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

Good morning, ladies and gentlemen, and welcome to the Ceres Power Holdings PLC full year results investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet Company dashboard. Before we begin, we would like to submit the following poll. And if you give that your kind of attention, I'm sure the company would be most grateful. And I'd now like to hand over to CEO, Phil Caldwell. Good morning.

Good morning, everybody, and it's great actually to see real people in the flesh here and also welcome to people joining us online. I'm very pleased to talk you through the results for Ceres for the period ending December 2021. And also delighted to have Eric Lakin alongside me as our new CFO. Just for those of you that know Ceres and some of you that maybe don't, I just want to remind you of our purpose, our mission. At Ceres, we've built one of the leading technology businesses in clean energy globally. We have a leading solid oxide technology protected by over 100 patent families that's quite unique to Ceres. And because of that, we operate a high-margin licensing business model, which is unique in this sector. And really, we are successful in this because we collaborate with some of the world's leading companies, and it's all about delivering technology at scale and pace to meet the agency of the climate change agenda. And I think over the past few years, you can see very strong evidence that we are succeeding on our purpose and our mission. The evidence, I would say, for this, and I think how you should judge success for Ceres is, for Ceres, it's all about getting our technology into global applications at scale. And you can see from the top line here, what we have is we have a platform technology, which is the Ceres SteelCell, which we build into stacks and we successfully now have built into products with partners that are going through to market. So we have Miura in Japan. We have Bosch in Germany. We have Doosan in South Korea, and we have Weichai in China, all on the power systems side for a number of applications, including homes, businesses, data centers, and even taking us into things like transportation and into maritime as well. So the number of applications for the power systems side of the business is growing substantially. Last year, we took the decision to broaden the scope of the business, essentially double the size of the business by moving into green hydrogen. And again, one of the beauties of this technology is it's truly reversible. So again, taking all of the technology on the cell and stack side and all the infrastructure that we're building out with supply chain and manufacturing, taking that into green hydrogen to electrolysis. And we are now engaging with commercial partners and looking to put a first-of-a-kind demonstrator later this year on SOEC. So the business has grown on the applications side. And what that does is that really stimulates the demand for manufacturing globally. And I'm very pleased to report upon progress we've made there. So obviously, Ceres is a U.K. business. We're very proud to be technology business based here. We have approximately 500 people across 2 sites, and we're broadening that with the recent announcement of a new test center with MIRA also in the U.K. But really, from this technology hub we're exporting this technology globally, and we're enabling manufacturers to scale. Our lead manufacturing partner is Bosch in Germany, and they've committed above EUR 400 million investment into commercialization of this technology and also are in the process of replicating production in Germany and have plans for 200 megawatts by 2024. Closely followed on that is Doosan in South Korea, one of the leading players in stationary power technology. Their initial capacity is targeted around 50 megawatts, but we expect it to grow beyond that. And they've recently announced GBP 90 million investment in that plant as well. And then earlier this year, we announced a very exciting 3-way collaboration between Bosch and Weichai for a first manufacturing facility in China. China is probably the biggest market for clean energy technology globally. And with this combination of Bosch and Weichai we've got a pretty formidable partnership there with 2 of the biggest players in the industry. We have the collaboration also with AVL on business development and engineering. So really, our global footprint is growing. And why that's important is the success of this business is all around future royalties. So we're very healthy on high margins today. But what we're really targeting on is getting the technology into more and more applications which therefore drives demand in aggregate for gigafactories globally. That's what we're trying to target here, and that's what really drives the scale of this business in the future. It's been a pretty transformational year for the business. I mean the last 2 years have been interesting for the company since the whole pandemic because since that time, we've more than doubled the company, we've more than doubled the ambition. We continue to deliver on top line revenue. So a 44% increase this year to just under GBP 32 million. We've got a very healthy balance sheet. So we're in very strong financial shape. So not only do we operate the capital-light business model, but we are investing for growth particularly on the electrolysis side, and Eric will give you some more color on that. And we're building capacity globally. So we're seeing more and more partners now moving towards commercial scale and the manufacturing, as I mentioned earlier. On top of that, we're investing in new markets as well. So we intend to enter new markets like marine. We're doing a lot of work on future fuel capability as well. So we're really in a growth phase because the more we grow now, the more we capture these huge markets, the more value we create from this licensing business. And that's quite different, I think, from anybody else in the sector. I think the other thing to mention is we've more than doubled during this period. We've attracted something like 160 people just in the last year, but more than that over the last 2 years. These are very highly skilled scientists and engineers. And again, there's probably not -- we're probably the leading tech company in the U.K. in this space with probably the highest caliber team anywhere, I would say. So we're in a very strong position to be one of the world leaders in this whole clean energy technology space. So with that, I'm going to hand over to Eric, and he'll talk you through the financial highlights.

Thank you, Phil. And just from the top, I'd like to say it's a real pleasure to be here today presenting my first set of results for Ceres. It's a genuine delight to have joined such an exciting company and to do this event in person. I mean Ceres is a business with, I mean, highly talented people, truly innovative products and a genuinely compelling purpose. I've been here 2 months now. It's been an intensive learning process. And I'd like to give a special thanks to Richard Preston for his support and advice during the handover period. With that, I will turn over to the numbers for the year. As you can see, the headline sales grew very strongly, 44% up in the year to GBP 31.7 million, much of that driven by Doosan license fees and engineering services, amongst other customers. We've maintained gross margin at high levels at 66%. Gross profit increased to GBP 20.3 million, that's about a 40% rise driven by the growth in sales. EBITDA losses increased in the year to GBP 16.7 million, as expected as we begin to ramp up our investments in fuel sales and the electrolyzer business. At the end of the year, we finished with a very strong cash position of close to GBP 250 million of cash and investments, thanks to the fund raise of GBP 179 million in the year, and that puts us in a really strong position to fund the existing business plan as we see it. We increased headcount by over 160 people to 489 to support the growth across the business. Order book and pipeline collectively finished the year at GBP 80 million, that compares to GBP 98 million the year before, and that reflects the level of revenue recognition in the year. So the order book and pipeline will vary subject to the order intake during a given period and the amount of revenue recognized in that period. But it's still a high amount and think about that GBP 80 million, that's effectually covering our current sales run rate by over 2x. In terms of the revenue growth, you can see we've had continuous trends of revenue and gross profit growth over the time, maintaining high margins. Overall gross margins in the range of 65% to 70%. We expect to continue in that range this year. In terms of mix, as a reminder, many of you will know this, but we've got 3 main income streams as it stands, depending on the net -- the progress within a given development arrangement with our partners. License fees, which are upfront or over time, which are very high margin, 100% in effect. We've got engineering services of the order 40% to 60% margin. And that's providing work -- collaboration, working with the partners on developing new systems and improvements of the stack design. And we also have what we call supply or supply of prototype hardware and technologies. These are samples and prototypes used ahead of our partners ramping up their own large-scale production to support our development of new products and systems as well. The margin around hardware prototypes can vary from period to period, typically in the range of 20% to 30%. It was -- the reason for gross margin not being as high as one might expect in the year given the high portion of license fees is really down to the hardware margin. And last year was a key year for Ceres as we got CP2 Redhill facility onstream, making more investments in capability, in capacity before the volumes have really increased there, which we expect much higher volumes this year. So as account of that, you've got less overhead absorption in effect. But also we had a warranty increase in the year as we gained better data and getting more products into the field with our partners, so we can quantify what that should look like over time. So we expect margin trends to continue to improve this year. But they are the main building blocks as it stands. As Phil mentioned, over time and from '24 onwards would also then look to see royalty income coming through as well, which is, in effect, another high -- very high margin stream, in effect 100%. And just finally, other operating income. That's effectively grant income. It increased in the year to GBP 0.9 million. Expect that to be less significant going forward, unless perhaps we get additional grants from some of our new products, possibly within electrolysis area. So we'll be monitoring that as we go forward. As Phil mentioned, it's important to note, '21 was a significant investment year. And you can see, we've got this measure we call investment in future growth. And that's simply defined as R&D spend plus CapEx, plus capitalized development. It's important to look at all of that in the round. That measure increased to close to GBP 35 million in the year, up from GBP 26 million in the prior year. And the CapEx increase was down to increasing our capability around fuel cells, but also ramping up electrolysis investments as well. And it's worth noting that investment is expected to increase substantially this year as we're looking to improve our capacity and capabilities, especially all of that growth is in the electrolysis business, which really started to grow last year, and much of that increase will continue this year around the -- as we build the demonstrator and other products and ramp up that business. You can see more of that when we talk about the segmentation analysis as well. Just to get more color around the type of investments we're making. As you've seen announced, there's the outsourcing of Test-as-a-Service with HORIBA MIRA. That's really important. In terms of growth, test capability is really important to support the capacity that we need for our own lower scale production and supporting the partners. And what HORIBA MIRA bring is effectively this outsourcing flexibility, so they can increase capacity over time and potentially even different locations and scale up with us without us having to make the investment in our existing facilities. As I mentioned, we're also making significant investments in the Redhill facility for prototypes and automation, investing in some very sophisticated equipment such as laser drilling and test stands to support the existing products, but also the upgrade this year, for example, we're upgrading from Gen1, Gen1B to Gen2 to fuel cells, but another significant investment this year as previously announced, is the 1-megawatt class demonstrator for electrolysis, which is really crucial for proving to our potential partners how that works. And so that's obviously what the fund raise was designed to do. And we importantly put that money to work. There's a significant opportunity here, and it's important to maintain our competitive position and capture that addressable market by investing in people as well as equipment, and the people, it's scientists, it's systems engineers and so on and maintain that world-class technology company that Phil mentioned before. So as you know, we've split the business and showing sales and EBITDA for both electrolysis and fuel cells. This provides better visibility because we've got 2 business lines with different levels of maturity in their growth. As you can see, the trend has reduced our losses in the fuel cell business. That will be influenced by the level of sales, of course, in a given period of time. And we expect for this year, subject to the amounts of sales for fuel cells to expect reducing losses again for the fuel cell business. On the other hand, electrolysis, as I mentioned, is in investment mode, and I expect those losses to increase this year as we invest significantly, particularly into the demonstrator and other technologies around that before we see material revenues coming through from that side of the business. And finally, this is a reminder of the profile of our sales buildup over time, and we're currently in that near-term growth phase. We're picking up new partners or extensions of business with our existing partners. So the buildup is primarily license fees, engineering services and supply prototype hardware and technology. And over time, we'll build up the similar revenue streams on the electrolysis side of the business. And then once they are monetized and our partners start producing and selling the fuel cells and electrolyzers, we'll get royalties from those. And as you know, from 2024, our existing partners, Bosch and Doosan are planning production, and we'll start to see royalty income from that. So over time, these different revenue streams will layer on top of each other, supporting strong high-margin long-term growth. With that, I'll hand back to Phil.

Great. Thanks, Eric. So I just have a couple of slides here to remind you and report on progress against the business strategy. So if you go back to our purpose, we're a technology business that enables people globally to address climate change. And the business has grown substantially. The core business that we started with was really focused on stationary power and I think you can see the evidence of that coming through with the partnerships that we have, the products going to market now, et cetera. But if you think about global decarbonization, our buildings that we work in, that we live in is only about 30% of the issue. So we have to start to decarbonize the really difficult, hard to abate areas of society. So that includes transportation and industry. On the transportation side, we obviously have our relationship with Weichai, looking at commercial vehicle applications. And also more recently getting into things such as marine decarbonization through our partners, such as Doosan and various other interests that we have coming in there. So we're starting to get into the transportation sector. The move into electrolysis really takes us into industrial decarbonization. And again, industrial decarbonization is one of the hardest areas where we probably can't decarbonize through direct electrification. You need green electrons going to green molecules to help to decarbonize industry. And really, that's why we're making the investment that we have in electrolysis. Because that, for us, completes the whole map of addressing global decarbonization. I touched upon this earlier, but there's some notable milestones now in terms of the stationary power side, in particular, with Doosan, having completed their 10-kilowatt system. So this was a joint development we kicked off with Doosan a couple of years ago, and they're now going into a soft commercial launch of that product this year. That's on top of what we're doing more recently, which is scaling power systems to higher power with Doosan towards utility scale and some of these other applications as well. So Doosan is obviously a very key partner for us today, I believe the world leader in stationary power. Bosch, as we've mentioned, is already investing something like EUR 400 million into SOFC and is in the progress of deploying about a 100 of these type of systems into different applications. I think we might -- I mean, just to make that real for you in terms of what does it look like, where are these things going. Here's an example of a system powering a bakery in downtown Bamberg in Germany. So you can see here a very neat distributed power system, providing low carbon power in that working environment. That's just one of the applications that they're looking at, it's also looking at things like data centers, EV charging, grid reinforcements, et cetera. And that's probably becoming more and more relevant if you think about some of the energy security issues that we're facing right now, this move towards decentralized power and moving towards more and more natural gas towards hydrogen. This technology provides you with that fuel flexible route. Just to update on progress with Weichai. We're obviously making good progress on the commercial vehicle side, but we also have this new 30-kilowatt stationary power module as well, which takes us into stationary power into the Chinese market as well. And again, China has a big mandate on things like green data centers, distributed power, et cetera. So again, that's a pretty exciting development for us is broadening the scope of the relationship with Weichai in China. And that really brings me on to a brief update on the collaboration for China. As we announced about a month ago, we've now actually broadened the scope of that. So the collaboration is now a 3-way collaboration, including Bosch into the mix. So what that means is our intention and the teams are now working towards final contracts is to have 2 joint ventures in Shandong province. A 3-way system joint venture, which will combine our system expertise, including the transportation and the stationary side, together with Bosch's expertise. So the products that you saw there have -- developing products for the Chinese market. And in addition to that, and probably very exciting for Ceres is the intention to have a third manufacturing facility to produce our stacks in China, which will be a majority operated and controlled by Bosch with participation by Weichai. That deal near term is worth about GBP 30 million to Ceres in license fees. So it's going to have a significant impact on our revenue lines in the coming periods. But more importantly, we expect that manufacturing capability to provide high-margin royalty stream, and we expect that will grow with time as well as we expect the market opportunity in China to be very significant in the future. So I've given you a little bit of color, I think, on progress. All of that is on the power systems side, so power the businesses, power to transport, power to homes, and we're continuing to grow the applications there and also expand in terms of the fuel capability and the power levels on the power systems. But then we have this whole new opportunity, which is in the green hydrogen space. So if you reverse the technology you can actually produce hydrogen for industrial decarbonization, for fuel stocks, for e-chemicals, et cetera. So that's where we're going next as a business. We're making good progress on the first-of-a-kind demonstrator. And really just to remind people what we're targeting here is high-efficiency electrolysis. So up to 20 percentage points higher than established technologies that operate at lower temperature and really, because of that, we believe we can actually enable partners to achieve hydrogen production at about EUR 1.50 a kilo, which is where green hydrogen starts to really become competitive. So all of that is consistent with our strategy. If you think about where we've come from, stationary power into transportation now into green hydrogen. On the left-hand side, we're broadening the applications for the technology. So we'll have more and more partners using our technology at the systems level. And what that does is it drives the demand for more and more manufacturing capacity globally. So again, the aim of this business is all about enabling gigafactories of production globally to happen, but that will be in aggregate in the high-growth areas where we need this technology. And I think we're successfully delivering on that plan, and that's really what drives the long-term, high-margin, high-value business that Ceres is and intends to continue to be. So just in terms of an outlook and some targets for the year ahead, things to look out for. Continued top line growth. Every year, as I've been here as CEO, we've delivered top line growth, and I think we'll do so again in 2022. We are investing in SOEC and marine to drive future value. So we're investing for the future because we want to expand the demand for this technology, which in turn drives the demand for the manufacturing side. We're obviously highly focused on supporting our existing partners to get to scale. So that's a big part of what we're doing is supporting activities in Germany and South Korea and China. A big focus this year is conclusion of the JV in China and bringing that to the positive conclusion for a third manufacturing plant. SOEC progression is underway, and we are making progress also with commercial partnerships for green hydrogen, and we hope to have more to say on that this year. So I think we're very pleased with the level of interest and the progress we're making on that. I've already mentioned, we're expanding into some of these newer markets, higher power, future fuels in maritime. And we will move to the main market this year when we have the right timing to do so. But I think overall, we're looking forward to another exciting year ahead. It's going to be a high growth year, but we're -- what we've done in the past 2 years has really laid the foundation for the business to continue to kick on and grow again. And I think that's what you're going to see in 2022. So I think with that, we'll take any questions.

[Operator Instructions] Elizabeth, if I may hand back to you. Obviously, you've had a number of questions submitted from the participants online. And obviously, I know you have a number of attendees in the room. So if I may just hand back to you to run through the Q&A, and I'll pick up from you at the end.

Great. Thanks, Mark, and thanks, guys, for the update. Yes, I've had a couple of pre-submitted questions, if I could just go to those. This first from Adam Collins at Liberum who asks, when will the GBP 20 million of investment in China JV impact the cash flow? Likely come to you, Eric.

Yes, sure. Adam, so we've announced we expect a circa GBP 20 million investment for our 10% share in the new JV -- in the system JV. The phasing of that yet to be determined, and it will be enshrined ultimately in the contracts which we're working on as we speak. My expectation is that investment will be phased over the investment period of that JV. So if you want to best guess the modeling right now, I would suggest GBP 5 million a year for each of the next 4 years.

Great. And a follow-up question from Adam and also another person online. Just asking what was the level of production in CP2 during the year and where will that head in 2022? If you can give a view, Phil.

So I don't have an exact figure for that. I'm not sure we've disclosed that, but the capacity of CP2 is around 2 megawatts. There was obviously a ramp up last year. And we're also looking to continually expand and debottleneck CP2. So I think the capacity intention will grow to around 3 megawatts. And I think probably we could squeeze about 5 megawatts out of that facility. So that's kind of the plan. Don't forget, though, CP2 is a manufacturing technology center as well. It's where we introduce new products first so that customers can get them and then also bring that into their factories. So at some stage, there will be some disruption in CP2 because we'll move from, as Eric said, a Gen1 to Gen1B to Gen2, and we'll continue to bring new technology through into CP2. So this is one thing I do want analysts to get in their heads is this is not a manufacturing business. CP2 is really an enabler for more and more licensees. And the margins that we get in CP2 are going to be typical manufacturing margins, but really, the margins you get from this business is all around the licenses. So occasionally, we're going to change CP2 configuration to produce the latest version of the technology because that's what we will continue to do. It's as much an innovation center as a manufacturing center. And it's only ever going to be low megawatt scale because the capacity is really done by our partners, several orders of magnitude greater than what we'll have at Ceres.

Yes. Great. [Operator Instructions]

It's Ed Maravanyika from Citi. So my question is just around the China JV, what sort of dimension can we sort of start thinking about in terms of megawatts per annum, just bearing in mind the respective sizes between Germany and China and Bosch [ will generally lease from Weichai ]?

Yes, it's -- look, it's a good question. I can't answer precisely because ultimately, that's for Bosch and Weichai to disclose when they have concluded on that manufacturing JV. But what I could say is if you look at the building blocks of capacity, that several hundred megawatts is really the sweet spot where you get to very low-cost type high-volume modules, if you like. So I think it's clear that the priority -- the first plant that you'll see will be Germany. But then I think you could imagine similar kind of levels of capacity coming onstream in China. And then from that, then it's really growth and responding to the market demand.

Yes. And then if I could just tag on to that. It looks like as Japan has been recovered, South Korea and Germany and now with China. What about the United States? Are you sort of focusing on that market?

Yes, we're going to focus more on the U.S. I think there's been a bit more favorable change under Biden with -- particularly around green hydrogen subsidies for that. Don't forget, though, that a good illustration is -- as our partnership with Bosch and Doosan. Doosan has operations in the U.S., Bosch has operations in the U.S. as well. So some of our existing partners can also access those markets. But look, this business operates on bringing on new licensees as well. So you should expect that we're going to target other regional production in the right parts of the world. So not just the U.S.

It's Anthony from Berenberg. You obviously really get the strategic progress most of the year. I don't think that there is any mention on AVL in the statement. I think sort of at the half year you talked about 3 kind of early-stage compensations. So I guess how is that sort of progressing?

Yes, the pipeline with AVL is growing. We haven't had much of an update, I suppose, on specifics, but it's going very well. But I think those contracts are still at an earlier stage and when we can say more, we will. But they are bringing us into some of these new opportunities, and they bring capability in some areas that will be new to us. So there will be more to come on that, I think, in the future.

And then just on the HORIBA and sort of testing partnership. How do you -- that is a silly question. How the economics of that actually work? As you're putting in money, do you then [indiscernible] search? I guess is this all around service strategy is kind of staying asset-light. What's the sort of rationale behind that?

So there's 2 aspects to it. There's a kind of a Test-as-a-Service aspect, where if you -- some of you may have been to [ portion ] recently. If you have, we couldn't shoehorn much more capacity in there than -- we've got some like 70-odd test stands, and we build our own test capability. So we're building our own SOEC test stands, we're building as test stands to run on future fuels like ammonia, et cetera. And then we have long duration, durability test stands as well. The philosophy behind it is some of the more regular testing we can put in the hands of a trusted partner like MIRA to run for us. And that means some of the higher-end sophisticated test work that we need to do as part of the science and engineering programs, we'll still do in-house. But the other interesting thing is when we scale with partners, they need test capability as well, and we need them to be running the same test platforms that Ceres runs, and we can't necessarily continue to build all our own test platforms and supply them to other partners as well. So the good thing about HORIBA, the powering group is they're one of the biggest providers of test on globally. That's the Japanese parent. So they're going to produce service test stands that we can then provide to our partners as well. I'm not suggesting that's going to become a whole new business stream for Ceres, but it's all about enabling our partners to get to scale. And it does speak to the asset-light nature of our business as well.

It's Maggie Schooley from Stifel. I have 2 questions. The first thing, in order to set up an SOEC, you were in a rush to do a licensing deal to get the maximum value. So the statement is the half year and also today, you talked about high level of inquiries on SOEC. Can you just give us some better understanding of the balance between waiting to get the maximum value, how much, and what we should expect given people are obviously attracted to the high efficiency of your systems?

Yes. So the -- what you should expect is, look, if we can build a demonstrator. And initially, we thought about -- we'll build a demonstrator and then we can convince people. I think actually there's a high appetite to get involved earlier to understand the system side of it, and also there's a lot of capability out there that we can tap into. So we're new into this field of electrolysis. So really, in the initial partnerships, they're not necessarily pure-play license deals. But there from partnerships on the system side, that would then take us into the end market. So the first partnerships that we're looking to put in place will be more around the collaboration, joint development stage, just as we've been through with the fuel cell side. And then licensing the core technology, I think, will follow on from that. But it's also of interest because strategically, if you're making fuel cells based on our technology, by default, you're making electrolysis cells. So at some stage, there will be some interesting opportunities for our existing licensees as well.

And then a second question I had. The 3-way JV adjusted some new terms about IP protection in China. Could you just remind us why that was the best way to go forward, and why you're confident that gives you an enhanced level of IP protection in China by using Bosch as opposed to, still they can be interactive [ with Weichai ]?

Yes, there's a couple of aspects to that. Just to make it clear, we trust Weichai, they're a very high integrity business. But for us, as a 2-way joint venture, we were talking about establishing manufacturing potentially in China from a standing start. We're a U.K. technology business, so the advantage that Bosch has is it has a pedigree of over 100 years of operation in China. It's got 55,000 people in China, and it's very used to dealing with high tech and protecting IP in China. So their capability compared to ours is significantly stronger. I think also the level of investments -- Eric has talked about a small investment in this joint venture. But if you think about as we scale that manufacturing capacity, Bosch and Weichai really have the balance sheets to do that. So what it means is, Bosch can take the lead in the manufacturing in China and actually take a controlling position that Ceres probably wouldn't have been able to do. So that will be under the majority shareholding of Bosch. And that makes a big difference, I think, in terms of IP protection because the license that we have will be with Bosch. So we've extended that license through a partner that already has the license. So if there was ever an issue around IP, we know how to progress, shall we say with Bosch.

The multimillion pound investment for [indiscernible] Can you give us some understanding of [indiscernible], how that's going to be higher [indiscernible] [ is going to be phased ]?

So I won't give you the exact number, as you might imagine. But just to give you -- to help think about the level of investment this year, as I mentioned, we're going to be increasing again the investment this year to double down on the opportunity. So CapEx figure of the order GBP 20 million to GBP 25 million in total is what you might expect. Obviously, it depends on the phasing and sometimes making capital commitments and the actual spend goes into next year. So actually, last year was a bit lighter than I think we and others might expect, partly because of that, so GBP 7 million or so. So some of that is coming into this year. So this will be a significant increase. And of that, there's a meaningful proportion. But obviously, a minority portion is HORIBA.

Yes. I think to that point, we've had very significant funding last year, but starting to deploy it -- but this year will be really where we accelerate that investment because this demand is not going away. We want to get into the businesses, the areas like marine, into electrolysis as fast as we can, really. Because that opportunity is there as well as support our partners as they scale, so within both growth and the investment to support partners.

And just checking on this. So from GBP 34 million last year, this year, could you anticipate what sort of uplift on that?

If you -- yes, so referring to the investment in the future metric, I'd say, not quite double, but that sort of order. You might think GBP 60 million to GBP 70 million territory, including R&D and the CapEx guidance [ and a few plus capitalize the R&D ].

Great. I have a couple of other questions online. If I can come back to you guys. Chris Leonard from Crédit Suisse asks 3 questions. In 2022, do you expect the mix between license, engineering services and hardware buckets to be more evenly split?

So Chris, I think -- the mix this year will partly depend on the JV signing and the associated revenue recognition with that. Those present some -- quite variability. The way we're expecting it to come through means it will have a very meaningful contribution to license fees again. So that would mean a similar mix this year to last year. And it's worth noting, we put a comment on this in the release, the -- because that would represent a significant upfront license fee as a part of the total GBP 30 million, the timing of the growth this year will depend in part on when we actually sign contracts, that JV. So whether it's H1 or H2, that's worth keeping in mind when looking at the phasing in the year.

Great. And maybe I can cut to you just with the benefits history. Have you seen your partners, particularly with Doosan, put higher levels of investment in than you were originally thinking?

Yes, probably. I think with Doosan, what we're seeing is high levels of ambition, particularly into new markets. So look, Doosan Fuel Cell is probably a listed company, so that they have their own communications. You can see their ambitions for SOFC there. But also they're obviously forging partnerships with the likes of Hyundai Heavy and [ Shell ] Maritime. They've stated intentions to get into electrolysis as well. So Doosan want to maintain that leading position in hydrogen fuel cells in South Korea. And I think that to do that, they are putting more investment in.

And then just lastly for Chris, he asks what's the expectation for new SOFC system partners?

Well, that comes back to some of the things we talked about in terms of the AVL relationship and also some of the incoming that we've got now. So I think we -- if you think about the partners we have, there's a lot more out there on the power systems side as we go forward. So that's going to be a -- it's a key growth area for the businesses, driving more demand for the existing power systems side of the business and also pioneering these new areas that we discussed.

Great. And another question now for Chris just saying, is there an update on the release of the next generation of the SOFC technology? We touched on that Gen2 just...

There's no particular update. It's something that we're working on now. And at the appropriate time, we'll take it through into a CP2 first and then into partners after that. So -- but it's quite a big step change for us because it's the largest lower cost cell. So it's something that we've worked on with Bosch, and it's -- therefore, it's designed for mass manufacture, a lot fewer components. And therefore, that's ultimately what we'll move to in the future as we scale.

And Nick Walker from Peel Hunt is on the line, he asks, when do you expect manufacturing of both stacks and systems to begin in China?

I think at the system level, there's already prototype systems being built in China now with what we've been doing on the [ bus ] programs, et cetera. So Weichai already have that capability, and they're building that up. Obviously, this expansion with Bosch and Ceres will be a much bigger initiative. But in China, it will be systems first and then stack manufacturing will follow. So I think that's the way to think about it. So I think once we conclude the JV, system development can happen quite quickly. I think manufacturing of stack development will follow, scale up first in Germany and then secondarily in China.

Yes. Great. And Nick also asks the question, just -- could you talk a little bit about Ceres Radar and long-duration energy storage. And actually, we've had 2 or 3 questions on sort of long-duration energy storage and the importance, it's important within the energy transition. So just some piece on that.

Yes, sure. Look, the Ceres Radar is really beyond what we're doing on solid oxide. So if you think about our capabilities in electrochemical technology and it's a clean energy business, when we see -- look, there's a lot of interest out there in new technologies. And you see it all the time, you see it with Bill Gates' Breakthrough Energy and people are looking at how do we accelerate technology to decarbonize society. We -- one of the key areas, I think, that will be important next will be long-duration energy storage because as we look to electrify more and more parts of society, one of the issues that we have is intermittency of renewable energy. So anything that provides a solution to that is going to be valuable. Hydrogen is a solution to that potentially. You can use hydrogen to store energy, but equally some of these new technologies. Now this is first a new initiative, which is really how do we identify technologies and how do we almost accelerate them, incubate them or accelerate them with our capability because we have test capability. We have system engineers. We have some of the boring stuff like HR and supply chain, et cetera, that companies just don't have. That's very different from a financial investor. So you see lots of these funds being formed now out there around hydrogen. But what we can do with companies is really take a technology, evaluate it and accelerate it if it's any good. And I think the first step in the RPC-type kind of technology is for us to assess it, work with them for a year, accelerate it. And then we'll make a judgment whether we think it's going to be commercially viable or not. But we'll do that with several areas of technology, and that's part of Mark Selby's role in innovation is, is that landscaping piece and what else is out there. When we think any of those technologies is -- becomes mature, then we'll bring it into the mainstream of the Ceres business as a potential new line of business. So that's the philosophy.

Great. And Eric, if I could come back to you just a couple of questions. Obviously, we're increasing investments and there's a question around how long will your existing cash last?

So as Ceres, during the fundraise, the GBP 179 million raise last year fully funds the known business plan. So that's probably the answer on that. That's still the case today.

Yes. Great...

So the investors we talked about the increased investment is in line with that plan.

Yes. I'll just remind people as well, our top line revenue is growing. We make a pretty healthy gross profit. If you compare our company with any other company in the sector, we're miles ahead in terms of margins that we make. That margin helps us to fund a big part of our development costs. So analysts often compare top line revenue, and they don't always look at the margins that this business operates on. Ceres is a very different business. So as we grow, we are throwing off gross profit that we are reinvesting in the business, and that helps us to be pretty confident on our cash balances. We don't operate on the same kind of cash burn that other companies do.

