Ceres Power Holdings plc (CWR) Earnings Call Transcript & Summary

Good morning, and welcome to Ceres' interim presentation for the 6 months ending 31st of December 2019. I'm here with Phil Caldwell, our Chief Executive; and Richard Preston, our Chief Financial Officer, who will run through the results for the period. [Operator Instructions] Thanks for joining us. I'll now hand over to Phil.

Good morning, everybody. Thank you for joining this call for the interim results for Ceres. Obviously, it's quite unusual circumstances given where we are with the COVID situation, and I'll say a little bit more about that shortly. But let's focus on what the company has achieved in the past 6 months. So in the first half of the year for us, strong momentum has been maintained across all core areas of the business, very strong progress with customers, which has resulted in continued revenue growth of approximately 34% in the period to GBP 11 million. And what's most importantly for us is revenue with a high gross margin, which is consistent with our asset-light licensing business model, which really sets us apart from most of our peers in the industry. The strong partner success we've enjoyed in that period, we signed several key milestones and new deals. First of all, Doosan, who are one of the leaders in fuel cells globally. We established a new system license and JDA worth GBP 8 million over 2 years. With Weichai, who are one of our main strategic partners, we actually completed the first prototype 30-kilowatt range extender for the electric bus program in the Chinese market. With Miura, we achieved a first for the company with the product launch of a CHP system for commercial applications in Japan in October. With Bosch, we also completed a first for the company, where we've actually initiated low-volume production of our cells and stacks remotely from Ceres in Bosch in Germany that's going into their pilot system production. In combination with what we've achieved with customers, we've also brought on additional manufacturing facility at Redhill, which is now supplying customers. And also, we continue to innovate, which is important as a technology licensing business to stay ahead. And given the growing focus on zero carbon solutions, we actually produced our first zero emission CHP system, which is designed to run on 100% hydrogen. As you know, we are fuel flexible so we can run on everything from conventional fuels, to blends, all the way through to 100% hydrogen. A very significant development in the period or shortly after was the strong cash position. And I think Rich will talk more about this. But given global uncertainties in markets, I think the cash position now is a real strength of this company and also the cash runway that we have as a business. So as of December, we had GBP 64.6 million of cash. Since then, a big vote of confidence, Bosch increased their investment into the company, putting an additional GBP 38 million in new shares at a price of GBP 3.20. So they are now moving towards 18% ownership of the company. And then Weichai also have increased or maintained their level of investment in the company at 20% with a further GBP 11 million. So that raised an additional gross proceeds of GBP 49 million for the company on top of the GBP 64.6 million we had at the previous reporting period at the end of December. So a very strong cash position and also strong endorsement because that cash is coming from our main strategic partners. I've already touched upon the commercial partners, but just to give a little bit of insight on progress. As I mentioned, if we take it in Slide 4, we commenced the initial low-volume production of pilot stacks and systems with Bosch. The picture you can see there is the Bosch 10-kilowatt system, which is targeting a variety of stationary power applications. It's a high-efficiency, low-emission power system that can provide baseload power, provide power for commercial buildings potentially for vehicle charging in the future. There's been strong interest and support across Bosch, and we recently have been involved with their events with Bosch ConnectedWorld in 2020. So some of that is available, I think, on our website. And that resulted in their increased confidence and increased stakeholding in the business. With Weichai, as you know, they are a world-leading power equipment manufacturer. They're one of the largest engine manufacturers globally and one of the largest commercial vehicle manufacturers globally. And we've produced the system that you see there in conjunction with Weichai, which is the 30-kilowatt range extender to provide basically fuel cell power in a hybrid system for an electric bus. Again, progress with Weichai has been very strong, and they've also further increased their stake in Ceres. Doosan, it's early stage, but we signed that contract to initially focus on 5- to 20-kilowatt power systems for commercial applications. But there's very ambitious targets in Korea for fuel cell rollout to target 15 gigawatts by 2040. And we are very optimistic that we can extend our relationship with Doosan to look at other increasingly higher power applications as well, so a huge opportunity there. And then Miura, we have the early launch back in October last year. That's going well. It's low volumes to begin with, but Miura have recently established the maintenance team to support its wider deployment in the Japanese market. And we're very pleased with that because that's probably one of the only instances of non-Japanese fuel cell technology which is now being sold in the Japanese market, which I think is a real testament to our technology and the work done by our people. I, obviously, have to address the COVID situation. Just to say, obviously, like most companies, the health and well-being of our staff and our partners remains our first priority. We're monitoring the spread of the COVID literally day by day and liaising with partners to ensure alignment. And if you think about Ceres as a global operation, we're talking to the Chinese, our German partners, Korean partners, et cetera. We are implementing appropriate measures to minimize the risk of impact on our business. We do have operations as well as professional engineering services as part of our business. And if there is potential impact, it's short term. So I don't think it changes the longer-term value of the company. And we are looking at how we minimize that impact on partner programs and manufacturing output. If we have impact on manufacturing, obviously, that could have an impact on delivery to partners. Notwithstanding these risks, our guidance currently for the full year remains unchanged, so in line with market expectations. We're on track where we stand today. But we will continue to assess potential impacts and update accordingly, if necessary, on future trading. I'd now like to hand over to Richard to talk you through the financial highlights. Richard?

