30 September 2021

Ceres Power Holdings plc

Half-yearly results for the six months ended 30 June 2021

COMMERCIAL partnerships deliver STRONG FIRST HALF GROWTH

Ceres Power Holdings plc ("Ceres Power", "Ceres", the "Company" or the "Group") (AIM: CWR.L), a global leader in fuel cell and electrochemical technology, announces its half-yearly results for the six months ended 30 June 2021.

Phil Caldwell, chief executive of Ceres commented: "We are pleased to report a strong performance for the Company in the first half of 2021, including a notable increase in our revenues at sector-leading gross margins. The outlook for clean technology innovation and hydrogen remains strong, buoyed by growth in strategies, regulation and green investment. Our partners continue to announce significant developments in the scale and application of our technology and the high level of interest and early engagement around its use for electrolysis to produce green hydrogen is very promising."

_{*Order book refers to confirmed contracted revenue and other income while pipeline is contracted revenue and other income which management estimate is contingent upon options not under the control of Ceres.}

¹     Adjusted EBITDA loss is an alternative performance measure, as defined and reconciled to operating loss in the non-GAAP section at the end of this report.

²     Following the Group's decision to invest more heavily into solid oxide electrolysis cell (SOEC) technology, the separate disclosure of SOEC Adjusted EBITDA in addition to the Group's historical solid oxide fuel cell (SOFC) technology Adjusted EBITDA is considered to provide additional useful information to allow readers of the interim results to more fully understand the Group's performance. Adjusted EBITDA by segment is reconciled to operating loss in Note 3.

Analyst presentation

Ceres Power Holdings plc will be hosting a live webcast for analysts and investors on 30 September 2021 at 09.30 BST. To register your interest in participating, please go to: https://www.investormeetcompany.com/ceres-power-holdings-plc/register-investor

For further information please visit www.ceres.tech or contact:

Chief Executive's Statement

We are pleased to report that Ceres has continued to develop at pace in the first half of 2021.

Firstly, we have focused on building resilient operations, on delivering new and existing product initiatives and programmes and a solid set of financial results.  Partner contracts converted to revenue during the period delivered growth of 96% in revenue and other operating income up to £17.4 million (H1 2020: £8.9m). We have also invested strongly in the business, expanding research, development, test and manufacturing capacity across our two sites.

Secondly, the Board and management have expanded the Company's strategy to ensure we continue to drive sustainability and innovation, enhancing the competitiveness and relevance of our technology across the clean energy market and delivering future value for our shareholders. 

To support this strategy, we successfully raised a further net £179 million in March through an equity fundraise, which will principally be used to accelerate our investment in the development and potential commercialisation of our technology in electrolysis to produce green hydrogen. It is a market predicted by McKinsey and the Hydrogen Council to be worth as much as US$2.5 trillion for hydrogen gas and electrolysis equipment to meet 2050 targets and we were pleased to secure the full support of our strategic investors, Bosch and Weichai Power, for our fundraise.

With the UK due to host the COP26 climate talks in the coming weeks, the focus is squarely on the ambition of countries for decarbonisation and hydrogen technologies. Ceres aims to play a central role in the global energy transition to affordable clean power, supported by our strategic partnerships with some of the world's most progressive companies in those markets leading the global charge on climate change. 

Commercial progress and partnerships

As at 30 June 2021 our order book stood at £42.0 million and we had a further £43.8 million in the pipeline, being a combination of staged licensing payments and engineering services.  The high proportion of licence fees continues to support healthy gross margins, which at 71.6% is consistent with the prior 18-month period and differentiated from our peers.

Bosch

In its annual update in March, Bosch published significant positive progress on its programme for SOFC development in partnership with Ceres, reiterating its aim for a production capacity of approximately 200MW output per year by 2024.  This is the culmination of over two years of work, with the Ceres team supporting technology transfer and initial manufacturing under licence at Bosch's site in Bamberg, Germany.  

