oxide, which is a higher efficiency technology than what people are using today. projections on hydrogen. Still, we believe that's a bigger market, but it's a longer term market. This date is out to 2040. And again, we're very committed to the industrial applications, steel, ammonia, synthetic fuels. That's some of the work we've been doing with companies like Shell recently. The Shell milestone, we demonstrated 37 kilowatt hours per kilo. What does that mean in real terms? A typical low temperature electrolyzer would need between 50, 55 kilowatt hours per kilo. So to generate the same amount of power, You'd need 50 wind turbines. In our case, you'd only need 37 or you'd get 30% more production from the same renewable assets. So because you can integrate this into industrial processes, as we've done with Shell, this lends itself very much to 50% of that electrolysis market, which is the industrial decarbonization. We are moving ahead with our partnership with Thermax in India. That's important to us because we have to compete with things like Chinese electrolyzers longer term. So establishing low cost manufacturing in hubs like India is very key to us. Also, it's a key market in terms of the ability to combine with renewable assets that they're putting in there. And that's even servicing things like the ammonia and the green steel markets in the future. This is an interesting piece of news that came out yesterday from one of our partnerships with Denso. So we began our relationship with Denso a year ago. We're very pleased that Denso have announced the installation of their first SOEC hydrogen production with Jira, one of the biggest utilities in Japan. What this is doing is producing hydrogen for thermal power plants to reduce emissions there. So you can see quite a lot of progress, I think, in the first six months of the year. We're seeing this near-term market opportunity coming towards us on the power side, which we're very much focused on near-term, and we continue to make very good progress on the electrolysis side. But I'm going to hand over to Stuart to talk you through the financials.

Thanks, Phil. uh good morning everyone so let me just take you through um the financials for the first half of the year and a little bit about um our plans going forward so financial review um revenue number just over 20 million and you know we'll point at the gross margin percentage which is you know uh industry leading high gross margins given the fact we're we're pursuing a licensing model needs to remain high gives us flexibility which will uh will take you through generating a good gross profit number and then we're still a loss-making company right we're still investing in in our our stack platform as still mentioned and we'll take you through a little bit of the the trend around that spend and how we're going to manage that going forward um also mentioned we've been cash generated in the first half um this is a working capital internal financial efficiency play um and you know i think what we've done is we've we've managed to preserve more than 100 million in cash at the at the half year through really tidying up the balance sheet um of course you know now we need to continue to deliver on the top line in order to drive future cash flows The bottom right hand number is an interesting one. This time last year, we came out and said that we were going to realign the business and do a little bit of a restructuring and generate about 15% of savings, both in OPEX and CAPEX. And that measurement, as you can see, is slight increase on that 17% compared to the targets we set ourselves. That now forms the baseline of our costs. So anything you see from now on is based on this lower cost level. And just a bit on revenue and gross profit, you can see that we had a jump at the beginning of 24 and that represents the signing of Delta. We followed that up last year with the signing of Denso and we're managing to maintain a relatively high revenue number given we're working our way through the backlog and the milestone generations for those two projects. um yeah this this trend needs fuel and that fuel is signing of mlas um and we are 100 focused on on so doing and we'll take you through a little bit of the plan about how we're going to optimize that going forward And licensing model, of course, enables a sort of flexible cost base. And here we're just talking about the OPEX in the last few halves and how it's come down. Like we said, we would deliver a 15% reduction in OPEX and CAPEX. That translated to a 13% OPEX reduction, as you can see there. This now forms the baseline for which we go forward. um yeah we've done a few um you'll notice if you're looking at the the detailed interims report that we've started writing off some of the r d that was previously being capitalized so that's a slightly inflated number so we've adjusted it there um and we'll continue to do that going forward but this is a very important piece of the business model the ability to keep a flexible cost base and we'll go through a bit more of that in a moment In terms of cash flows, I think this is a really interesting chart. This backs up what Phil was saying. We raised quite a lot of money in 2021. And you can see there that the peak spend on the hydrogen investment we made was 2022. And that investment has been continuing but reducing. and you know we believe that with the cell phil showed you in the next generation of technology that's going to be available very soon that we're going to commercially launch in 2026 you know we we've come to we've crystallized a lot of the effort that's been made in 22 23 and 24 So whilst I'm not going to sit here and promise we're going to be cash generative like we were in the first half, we're going to see a lesser amount of cash burn as we move forward. Because even though we're going to continue to innovate, it's very important as a licensor. We're talking about lifetime and cost and very, very focused programs based on that one stack technology that we're going to launch in early 2026. Here's the licensing model and the orange signpost is really where we are. So licensing fees are everything for us and they'll continue to be very important for the next few years. But as Phil mentioned, Doosan have now reached the start of mass production and we expect royalties to flow there on. So we'll see that royalty base build, and that is sustainable profitability, the royalty base. The royalty stack is what we're after. In the meantime, we're going to continue to try and generate license fees as well. Very important to make the maximum impact for our technology in the world as we're aiming for this technology to become the industry standard in solid oxide. So the orange signpost is where we are, and we believe that's a really important inflection point for us. Because we're sort of through the R&D phase and into the commercialization phase now. And what does that mean? Well, in this morning's announcement, we did announce a business transformation program that we're going to launch within Ceres. That's going to take 12 months. And the aim is to utilize the fact that we've reached these various inflection points, the product that we've been talking about, Doosan's launch and royalty generation, um to to realign the business resources around being more commercially focused um and being able to maximize the impact of our product in terms of signing more mlas so we're gonna we're gonna support our existing partners we're gonna gain more partners um and we're gonna restructure ourselves so we're we're in in the right space to be able to achieve that goal And we believe the output of that is going to be a reduction in operating expenses of around about 20%. And that will lead us on that clear path to profitability that we're looking for as royalties becomes a bigger part of the revenue streams. The first phase of this program will be done by the end of this calendar year. So there's a three month reorganization which will go first and then we'll work very hard on the ways of working and cultural alignment on the business for the next nine months post that. But that kicks off today and I think that's an important part of the position we are in in the market at the moment. I think, you know, it's a real opportunity for us to maximize the position we currently find ourselves in. And with that, I'll hand back to Phil on summary.

Phil Brayden I'm sure. Yeah, so just a few words in closing on the outlook for the year. So as Stuart said, this landmark start of production at Doosan means we are transitioning from the very much you know, 20 plus years of R&D through product development now into actually having products that are coming to market. Big milestone for us. We are seeing more and more incoming on power. We just respond to that market opportunity that's being targeted by our partners as first product launches. If you look at Doosan, if you look at Delta, it's all about the power market to begin with and then electrolysis will follow. We are making very good progress on electrolysis as well. As I mentioned, the relationship with Shell has been fantastic. Great results there. Great news coming out of Japan on progress there. So it really validates the capability of this technology to be a real step change in electrolysis in the future. Stuart's already talked about the business transformation plan. I think we have that continued discipline on growing top line, but also managing our resources to really respond flexibly to the opportunities that we see. We maintain a strong balance sheet with the cash management and the cash inflows in the period, and that will continue. We did this morning adjust the revenue expectation for the year. I think it's very hard to predict signing of new MLAs. So when you look at our revenues, they come from engineering services, signing technology transfers, and then ongoing royalties. So for the year to date now, we are expecting a minimum of 32 million, and anything that we sign now will be upside to that. the the reason for the the change here is we honestly cannot predict exactly when we sign these deals and also that also has an impact on revenue recognition which as you can imagine is is not trivial uh when you're actually dealing with these kind of contracts but we are continuing to pursue several opportunities and we'll keep you updated on progress as and when they they arrive So with that, I think Patrick, we may take some questions from.