Absolutely. Okay. And just coming back, maybe if I can to electrolysis, Phil. Just sort of a couple of questions. One is the sort of scope for production scale for Ceres' SOEC by 2025 or 2030, however we view that in terms of how it's going to scale up? And do we have a feel for what standard module might be for electrolysis products in the future? I mean we've already been talking about that megawatt demonstrator, but could it be in megawatt 2, 5? What does that look like to you in your view?

Look, I think that's where the business scales in modularity. So a 5-kilowatt stack is a 10-kilowatt electrolysis stack. In time, you expect power density to go up, so those modules will get bigger. But ultimately, you're adding stacks. And yes, it's in that low megawatts to 10 megawatts kind of range, I think is going to be the typical module size. But again, we're the technology provider. So this is where collaboration with systems people and some of the people in the business will determine what that ultimately looks like.

Yes. And Tarek from HSBC is also on the line, and he just says, am I correct in thinking that most Ceres units are currently geared towards natural gas? I think we've touched on this, but how much of the planned expansion is towards natural gas versus green hydrogen? Or I guess we can touch on other fuels, I think.

Yes. Look, we have systems operating in Horsham on pure hydrogen. The technology is hydrogen ready. The Bosch systems have a degree of hydrogen flexibility. So if we would start to introduce hydrogen into gas streams, they're compatible today. The systems actually get simpler. If we suddenly woke up in a hydrogen economy, the systems are ready to go. They actually get cheaper. So -- but in terms of the answering the question, we're continuing to do development on pure hydrogen because for reasons I said, you can adapt a simpler system. We're also getting into some of these future fuels as well, like e-fuels, ethanol, ammonia, et cetera. Because, again, different parts of the world, different applications will need different fuel solutions. So that's a big part of our R&D is around future fuel compatibility.

And maybe one for you, Eric. Do you think growth will be driven organically or through M&A? And if M&A, at all, where might we look to accelerate?

Great question. So the business plan is for organic growth and everything we described today. Fuels are including the investments, both the fuel cell business and the nascent electrolysis business as well. And that provides strong medium-term, long-term growth. M&A is an interesting one. And I think it's not -- it's secondary to our organic plan. And part of the scope of the Ceres Radar that what Phil mentioned is looking at doing that horizon scanning for future opportunities and looking where -- if there's a complementary business where we can add value, particularly through our electrochemical capabilities, then that's one of the filters we look at. So we'll follow up if opportunities like that arise, like RFC last year.

Any more questions in the room? Then maybe I could leave, Phil, you with this last one which is, when do you expect the first gigafactory to be live?

Look, I think that's an -- for me, it's an aggregate. So I can already see a pathway to around half a gigafactory already in some of the planning discussions, et cetera, that's out there. And I see that if we're successful in that initial stage, then growth beyond that can happen quite rapidly. I think for us, our focus is getting to that first scale up. Because I think beyond that, then you've proven everything in terms of commerciality, and then it's just business demand. But our internal plans for multi gigawatts by the end of this decade. So it goes far beyond the first gigafactory for me.

Maybe I can hand back to Mark.

That's great. Elizabeth, Phil, Eric, thank you very much indeed, and thank you to all the investors that have taken time to submit questions online. If any further questions come through, we'll obviously make those available to the company after today's meeting. Phil, I will shortly redirect investors to provide you with their thoughts and expectations via feedback, which I know is particularly important to you and the company. But before doing so, I wondered if I may, just hand back to you just for a few closing comments.

Yes. Thank you -- look, thank you, everybody, for joining today. It's really nice to see you all and also have the high level of participation online. I think we've put Ceres in really good shape as well as Eric, who sat with me, we've also added considerable strength, and in the new CTO, Caroline Hargrove and new GC, Deborah Grimason. So we're adding capability into this team. We're adding world-class scientists and engineers all the time. So we're growing what is a fantastic business here in the U.K. And we've got fantastic opportunities. So I think, like I mentioned, 2022, there should be a lot of things to look out for in terms of progress with Ceres. So thank you for joining today.

That's great. Phil, Eric. Elizabeth, thank you once again for your time and for updating investors. Can I please ask investors not to close this session as well now automatically redirect you for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Ceres Power Holdings plc, we'd like to thank you for attending today's presentation. That now concludes today's session. So good morning, should I say to you all.