Once scaled, production will be focused on series manufacturing of decentralised power plants, the equivalent of supplying around 400,000 people with household electricity. Bosch has stated that it will invest €400 million into its SOFC business, including manufacturing capacity, between now and 2024.  It plans to put up to 100 small-scale fuel cell power stations into operation this year, which will generate electricity for data centres, industrial firms and residential neighbourhoods.

In the period, Bosch also continued to support its corporate relationship with Ceres by maintaining its equity holding at 18%, contributing an additional £38.7 million as part of the equity fundraise in in March 2021.

Doosan

In September 2021, Doosan announced that it has completed the development of its 10kW SOFC system, the product of a joint collaboration with Ceres signed in July 2019. Doosan is planning a soft commercial launch of the product in 2022.  The combined heat and power (CHP) system, uses two of Ceres' 5kW SOFC stacks and has delivered 40% higher power generation efficiency when compared with Doosan's existing PEM based technology. The 10kW system for use in commercial and residential buildings is similar in size to existing 5kW SOFC products on the market in Korea, saving 50% on installation space and maintaining the equivalent power generation efficiency.  

In Korea, the fuel cell power generation market for commercial and residential properties is expanding because of a combination of zero-energy building certification, public institutions' mandatory renewable energy policies, and the local governments' mandatory private building renewable energy policy. Doosan estimates the compound annual growth rate in the Korean market for stationary fuel cells is 24%. Doosan is expanding manufacturing capacity to meet market demand and is targeting 50MW annual capacity of Ceres SteelCell® fuel cell stacks by 2024. We believe this could still increase further, given Doosan's plans to develop utility-scale SOFC power stations and marine applications using Ceres' technology.

In March, Doosan announced the signing of a memorandum of understanding with Korea Shipbuilding & Offshore Engineering, a division of the world's largest shipbuilding company Hyundai Heavy Industries, for the joint development of a megawatt class SOFC system for clean energy marine propulsion and power generation. The agreement continues the expansion of Doosan's business into the marine market and reflects the growing interest in Ceres' technology as a differentiated solution to support the decarbonisation of the global shipping industry.

Weichai

In March, Weichai Power supported the Ceres equity fundraising investing a further £43.5 million to maintain its shareholding in Ceres at 20%.  Positive discussions are progressing on the wider strategic relationship including the establishment of a joint venture in late 2021, to produce Ceres SteelCell® SOFC systems.

The pandemic has created challenges in remote working practices and so the commencement of a new programme for a 30kW stationary power module is a welcome development, expanding the scope of our collaboration alongside transportation. We are making good progress with discussions and technology field trials and we will provide further updates to the market in due course.

AVL List

The strategic collaboration with engineering consultancy AVL is progressing well.  Formed at the end of 2020, the partnership brings important strategic benefits combining AVL's applications expertise and market presence with Ceres' IP and systems know-how, enabling us to reach into more end-market applications than we could on our own.

Ceres and AVL are working together on customer acquisition and to identify and exploit the growing interest in SOFC technology in new applications and regions.  Three early-stage pieces of work have commenced, each in new and different regions, covering both stationary and mobile applications and span a range of ratings up to 250kW.  We also have a strong pipeline of future opportunities capitalising on AVL's experience and expertise in large-scale marine and distributed power systems.

SOEC

Work is going well on our first-of-a-kind solid oxide electrolyser (SOEC) 1MW-scale demonstrator to be operational in 2022.  Whilst still early days, we have already seen strong interest from commercial partners, seeking to unlock green hydrogen opportunities for close integration with industrial and energy generation processes. We are engaging with a number of global majors across the oil and gas, industrial and clean energy sectors to demonstrate and commercialise our technology.

Deployment of first commercial SOEC plants is expected from 2025.  Ceres is targeting a levelised cost of hydrogen production at <$1.50 per kilogram, which enables green hydrogen production to be competitive with blue fossil fuel based hydrogen in time to meet a market projected to more than double in size every decade from 2030 to 2050.  Importantly, access to royalty streams in SOEC will be additive and complementary to royalties already enabled in our SOFC business. 