Thank you, Phil. So just moving to, if you have the slide deck, it's Slide 7, a high-level view of the last 6 months. As Phil said, we've had very strong revenue growth at a consistently high margin, high gross margin. We have a lot of visibility on our future revenues with an order book strong at GBP 22 million, the pipeline maintaining at GBP 50 million. So we're very pleased that we've got good visibility on what we can deliver in the future on revenue in the next 12 to 24 months. EBITDA is flat, sorry, apologies, EBITDA is slightly down with cash slightly up, but I'll go into that in a little bit. But I think most importantly, our cash position, as Phil said, very strong, and I think that's particularly important with what's going on in the wider world with COVID, GBP 65 million and GBP 49 million coming just after the year-end. Just moving to the next slide. You can see the progression here of our revenue growth and the decent margins that we have. So it's continuing to grow. Margins are down from this period last year. Last year, we had significant licenses recognized. These tend to be a bit lumpy. But nonetheless, this is very much ahead of our target, gross margin of greater than 50%. And moving into the future. Clearly, our business is a licensing business. And the future value of our business will be based on the royalties that we will get when products with our technologies go to market. And the Slide 9 looks at the future and really some of the drivers and some of the milestones that we might expect before we get to this position. So clearly, royalties will be dependent on a full market launch from customers. And what we will be able to see before market launch is partners investing in mass production facilities. And we'll see this, we anticipate, in the next few years from our varying customers. I think this is what we should be looking out for. Otherwise, in the meantime, expect to see revenue growth coming from licenses, as we have seen in the last few, in the last year or 2, and also supply of customer programs coming from our new manufacturing facility. Just going to the next slide. Really, the messaging here is, as we announced back in January with the Bosch and Weichai investment, we're looking at more addressable markets than we had. And so as a company, we're looking to invest more in the company to maximize future value from these markets. Some of these are from fuel cell markets and some are from electrolyzers as Phil will go into a bit later. So as a principle, we have the cash to be able to capitalize on these opportunities. And we're making sure that the company is the right size to do so. And therefore, that's why in the last year or so we've increased our cash burn at an OpEx level, and this has been fed from the revenue and gross margin increases that we've seen. And to the cash slide, Slide 11. Really, this reiterates it. You can see that we are continuing to invest in the business with CapEx and development that we've capitalized of just under GBP 4 million in the last half year. And really just reiterating our strong cash position. And really, what we should be looking at is the cash flows in relation to the cash position. So with the Bosch and the Weichai new equity, we'll have over GBP 100 million of cash and our net cash burn per year is stable at around about GBP 10 million a year. So we have plenty of cash to deliver on increasing value for shareholders. And I'll hand you back to Phil.

