Analyst presentation

Ceres Power Holdings plc will be hosting a live webcast for analysts and investors on 24 March 2023 at 09.30 GMT. To register your interest in participating, please go to: https://www.investormeetcompany.com/ceres-power-holdings-plc/register-investor.

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

About Ceres Power

Ceres is a world-leading developer of electrochemical technologies: fuel cells for power generation, electrolysis for the creation of green hydrogen and energy storage. Its asset-light, licensing model has seen it establish partnerships with some of the world's largest engineering and technology companies, such as Weichai in China, Bosch in Germany, Miura in Japan, and Doosan in Korea, to develop systems and products that address climate change for power generation, transportation, industry, data centres and everyday living.  Ceres is listed on the AIM market of the London Stock Exchange ("LSE") (AIM: CWR) and is classified by the LSE Green Economy Mark, which recognises listed companies that derive more than 50% of their activity from the green economy.

Chief Executive's Statement

It has been another productive year at Ceres with our first electrolyser modules on test, an exciting new partnership with Shell, and a collaboration with Linde Engineering and Bosch for green hydrogen. We are making good progress on SOFC, with existing partners Bosch and Doosan scaling production, and steps towards establishing our China JV. We have also opened a new test centre with Horiba MIRA in the UK, achieved record cell production at our pilot facility and grown the Ceres team to 570 colleagues.

These are just some highlights of another year of considerable progress, despite the challenging macroeconomic backdrop. Through it all, we remain wholeheartedly committed to the biggest challenge, to address the urgency for climate action. The world is not on track to keep global warming at 1.5°C above pre-industrial levels and we are already starting to see the devastating effects of climate change around us, from cyclones and floods to droughts and heatwaves.

We need to decarbonise our energy system, but we also need to provide energy security, stable power prices and sustainable employment. There are not many companies that have the opportunity to do something truly impactful on a global scale - but I believe that Ceres is one such company. Not only does it have unique clean energy technology that can play an important role in hard-to-decarbonise parts of our energy system, but we sit at the tipping point for our planet, which means the time to act is now.

It is no longer a question of credibility of technology, but credibility of scale

At our reference manufacturing plant in the UK, we are now producing 2MW of capacity, and by the middle of this decade we will have added 100 times that capacity with Bosch and at least another 50MW with Doosan. By the time our partners start planned series production, they will have invested more than €500 million in scaling our solid oxide fuel cell ("SOFC") technology.

That same technology run in one direction is a highly efficient fuel cell for power generation, run in reverse enables low-cost green hydrogen that provides a vital route to industrial decarbonisation of sectors such as steel, fertilisers and future fuels. We have committed £100 million to the development of its application in solid oxide electrolysis ("SOEC") and the first 100kW electrolyser module is on test ahead of scaling into a 1MW demonstrator. Initial results are positive and give confidence that this technology can deliver green hydrogen at <40kWh/kg, around 25% more efficiently than incumbent lower temperature technologies.

In March 2023, we signed a new agreement with Bosch and Linde Engineering, to assess Ceres' technology for use in large scale industrial applications as a pathway to low-cost green hydrogen. This is our second partnership announcement, following the agreement with Shell to establish a 1MW technology pilot of Ceres' SOEC system at its R&D centre in Bangalore, India. The agreement builds on Bosch's existing expertise in our SOFC technology and combines with Linde Engineering's world-leading capabilities in hydrogen process technology and a global customer footprint in industrial facilities. Our target is to enable the ecosystem of SOEC partners that can make Ceres' technology even more competitive and prepare it for mass adoption at scale.

By the end of this decade, we aim to have multiple factories in place producing multi gigawatts of fuel cell equivalent capacity globally. It is just the start. This is a global challenge and if we want to have a real impact on climate change, technology alone is not enough, we must work with partners to scale globally and at pace.

Collaboration is key

The war in Ukraine has added energy security to the urgency for climate action and in Europe we saw RePower EU's ambitious plans and strong financial incentives to move away from the reliance on gas and support the deployment of green hydrogen. In the US, the Inflation Reduction Act, signed into law last summer saw a record $369 billion earmarked for energy and climate change policy - in a year when disasters from drought in the West to hurricanes in the East and a nationwide winter storm served as a stark reminder of climate perils. There is simply no turning back to the world of cheap fossil-based energy.

Hydrogen is now widely recognised by most companies and governments as key to enabling the energy transition, at the very least for hard-to-decarbonise industrial sectors that account for around a third of our energy system and more than its share of global emissions. Our partners, Bosch, Doosan, Shell, Weichai and others are among the most progressive companies, seeking and adopting new clean energy technologies at scale and pace, and the good news is that global competition can accelerate us towards achieving net zero. Where previously we spoke about an energy trilemma - where clean, low cost and security of supply were in tension - they now align, and clean energy will be the most secure and affordable into the future.

In 2022, we celebrated our 21st birthday, bringing the entire team together for the first time since before the pandemic. It provided an important pause from the day-to-day challenges to reflect on the past, present and future opportunities for the business and with nearly 500 people in one venue, it was a very visual reminder that we are collaborating with teams of a similar size across our partner organisations at Bosch, Doosan and Weichai.

These first steps towards deployment are vital, but they are not enough. We also seek to grow new partnerships across the globe to enable greater adoption through many more teams of people collaborating on Ceres' technology.

Strongest team in the global industry

Our partners come to us because of our technology, but they stay with us because of our people. They are passionate and brilliant and above all resilient, and they need to be because the science and the engineering challenges they are solving every day are hard. We are also working constantly to attract and retain the best people, ensuring they have training and development opportunities, benefits and access to share in the success of the Company. Many of our employees are also shareholders in Ceres - through Long Term Incentive Plans or through our employee save-as-you-earn scheme. 

It is an exciting time to be at Ceres. We have a strong purpose, a talented team, and the opportunity to work alongside some of the most progressive companies globally, driving investment and scaling clean technologies. Success is in our hands, but we are not complacent, and we continue to focus on executing our strategy:

·      To enable our licence partners to succeed

Our partners are investing significant time and resources into manufacturing Ceres' solid oxide technology, and we have expanded our engineering and specialist teams to ensure these early adopters are supported and successful in deploying new technology into new market opportunities.

·      To build commercial scale
We create commercial scale by generating more demand through increasing commercial partnerships and licences, growing applications and addressing new markets. This year we have increased the Commercial teams' presence in several global locations, reflecting the momentum in policy support for hydrogen and fuel cell technologies.

·      Maintain our technology leadership
As a licensing company it is imperative that we stay at the leading edge of our technology - and that is why we continue to innovate, from the next generation of our solid oxide technology, continued innovation of our IP for both fuel cell and electrolyser systems, to digitalisation programmes and what further technologies we may need to hit a net zero future.

Sustainability

The IEA estimates that to fulfil 2050 green hydrogen demand, the world is going to need 3,585GW of electrolyser capacity, so it is little wonder that the conversation is growing around the economic and life cycle impact of raw materials in the electrolysis supply chain. High demand, long processing times, limited supply and an undiversified supply chain have already called into question the price and availability of metals and rare earths to support the viability of large-scale electrolysis.

Ceres' electrolysis stack does not need to use precious metals. Its construction comprises over 95% automotive grade steel by weight, the most widely recycled material globally, and ceria-based materials within the active elements of the fuel cell, which is abundant, cost-effective and has multiple sources from multiple countries.

We understand that scaling technology comes with an environmental footprint, and we have undertaken a life cycle assessment of our stack technology where we quantify the potential climate impact of producing our cells, which you can find on the Sustainability section of our website.

We recognise the importance of looking beyond carbon impact to consider the circular economy for raw materials. As a next step we will undertake a full evaluation of the end-of-life recyclability or reuse of our technology, cradle-to-grave, and will seek to lead the industry for our technology, embedding sustainability considerations into the very heart of our development and the transfer of IP under licence to our partners.

Strategy and outlook

In March 2021, we set out a clear strategy on which we continue to execute. Investment across the business enables us to build a sustainable competitive advantage in highly differentiated solid oxide technology. We collaborate with world-leading partners, and we have built one of the strongest teams in the global industry for fuel cells and green hydrogen. All of this gives me confidence that we will deliver on our ambition to develop and deploy clean energy technology at the scale and pace needed to decarbonise our energy systems, and in doing so make a tangible difference for ourselves, our families and friends, and generations to come.

Phil Caldwell

Chief Executive Officer

Financial review

The Group reported revenue of £22.1 million in 2022, compared with £30.8 million in the prior year. Almost all of the Group's revenue in 2022 related to the fuel cell business. As reported in November 2022, the signing of the China JV contracts has been delayed to 2023 impacting the timing of the associated licence fee revenue recognition. Gross margins reduced to 59% (2021: 62%), reflecting the reduction in high-margin licence fee income recognised in the year compared with 2021. As noted in our Interim Results, the phasing of revenue in 2022 and early 2023 is highly sensitive to the timing of signing new licence agreements.

Other income of £1.3 million (2021: £2.2 million) relates to grant income, and now includes our RDEC tax credit as well as grant funding towards projects.

The order book (contracted revenue bookings) reduced to £67.8 million as at 31 December 2022 from £78.7 million at 31 December 2021; with new order bookings more than offset by the recognition of revenue primarily on existing contracts with our partners Doosan and Bosch during the year. Going forwards, the order book will continue to vary based on the timing of contracts won, and revenue recognised from them.

Ceres Power - fuel cells

The SOFC part of the business recorded revenues of £22.0 million (2021: £30.8 million) and a gross profit of £12.9 million (2021: £19.0 million), with the reduction compared with the prior year reflecting the deferral of the China JV and the expected recognition of associated upfront licence fee revenue. The segment's Adjusted EBITDA loss increased to £21.6 million (2021: £4.5 million). Investment in research and development ("R&D") for SOFC increased by 48% to £29.1 million (2021: £19.7 million).

There will be continued investment in SOFC in 2023 to support future expansion, and so the level of losses or future profitability of this part of the business will continue to be highly influenced by the level of SOFC licence fee revenue recognised in a given period, until royalty revenue streams become material. Another notable investment is the development of our second generation of fuel cell technology, which will offer improvements in power density, durability and cost.

Ceres Hydrogen - electrolysis

We plan to invest £100 million in the development of our SOEC technology and we are now two years along this journey and making good progress. Our SOEC business recognised revenue for the first time in 2022, of £0.2 million (2021: £nil), from a contract with a potential new partner in Asia to evaluate the Group's SOEC technology. The SOEC business recorded an Adjusted EBITDA loss of £21.7 million (2021: £12.2 million). This was primarily driven by a 66% increase in R&D activities to £19.2 million (2021: £11.6 million), particularly around the investment in our "first of a kind" 1MW demonstration unit for use in the contract with Shell. We made good progress in the year with the first Electrolysis Cell Module ("ECM"), which forms part of the demonstrator, now on test with encouraging early results with respect to green hydrogen production efficiency.

Focused investment for the future

Throughout 2022, we continued to invest in both capabilities and people to support our partners, deliver our technology roadmap and drive future growth. Our employee base includes specialist expertise such as highly skilled engineers; electrochemistry and materials scientists; and test and stack technicians and remains our most valuable strategic resource. Total employees increased to 570 by the end of 2022 compared to 489 at the end of the prior year. Overall R&D costs increased by 54% to £48.3 million compared to 2021 of £31.3 million as planned with our expansion of both our SOFC business and development of our SOEC business.

Capitalised development in the year, which currently only relates to ongoing SOFC development, increased to £5.8 million compared to £4.6 million for 2021 and we hold net £13.3 million capitalised to date. Amortisation of this to the income statement was consistent with the prior year, as expected, at £1.0 million (2021: £1.0 million). Our investment in property, plant and machinery increased to £13.3 million (2021: £7.4 million), and was principally on manufacturing improvement, automation and capacity expansion, as well as expanding our test infrastructure. This continued investment also resulted in increased depreciation of £5.5 million in 2022 compared to 2021 of £4.2 million.

Going forward, we plan to continue to grow our test capability to support the expected growth of our partners, and also enable additional market opportunities including new SOFC applications such as marine and alternative fuels, and SOEC development. We also intend to expand our manufacturing capacity for prototypes and demonstrators for both SOFC and SOEC products. Consequently, we expect our capital expenditure to continue to be at higher levels in 2023.

Overall, this "investment in the future" (R&D costs, capitalised development and capital expenditure) increased 67% to £58.4 million (2021: £34.9 million). The £58.4 million comprises £40.2 million in R&D (excluding depreciation, amortisation and share-based payments), £12.4 million in capital expenditure and £5.8 million in capitalised development.

As a result of these planned investments, consistent with the 2021 capital raise and strategy to develop our electrolysis technology, the Group reported an increased operating loss of £51.5 million in 2022, up from a loss of £23.4 million in 2021.

In December 2022, Ceres concluded a deferral of the option agreement to acquire the remaining shares of RFC Power Ltd ("RFC"), which is a "Long Duration Energy Storage" R&D business with proprietary manganese flow battery technology. This option is now exercisable in the period 1 January 2024 to 30 April 2024, having previously been exercisable between May 2022 and November 2022. Simultaneously, Ceres invested a total of £2.0 million in RFC, comprising £1.0 million funding capital as well as entering into a joint development agreement to advance the progress of this promising technology. Consequently, Ceres' holding of RFC increased to 24.2% from 8.4%, and our investment in associates increased to £2.5 million (2021: £0.5 million).

Strong financial position: the foundation for continued development and growth

The Group ended the year with a strong liquidity position of £182.3 million in cash and short-term investments (31 December 2021: £249.6 million) reflecting the investment in the business as described above. Finance income increased to £2.8 million (2021: £0.4 million) reflecting the improved rates applied to the Group's floating rate deposits and higher rates available when rolling over maturing fixed rate deposits.

Equity free cash outflow (defined and reconciled to net cash from operating activities in the non-GAAP section at the end of this report) was £68.4 million (2021: £32.0 million), being driven by net cash used in operating activities of £51.5 million (2021: £20.3 million), capital expenditure of £12.4 million (2021: £7.4 million) and capitalised development of £5.8 million (2021: £4.6 million), with the balance from interest receipts and exchange rate movements.

Other significant movements in the balance sheet included inventories increasing to £5.7 million (31 December 2021: £3.1 million) reflecting increased activity at our manufacturing facility to meet anticipated demand for our fuel cells and component parts to support our partners' development and scale-up activities. We recognised net contract liabilities of £3.1 million which is a change in position against 31 December 2021, when we had net contract assets of £3.0 million, with the movement reflecting timing differences between recognising revenue and issuing invoices to customers. Trade receivables increased to £11.8 million (2021: £2.6 million) primarily reflecting a number of significant invoices raised in the last quarter of 2022 with two major customers. Of the £11.8 million due at 31 December 2022, c.£10 million was received in the first two months of 2023.