Progress in the high-volume manufacturing of Ceres' core SteelCell® should support economies of scale and enable bringing both our fuel cell and electrolysis technology to the mass market. We see significant opportunities to further our commercial relationships and the scope of our existing partnerships. 

Operations

During 2020 we achieved manufacturing capacity of 2MW at our pilot manufacturing production facility in Redhill in the UK.  We also continue to support our manufacturing partners Bosch and Doosan in their progress towards mass market launch. Doosan is targeting annual production capacity of 50MW in 2024 and Bosch is now preparing to scale up to mass manufacture in 2024, targeting annual production capacity of 200MW.

We will continue to supply systems licensees with stacks until our manufacturing partners come onstream and we can migrate them across to this supply.  As such, Ceres' initial manufacturing capacity is now being increased to 3MW through the installation of additional equipment to support production of our 1kW and 5kW stacks, which will supply our partners for their testing and trials as well as meeting the demand for our internal R&D activities for both SOFC and SOEC.   

In general, electrolysis systems are much larger, going to MW or even GW-scale, versus fuel cell systems running to 100kWs to low MWs.  In both use cases, partners are seeking to take our technology into larger arrays, and we are focusing on our 5kW fuel stack as a core module to support this development. Part of the net proceeds of the March fundraise will be used for general working capital purposes, to cover the increased operating cost base of what will be a larger business addressing both SOFC and SOEC uses of our technology, as well as capital to enhance test capability and infrastructure and  further expand pilot production.

Technology

Ceres' technology and competencies span applications essential for the energy transition; from fuel cells that deliver energy conversion through storage and the production of green hydrogen and other chemicals utilising solid oxide electrolysis.

The market for electrolysis enables growth for Ceres by building on our fuel cell capability and technology. It is the same core cell and stack technology platform, the same IP portfolio covering SOFC and SOEC, the same manufacturing process and supply chain and continuing the partnering model to deliver scale. 

Importantly, electrolysis is a cornerstone technology for decarbonising hard-to-abate sectors, such as steel, ammonia, methanol and shipping. SOEC has an intrinsic thermodynamic advantage over low-temperature electrolysis and, when coupled with industrial heat reclamation, can deliver efficiencies up to 90% thereby unlocking green hydrogen opportunities for close integration with industrial and energy generation processes. Our MW-scale SOEC demonstrator set to be delivered in 2022 will pave the way for commercialisation of the technology. 

In addition to the £100 million earmarked for development of SOEC, part of the net proceeds of the March fundraise will be used to invest in the core business to accelerate innovation and to maintain technology leadership across both SOFC and SOEC. In addition to expanding research and development, engineering and advanced manufacturing capabilities, the proceeds provide further capital for IP generation and acquisition together with the addition of new team members.

We recruited an additional c.100 employees in the first six months of 2021, around half of whom are scientists and engineers. We also strengthened our industry-academia research collaboration, announcing Professor Stephen Skinner as the Ceres Royal Academy of Engineering Research Chair in Electrochemical Devices for a Zero Carbon Economy, with the intention to establish a world-leading research group in the field of materials engineering.

Financial Review

During the six months to 30 June 2021, the Group reported revenue and other income from the fuel cell business of £17.4 million.  Licence fee income drove the Group's revenue to grow 93% when compared to the same period in 2020, with a slightly reduced gross margin of 71.6% (H1 2020: 79.5%) reflecting the change in revenue mix. The higher proportion of higher-margin licence fees was offset by a period of lower output of stacks as extra equipment was installed and commissioned to facilitate an increase in plant capacity, which is now largely in place. Consequentially, in the period to 30 June 2021, the absolute gross profit increased 73.4% to £12.2 million (H1 2020: £7.1 million). As we have stated previously, gross margin percentage will vary period on period based on timing and quantum of licence revenue recognition and revenue mix. 

From this period onwards, we will disclose the key financial metrics of our nascent electrolysis business separate from the core fuel cell business, in line with internal reporting, in order to help show progress and where we are making investment into the business.