So I'd just like to address a bit more about the wider business strategy. And strategically, we look at where Ceres is today. And I think we've established ourselves as starting to become the technology of choice in SOFC for global partners. But when we look at the trends around hitting net zero by 2050 and also the large now interest in the climate change agenda and ESG investment in general, we think that we're one of the best placed companies to take advantage of this. And really, this is becoming an 8 billion person problem in terms of addressing how do we keep the temperature rise below 1.5, which is already a significant challenge. How do we start to mitigate things like health issues from air quality. And obviously, a lot of what we're doing on the transportation side addresses that. You're starting to see increasing interest globally in this whole net zero agenda with 66 countries now committed towards that future and also a growing realization that electrification on its own is not the whole solution. So that potentially is driving a huge increase in the demand for electricity, which can't be met with battery technologies only. And therefore, fuel cells are becoming a very strategic energy conversion technology for the future. Our partnership progression, just to remind you, has shown this progress, as in we've successfully developed the business model for joint development engineering services with 6 named partners, Weichai, Doosan, Bosch, Cummins, Honda and Miura, of which 4 have progressed to the licensing stage. And we continue to work with those others that aren't yet at the joint development stage. And one has already gone all the way through to products to market. So we've established a successful licensing business model. As we look at the current business, what you can expect to see next is, the real value in this company comes from having more and more licensees and establishing this technology as the industry standard. To do that, we are looking at having global manufacturing partners, as we see with the likes of Bosch and Weichai today, to be able to produce technology at scale where it's required and also to increase the applications for the core technology. So we've grown, in recent years, from 1-kilowatt residential systems through to 10-kilowatt commercial systems to 30-kilowatt range extenders for transportation. And what you can now expect to see is, following the market demand, the company addressing higher power applications, so the next step is to go into low hundreds of kilowatt applications for this technology. To do that, we are also exploring partnerships with engineering systems companies so that it's not just the case of Ceres initiating the business development side and the initiation of projects, but how do we scale this business faster to address more markets. So we're in discussions with a potential partner around how we do that, which would allow us to scale the core business more rapidly and take us into more markets. The reason that we've been successful is we have a very highly differentiated and unique technology in the SteelCell. Just to remind you its key attributes. It's fuel flexible, so we don't have to wait for a wholesale change of infrastructure. We can run on nat gas today, blends of nat gas and hydrogen, all the way through to hydrogen as we demonstrated with our first hydrogen prototype this year. Because it's based on steel, we believe we have a robust and cost-competitive technology. And we're one of the few SOFCs that can actually address both the stationary and the transportation markets. And with the business model, we are able to address the high-volume mass manufacturing approach that's required from energy conversion technologies through our partners. So we've established a very strong position in SOFC today, and we're looking to exploit that further. If you move on to Slide 17, I think when we've strategically looked at this as a company and you look at the wider energy system, we also realize that there is an increasing role to play for things like hydrogen and e-fuels. And they are basically the same family of technology. In fact, if you take an SOFC and you run it in reverse, you can actually run it as an electrolyzer, so solid oxide electrolysis cell. And that is very interesting when you think about a need for the future for 2050 where you can actually generate hydrogen or potentially generate e-fuels. So it's an early stage for the company, but because of the synergistic nature of this technology from the fuel cell side and to the electrolysis side, this is a natural progression for us to broaden out our offering beyond the power system into other areas of the business. And as a technology licensing business, we have to generate new technology to stay ahead. And the reason that we are focusing on this particular area is we believe that it represents a very high value potential market in the future. Hydrogen Council estimates this market to be worth $2.5 trillion by 2050. Just like fuel cells, they've already established technologies for electrolysis, alkaline, PEM and solid oxide, and each have their strengths. Alkaline is the most established. It's very good for bulk production at the lowest cost today. PEM is very good for dynamic response, grid balancing, refueling stations. Where we're focusing is really on the industrial side of the market where we think the synergies with our temperature range and also with the ability for SOEC to generate interesting technologies such as e-fuels in the future. If you look at this strategically for the company, our core business in the near term remains on the power systems. And our heritage is going from 1-kilowatt to 5- to 20-kilowatt power systems, as you can see on Slide 19, with the work we've done, for example, with the commercial launch with Miura and now the prototype systems that we're developing with Bosch. The next step that we've already taken is to start to look at addressing transportation markets like buses, increasing power for things like trucks and the potential that could take us into other applications in the future, potentially like marine and rail, which we haven't touched yet. And then if you think about the need to decarbonize industry, so hydrogen for industrial uses such as steel, cement, et cetera, then you start to look at potentially electrolysis for hydrogen and e-fuels. Now first, that's further out. We're just at the development stage. But if you take a 5- to 10-year view, how do we develop a core technology that could be very valuable in terms of licensing for the future. So that's strategically where the company is going. In terms of the level of resource and investment in that, the good news is, if you think about Ceres today, we've got world-class development and test facilities. We've got a world-class R&D team of electrochemists. A lot of what we already have on the SOFC side leads straight across into the SOEC side. So we're able to build up in the existing organization the SOEC capability and utilize a lot of the synergies that we have on the SOFC side. So it's a logical next step for the company. And then just to remind you, on Slide 20, how this works today with the licensing model. We're all about generating new technology and IP, which we license to partners, whether that's on the system side or on the manufacturing side. Our manufacturing partners potentially supply in high volume the core technology to more and more applications on the system side. And we take an upfront license fee and a royalty per unit sold in the future. And the beauty of this model is, we're able to address multiple applications in multiple geographies simultaneously and scale the business with an asset-light core business in the U.K. of technology development. So bringing new technologies on board is absolutely a key priority for Ceres as well as broadening out the core technology that we have today to new customers. So just to give a closing summary and outlook. I think it's clear in the past, even the past 6 months, there's been a step change in the market for technologies that can address climate change. That has never been stronger. And you can also see that with our corporate partners and partners globally in terms of the level of investment that is now coming in from major power system and OEM companies into the whole space of decarbonization to address climate change. That trend is not going away. That is just accelerating. And the good news for Ceres is, we're right in the center of that. And all the foundations we've put in place over the past few years are really now starting to pay off for the company. However, finding ourselves in this leadership position, we're not complacent on this. We actually want to maintain that leadership position and become the global player in SOFC and related technologies. So we anticipate this year more momentum with our core partners, like Bosch, like Weichai, like Doosan and the others. And now is the time for us to invest for growth. So we are investing in the expansion into higher power applications, which is a logical step for the core power system business. We are exploring partnerships with engineering companies into how do we grow the business faster in terms of the opportunities and accessing the huge markets that we're not yet touching. And then how do we ensure that we create future value for the business. And that's by initiating R&D now on new applications such as electrolysis and e-fuels, which we all need for this decarbonization agenda in the future. And do that with the consistency of the business model, which is for a high-margin technology licensing business that is extremely well capitalized, it's well supported by our core partners. And we're very well positioned for the future. So that's the summary of the half year, and I'm happy to take questions if there are any.

[Operator Instructions] We will take our first question today from Anthony Plom of Berenberg.

So I've had a few problems with the webcast, apologies if you've already discussed this. I guess first question was on just your comment at the end around exploring the partnerships with engineering companies to scale the technology quicker. I don't know whether you can say too much about that, but is that, I mean, is this existing partners? Is this sort of new players?

No. It's different from the existing partners. So this is how do we actually reach more applications faster because one of the key things with our business model is the way we originate deals is through our core engineering services team. And as we take on more key partnerships, those teams grow as the deal size grows. But then there's lots of other companies that would like to start to access this type of technology. And sometimes the bottleneck is on the business development and the early stage engineering services side. So we're really looking at people that can bring us into more partners and do some of the early stage work to actually embed the technology into the programs because, for us, the value generation is having more licensee partners in the future.

Yes. Okay. Cool. And then maybe if possible, could you talk a little bit about Cummins and Honda. Obviously, really good progress with the other 4 partners. I guess, what should we expect to see from those 2 guys?

Yes. So we, again, we can't say anything that's not yet publicly domain. Otherwise, we would have said it. We are continuing to work with those guys, and we're making progress on different applications with both. I expect that we can say more probably of at least one of those later this year. And then there's other partners as well that aren't on this list which come through as well. So we've always said that it's a pipeline. Not everybody who comes in will go all the way through. And I think our conversion rate is pretty high. If you look at the 6 that we've currently got in JDAs, 4 have gone to license, one has already gone to market. We're still optimistic that more of those will progress further, and we'll have more to say about that, I hope, in the next 6 months.

Okay. And yes, very clear. And then sort of interestingly on the electrolysis side. I mean, how do you sort of expect those partnerships because I know it's very early stage, but how do you expect those partnerships to develop? And I guess would it be or maybe slightly different partners, I'm just thinking of the sort of Linde-ITM Power JV. So I guess what sort of different partnerships would you see there?

Yes. I think it is a different access to markets with different customers. I think where we're focused today is on the core technology development because, again, our business model is slightly different from others. So what we're looking at is, can we develop a very compelling SOEC technology that addresses things like the industrial applications and the e-fuels applications in the future? It's early stage, but I think we should start to have more to say on that in about 12 months' time in terms of early stage results are very positive at the R&D level, but then we have to bring it through into prototype level and also work with partners. But to your point on the business development side, it is a different potential set of end customers than our power system customers today. So you're in more of the oil, gas and fuel type businesses.

Yes. Okay. Cool. I'm sorry, just one last question. Obviously, plenty of cash on the balance sheet just sort of cast my mind back to the Bosch RNS back in January. You mentioned sort of the potential for acquisitions. I'm assuming these would be sort of very small kind of bolt-on technology acquisitions, but any sort of color there would be useful.

I think there's nothing to say on that. I think where we are today, and we are in a strong position with options. So if we do see something that becomes strategic in any of these areas that we want to reinforce, we can act quickly to do so. I think, at this time, there's nothing else to say on that.

We now move to Adam Forsyth from Longspur Research.

Just a really follow-up question on the electrolyzer. And I hear what you're saying about it being early stage. But just looking at the way you've presented it in the pack, working with targeting industrial customers. It feels to me slightly like when you talk about synergies for the temperature range, you're perhaps making a virtue out of a necessity. Would that be unfair? And from that, I'm guessing this is going to be something with a kind of baseload type, high utilization rather than taking incremental advantage from perhaps curtailed power given those characteristics. And I wonder if that's right. And if not, are you looking at things like response time? Is that an issue for you?

I think you've answered your own question there. If you look at that slide, we're positioning the SOEC, I think, differently from the dynamic response side. Like I said, I think all technologies have strengths, different attributes. So we're not really focusing on the response side and the grid balancing side. The issue around the temperature range, actually SOEC has the potential highest efficiency of the technologies. And also because of its operating temperature, it actually can do things that the other technologies just can't do. So we are, again, the way we focus the company is we tend to tackle things that are highly differentiated because that's how we extract the maximum value as a licensing company. And the sweet spot we see for the SOEC technology is really in the industrial side and in the e-fuel side, which I think is the logical, the natural place for SOEC to play. I think the challenge with SOEC to date, again, it's a younger technology, but nobody has really got to the point of establishing it as a credible commercial offering yet. And similar to what we've done on the SOFC side, we're very confident with the SteelCell approach. We can do that on the SOEC side.

Great. Okay. And just a question on Weichai. As you go through the field trials this year, assuming they're successful and you make the GBP 8 million investment, I can't remember if you've talked about what sort of level of volume that would give you in terms of the production facility?

We haven't. We haven't discussed that yet.

We now move to Margaret Crow of Edison.

I've got a couple of questions. They're both perhaps digging a bit more deeply into areas that have been touched on already. So the first one is looking at working more closely with an engineering partner. What happens about the IP in that case? Would the engineering partner be developing anything that had material IP in it? I'm asking that because if you are wanting to monetize your own IP, having an engineering partner who's then providing some makes that a bit more complicated.

Yes. I think there's a very clear segregation, if you like, between the core IP of the SteelCell technology and the system-level IP of what an engineering partner can do. So the valuable core IP is obviously Ceres technology. When you get on to actually how you build systems around that, as we've seen with other partners, some of our partners have that capability already themselves. Some of them rely on it from Ceres. So there's already a mixture of capability out there in terms of the system-level IP. And so we don't see it as a big issue in terms of the IP situation.

Right. Okay. That's very helpful. And would this be something that you could perhaps apply an M&A strategy to actually buy a company which have that skill set?

Potentially, but I think the key lens that we put when we look at the growth of the business, it has to be consistent with a high-margin licensing technology business. So we're not necessarily looking to acquire things like engineering services capability. What we are investing our time and effort in is developing technologies that global companies need to address climate change. So there's no agenda thereon at the moment is the answer. But if we were to look at any kind of inorganic growth, it's really got to be complementary with our core technology licensing business model.

Right. And then my final question. You referred to temperature advantages from the SOEC technology. What would those be?

Well, I think there's a couple. I think this is a bit of a technical question that we could spend quite a long time on. So we can have a follow-up on this. But I think where you have waste heat available in industrial applications, there's a good synergy around the efficiency and the operating temperatures of SOECs compared with other technologies. So that's the first one. I think the second one is, when you think about e-fuels beyond hydrogen, so you start to look at, can you develop synthetic hydrocarbons? Then, again, the temperature range of SOEC, I think, is uniquely placed to be able to do e-fuels, synthetic methane, synthetic long-chain hydrocarbons that other technologies wouldn't be able to address.

We now move to Lacie Midgley of Panmure Gordon.

Just a couple for me, 2 of which have been sort of answered and asked, I think. Firstly, on the order book and pipeline, can you give any more color on the split in terms of partners and license and engineering? Is it still the majority, Weichai license, and then the balance, a mix between Bosch and Doosan. Is that still the case?

Yes. Let me try and answer that one. It's Richard here. So it is a mixture. And the pipeline number hasn't changed from 6 months ago. Obviously, what it's made up of is the same. It's a mixture of licenses and engineering services, probably with a weighting towards licenses. And the order book clearly is something that is sometimes lumpy. Clearly, it comes off as you recognize revenue and it comes on as you bring new customers in. And this is a mixture. Probably it's fair to say it's a mixture of license and engineering services from our major customers.

Okay. Perfect. And secondly, on the comment, in the statement, you've touched on it a little bit on exploring new partnerships. Does that suggest that you're now more actively seeking to engage with new partners than maybe you were previously? I'm assuming it is from your comments on other questions. And if yes, what's the reason and rationale for that?

I think we've always been looking to grow the business with engagement with new partners. I think we've been very successful in the partnerships that we've developed with some very large organizations that we've talked about already. I think if you start to establish SOFC as a technology that can address stationary power in increasing power output, then that's a whole area of new customers that we could address. And then on the transportation side as well, I think the work we've done with Weichai is starting to grab people's attention as an alternative technology to some of the established technologies out there. So it's in response to more and more people wanting to start to access this technology. So I think it's a case of responding to growing market pull for these kind of technologies really. And from our point of view is, how do we address those opportunities in the future? I think we can't necessarily do everything ourselves. So therefore, how do we grow faster is obviously a key strategic question that we face at the moment given that we believe that we're in a market that's accelerating and we have a very solid position. So the strategic questions we're asking is, how do we do things better? How do we do things faster? So I wouldn't say it's a change of looking for new partners. I think it's just a case of having been successful to this point, how do we grow the business faster?

Okay. Perfect. And I think linked to that potentially is increasing the Redhill facility from 2 megawatts to 3 megawatts. Is that based on this ambition of entering those new partnerships or is it the progress that you're seeing with your current partners or perhaps a mixture?

It's a mixture really. I mean, if you think about what partners need, the main function of Redhill is to enable technology transfer for manufacturing partners as we've done with Bosch successfully this year and also to provide the initial cells and stacks to enable the engineering services of the joint development of prototype products for partners. As we've gone from, say, a 1-kilowatt prototype to a 30-kilowatt prototype and if we anticipate in the future going up to 150-kilowatt type level and above, then you need more capacity just to service those markets. So as we go towards higher power, we need more initial capacity to service those initial markets. So it's a combination of servicing the growing demand of the partners that we have already and also this ambition to go into higher power applications as well.

Perfect. Okay. And then lastly on COVID and the specific risk for Ceres. Can you talk a little bit more about your thoughts on that? I'm assuming it's low, really just pushes projects to the right, I guess. And I know it's difficult for you to sort of quantify anything at the moment, but any thoughts on that would be helpful. And also, what you're seeing specifically in China and just thinking about the Weichai manufacturing JV. And is there any sort of risk of that being delayed at this stage?

So I think the first thing to say is, it's very early days on this. And if you think about our business, a lot of what we do, we can do remotely in terms of the engineering design, engineering services side. A key thing for us is obviously the key stage of starting to ramp up Redhill. So maintaining production is key to enable us to keep those partnerships on track. Also, our partners also have to play their part. So those projects in China, in Korea, in Germany, et cetera, also have to stay on track. So we see, near term, the situation can be contained and managed. I think, longer term, it really depends on the global response to this. I think what we're starting to see is, in conversations with Weichai in China, I think that they are through the worst of this now and I think they're starting to come out of the other side of it. So I think the conversations that we're having with Weichai are very supportive, very positive. They offer help. So a very strong relationship there. And I think we're just starting to go into it, if you like, on the European side at the moment. But hopefully, this is a near-term issue that doesn't really impact on the longer-term value and the longer-term or medium-term progress that we're looking to make with these partnerships. Like I said, we'll keep you updated as the situation develops.

We move to Marc Elliott of Investec.

Just a very quick one. I just wondered if you could speak a little bit towards the sort of scale-up in terms of the power output that you reckon you can achieve. And I was just thinking longer term how some of the gas gensets are looking to try dual fuel with hydrogen with the view that you get more hydrogen to grids and so they need to be able to be flexible in that context whereas you would automatically be flexible. Is that sort of a competitive advantage you may have or will gas sort of have the advantage of the real megawatt scale?

I'm not quite sure I followed the whole question there, Marc. I think what you're asking is, how competitive are we on the megawatt scale and above. It depends really. I think the way we see it is more distributed power solutions. So I think we, in the hundreds of kilowatts to 0.5 megawatt scale, we definitely see applications there which are competitive. I think we'd have to look again where the alternative technologies cross over. I think one key thing that distinguishes us is this fuel flexibility. So it really depends on an application-by-application basis. But right now, we see big opportunity in the stationary power sector going up to, say, the 0.5 megawatt kind of level.

Okay. Yes. So I'd just think for that for the moment like 0.5 megawatt.

I mean, you can combine blocks. This is very modular so. But the way we tend to think of things is in terms of system products that our partners would develop.

We take our next question from Hugh Kingsmill Moore of Alvarium Capital Partners.

Congratulations on another great 6-month period. Just a quick one on intellectual property. You guys have been at this game a long time. And I just wanted to be reminded if whether you've got any core patents that might be expiring anytime soon?

Yes. I think we've been at this for the best part of 20 years. But if you look at our patent portfolio, we have over 50 patent families and growing. And if, particularly given the rate of innovation now, we continue to add even more patents into that mix as well as know-how. In terms of some of the early stage patents, they will roll off. But I think the key thing here is, when we do licensing, we don't really do it on the basis of 1 or 2 patents. You need the patents, the know-how and the capability altogether. And the technology from 20 years ago and the technology today are very different, as you would hope. So that doesn't give us any concerns.

Cool. And one quick supplemental. If people aren't choosing your technology, who are they choosing?

In the SOFC, I think the main competitors that we see currently are in the Japanese industrial conglomerates. We've competed successfully in Japan, but they are probably the most advanced of the competition as we see it today. But I think there's 2 things here. We have highly differentiated technology as in we're the only company really globally operating in this temperature range on metal-supported SOFC. And secondly, our business model lends itself to, if you want to get into solid oxide or fuel cells, being able to source the technology and license it from us versus going into one of these large Japanese industrials is a lot less accessible. So I think that's why if you look at the deals we've done or the people who've selected SOFC in the past few years, they've tended to select Ceres. Bosch, Weichai, Doosan, Miura, Honda, they've all got choices of where they can get SOFC, particularly the Japanese, but they've chosen Ceres for a reason. It's the combination of the technology and the business relationship that we provide to them.

Thank you. We have no further questions at this time.

We just have a couple of questions logged online from Adam Collins at Liberum. He asked, can we provide any further details on the Miura product and how it's being received? What's its power rating, price and how is it selling versus expectations?

So I'm going to go from memory. I think its power rating is about 4.2 kilowatts. Its performance is high efficiency, particularly in combined heat and power mode for the Japanese market. So it's being well received. The commercial market in Japan is at an earlier stage than the residential market, but there's a lot of appetite in Japan for these kind of products. It's relatively early stages, but so far performance is good. And Miura recently have increased their support on the ground for future rollout of the product. So things are going well.

And probably one for Richard. How do you determine what R&D is capitalized and what is charged against income? And what's your midterm guidance here?

Yes, certainly. We're sort of bound here by accounting regs. So generally, development can be capitalized if it's got future value. And about just over a year ago, we began to do that because we had sufficient confidence in our technology and the commerciability of it on the back of the 2 licenses with Bosch and Weichai. How we do it, and we tend to do it on a program-by-program basis as one is meant to. And it's once a development program or a research and development program has passed certain milestones, then we'll begin to capitalize that. I'm giving some form of guidance. I think the rate that we've seen in the last 2 half years, which is approximately GBP 1 million a half year is probably a good proxy for what to expect going forward of what we would capitalize for development purposes.

And finally, just more color on the electrolyzer and higher power cell opportunities, what sort of investment will be needed? And what are the expected time lines to prototype development?

Yes. I'll take that one. I think if you look at the investment that we've put into the business on the OpEx side recently and continue to do so, that's covering core teams of R&D and engineering that covers both the core fuel cell side and starting to have teams working on the SOEC side. But as I mentioned earlier, we share a lot of the synergies across R&D, prototype manufacture, the facilities that we have, et cetera. So the higher power systems, we just see as an evolution of the business. And a lot of that is already being put in now in terms of the investment for future growth. So I don't think we're going to see a sudden step change in investment on the high power side, apart from obviously adding some additional capacity in what we're doing at Redhill. On the electrolysis side, it's really, we're going to ramp that up over the next few years. So we get proof points now at the R&D level. We start to get into prototype, system development and then that will grow. But I think it's in the low millions kind of level at this point. So a lot of this, again, when you look at our growth on the top line, we are investing for growth on the back of very strong revenue growth at high margins. We have to invest ahead of the curve to maintain that future growth and in anticipation of future programs coming on. But I think, overall, that growth is very manageable compared with the growth that we're seeing on the top line from the business. So hopefully, that provides the color Adam is looking for. Okay. I think that concludes all the questions from today. Thank you very much for your time. And hopefully, we'll catch up with some of you face-to-face in the future. So thank you.