Investing in the future: people and technology

We continued to invest in building the business for the opportunities we see ahead. Operating costs for the business in the six-month period were £20.2 million (H1 2020: £14.2 million), the bulk of the increase being additional R&D investment.  Throughout the period we increased the team size as planned, employing 432 people as at 30 June 2021 (325 as at 31 December 2020). We have added people across all aspects of the business, including in manufacturing and mechanical engineering and the testing teams to support existing and expected commercial projects, as well as in core Energy Materials to continue to drive innovation.

As a result of an increased gross profit, the SOFC (or Power) part of the business reduced its adjusted EBITDA loss from £4.3 million in the 6 months to 30 June 2020 to £0.4 million. Due to the impact of the continued investment across the business as described above and depending on revenue mix and progress, we expect the SOFC part of the business to remain adjusted EBITDA loss-making in the short term. 

Our SOEC (or Hydrogen) business showed an adjusted EBITDA loss of £4.1 million (H1 2020: £0.7 million), reflecting the initial set up, focus on activities and the initial investment there.

Solid financial position: the foundation for continued progressive growth

The Group ends the period with a strong position of £263 million in cash and investments as at 30 June 2021 (31 December 2020: £110 million) as a result of the equity fundraising in the period, and we have begun to put these funds to good use already, as shown by our equity free cash outflow in the period increasing to £18.7 million from £6.1m in the six months ended 30 June 2020.

We invested £3.6 million in property, plant and equipment in the period (H1 2020: £3.0 million) on manufacturing improvement and capacity expansion, as well as the start of building out our test infrastructure to accommodate new products including the Green Hydrogen electrolysis programme. We capitalised £1.6 million of eligible development and related costs in the period (H1 2020: £1.5 million), with £5.9 million capitalised to date (31 December 2020: £4.9 million).

The other significant movements in the balance sheet included the recognition of net contract assets of £1.9 million at the period end, compared with net contract liabilities of £6.6m as at 31 December 2020, reflecting timing differences between invoicing customers and recognising revenue on contracts. Finally, trade and other payables reduced to £2.5 million
(31 December 2020: £9.1 million) reflecting the payment of receipts received in December 2020 which related to the exercise of certain share options.

Board and Management Changes

During the first six months of the year we welcomed two new Non-executive Directors to the plc Board - namely Tudor Brown, formerly of ARM Holdings, and Professor Dame Julia King, Baroness Brown of Cambridge. We welcome their perspective and their depth of knowledge and experience as we continue to grow and diversify.

At the executive level, we recently announced that Caroline Hargrove has been appointed as CTO and that Mark Selby, the current Chief Technology Officer (CTO), will move to a newly created position as Chief Innovation Officer (CIO), both effective from 25^th October 2021.  Caroline will step down from her current position as a non-executive Director of Ceres to take up this full time executive position and her unique skills and experience in leading digitalisation and managing high-growth technology teams will be invaluable for the next chapter of Ceres' development. The new CIO role provides the opportunity for Mark to use his considerable knowledge to focus on establishing future innovative technology for Ceres.

Outlook

Ceres is committed to clean energy innovation in everything it does. We have an established and growing business in fuel cell power and through the successful equity fundraising we are now addressing the potentially even greater market for electrolysis for green hydrogen.  Above all, it is consistent with Ceres's purpose of embedding our unique technology in the products of world-class companies to address climate change and to create significant shareholder value. 

I would like to thank our shareholders, partners and suppliers for their continued interest and support for the business and all our employees for their dedicated commitment and hard work through this exciting period in the Company's growth.

Philip Caldwell

Chief Executive Officer

 

CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2021

The accompanying notes are an integral part of these consolidated financial statements.

^{1 Other operating income relates to grant income.}

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2021

The accompanying notes are an integral part of these consolidated financial statements. 
 

CONSOLIDATED CASH FLOW STATEMENT

   For the six months ended 30 June 2021

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2021

Comparatives for the six months ended 30 June 2020 are provided separately below: