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

Good afternoon, ladies and gentlemen. Welcome to the Ceres Power Holdings investor presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And if you'll give that your kind of attention, I'm sure the company will be most grateful. And finally, we have placed the ESG report in the handout section on the right-hand side of your screen. I'd now like to hand over to Elizabeth Skerritt, Director of Investor Relations. Good afternoon.

Thanks, Mark, and welcome, everybody, and thanks for joining us despite the World Cup kicking off as we speak. For those of you who don't know me, I'm Elizabeth Skerritt, and I look at all aspects of investor communications at Ceres. And we wanted to take a little bit of time this afternoon to talk through our inaugural sustainability report, which we published at the end of October, I'm delighted to be joined today by members of our management team, who led on all aspects of environmental, social and governance at Ceres, and he'll be touching on the important reports and importantly, how we've continued to improve. and report on our progress in this important area for Ceres. So firstly, I'm joined by Phil Caldwell, who many of you will know already is our Chief Executive, and he also chairs our ESG Committee. And Phil is joined by members of his executive team. Mark Garrett, who's our Chief Operating Officer; Michelle Traynor, our People Director; and Deborah Grimason, who joined Ceres earlier this year as General Counsel and Company Secretary. And we'd be happy to take questions at the end of the presentation. And so without further ado, I'll hand over to Phil to kick this off. Thanks, Phil.

Great. Thanks, Elizabeth. And thank you, everybody, for joining today. There's been a lot of work done in producing this first sustainability report led by Elizabeth efforts and also the ESG Committee, which I chair, and obviously, you have the principal directors who will each talk to the various aspects of what's in this first sustainability report. But I just wanted to give you an overview of the importance of the ESG agenda to Ceres. I mean, we've been working on clean energy technology for a number of years. In fact, we had our 21st birthday party a week ago. So that just shows you how long service has been involved in the whole area of clean energy. And sometimes, I think we take it for granted that we think of ourselves as a sustainable company that's trying to make a big difference in the world, and we have this big purpose, which is clean energy for a clean world at Ceres. But a lot of that is about how we also behave as a company. And hence, the ESG agenda for Ceres is not just about the carbon that we help other companies avoid, but it's also about how we behave as a business and also our social and governance aspects in terms of how we treat our employees and our stakeholders across the business. So that's what we hope to give you a flavor on today. We want to make sure that our sustainability strategy keeps pace with our purpose. And we want to be carrying our best practice across our industry for Ceres. So just probably you know, Ceres, but our whole business is around clean energy technologies. And we have a world-class solid oxide technology, which for a number of years now, we've been scaling with partners on the power systems side. And as you can see, we have partners with Miura in Japan, Bosch in Germany, Doosan in South Korea and Weichai in China. And that's all on stationary power. And that technology is fuel flexible. So today it can run on natural gas, it can run on hydrogen, and we're working on future fuels such as bioethanol and others that we might need in the future. And really, because this technology is so efficient and fuel flexible, we have a pathway to helping our partners, first of all, avoid carbon and reduce carbon all the way through to 0 depending on which fuel you are burning the fuel cells on. Just over -- well, about 2 years ago now, we took the strategic decision to move into green hydrogen as well. And obviously, now with this technology as SOEC run in reverse, we can actually generate low-cost green hydrogen, which helps in the decarbonization of industry. So again, another big impact that we at Ceres can make on society. So we have without a doubt, a big impact that we make as a business. We're not always able to report on those. They're kind of like Scope 4 emissions, but that's what our purpose is about is helping others to get to a net zero future. But internally, we obviously look at ourselves in terms of how we operate as a business. And with that, I'll hand over to Mark Garrett, our COO, who can start to talk about the environmental and operational aspects of our approach at Ceres.

Thank you, Phil. So good afternoon, ladies and gentlemen. It's great to be with you this afternoon. I'd like to take a few minutes to expand a little bit on the key aspects of our environmental practices. So just expanding on our carbon reporting. Historically, we've reported primarily on Scopes 1 and 2, so gas and electricity and fuel used in personal company vehicles. This report allows us to expand into a full analysis of our Scope 3 emissions, which are significantly higher than our Scope 1 and 2. So it's a very important part of our business that we're now reporting on. And within the report, we've looked back to the 2021 position and showing where are the categories within Scope 3 that our primary emissions are being produced. One point to note is that from October 2020, we sourced all of our electricity from zero-carbon renewable sources. So our scope to CO2 emissions are indeed nill. If we look at the Scope 3 emissions, you can see there from the pie chart, about half of those are through our purchased goods and services. We rely significantly on our supply base for a lot of the material that we process through our private factory. And that's demonstrated there. And a lot of that 48% is through the steel that we procure which go into the steel substrate and elements of our fuel cell stack. Just over 1/4 of our Scope 3 emissions are produced by manufacturing of capital goods. And as a technology R&D company, not only are we implementing new manufacturing capital equipment as we expand our capability. We're also investing in new test facilities to accelerate the development of our technology. And all of those accrue a carbon footprint, which we include here. The processing of sold products is driven by the fact that we don't just manufacture complete stacks. We're also providing to our licensees some part finished stacks and stack components for them to finish the assembly and manufacture stacks at their own facilities during this pilot phase. And so that accounts for downstream processing of some of those components. And then the 2 final sections there are employee commuting and then all the other remaining and other categories within Scope 3. So we're pleased that we've done this analysis, and this now forms the basis that we can look at in developing the next stage of our journey around reducing our carbon footprint. It's very important for us that we look at our carbon emissions, and we implement plans to bring ourselves in line with the Science Based Target Initiative for net zero to support the 1.5 degrees C climate temperature increase. And what we've tried to show in this graph here is that if we did nothing at all as a growth company, we would expect our overall carbon emissions to increase over time. But we are genuinely committed to achieving that 1.5 degrees C alignment, but we are a growth organization. Therefore, in the short term, it's reasonable to expect as we try to accelerate the implementation of our technologies and support our partners, our short-term carbon emissions will increase. And what we are going to be implementing during the next year is a full analysis of mitigation strategies against the full Scope 1, 2 and 3 emissions I showed you on the last slide and looking how can we accelerate reduction of those emissions while remaining true to our growth strategy and try and follow something like the green line that we showed here, which means that we start with some level of growth and then we accelerate a reduction down to achieve 2050 or better in terms of aligning with the global targets. So there's a lot of work for us to do there. It's very clear to us that we want to maintain our investment both in our technology development and in our pilot manufacturing to get our partners at scale and speed to high levels of volume. But we have very good levels of confidence we can find ways of mitigating our CO2 emissions in those areas. We've also conducted a cradle-to-gate life cycle analysis of our current stack technologies. Those of you that know us well know that we currently manufacture a 1-kilowatt and a 5-kilowatt version of our technologies. We deliberately chose to do a cradle-to-gate rather than cradle-to-grave on the basis that our stacks go into different types of applications. So motive application, stationary power, take into marine applications. And so we wanted to understand the manufacturing CO2 footprint at a stack level rather than through life, but it's reasonably easy to add on the 3 life CO2 emissions. And then the last element is the end-of-life aspects. And whilst we're going through some initial pilot investigations on recyclability of our stack, we wanted to exclude that from the analysis at this stage. What's useful to see here is that as we go to higher output individual stacks, we're seeing an efficiency in terms of carbon footprint. So we're reducing from 570 grams of CO2 equivalent or a 1-kilowatt stack down to 425 at 5 kilowatts. So if we went, for example, to a 10-kilowatt device, we'd expect those efficiencies to place through further. And a quick [ funnel ] calculation which showed on a G20 grid carbon intensity. The payback in terms of CO2 savings against footprint for manufacturer is achieved in only 3 months such as the efficiency of our fuel cell stack. So that's useful for us to understand the benefits of our technology and the impact of the carbon in manufacturing. We now have a tool in place which allows us to assess our future technologies for their carbon impact. So as we're looking at new chemistries or new architectures of our stacks, we can look at how sensitive the CO2 footprint of our manufacturing is to those new technologies as well as through life emissions. So this is now a tool that we are starting to deploy in our R&D programs to prioritize the new technologies for next-generation fuel cells and stacks. And as soon as we have a recyclability analysis, we'll build out into a next-generation tool sets for our LCA analysis. And then finally, just looking briefly at the impact of our technology. Our partners are deploying at scale. So by 2024 we should have something like 250 megawatts per annum of manufacturing capacity in place in Germany and South Korea. And to put that in perspective, that should be saving of the order of 400,000 tonnes of CO2 per annum for that manufacturing capacity. We're very pleased that the basic architecture of our fuel cell technology is around a steel substrate, as we know steel is extremely widely recycled. And so since our fuel cell is about 95% steel by weight, we have very high confidence that we'll be able to recycle the vast majority of that. And our electrolyte is based around Ceria, which again is highly available on a global basis. So the basic core technologies are based around some very helpful materials for high levels of recyclability and availability. And as I've touched already, this cradle-to-grave analysis will be something that we are developing over time. And I'm very hopeful that we'll be able to give full end-to-end analysis of our technology in the near future. So that's just a quick snap shot from the report. And at that, I will then hand over to Michelle to talk a little bit about the social aspects of our report.

Thank you, Mark. Hello, everyone. I'm delighted to be able to talk to the people and social aspects of our sustainability report and activities. So the story over the last 3 years has undoubtedly been one of growth, not just in terms of headcount, but also in terms of people initiatives and reach, generally speaking. We now have well over 500 employees, primarily based across 2 sites in the U.K., although increasingly on a global basis, many of which work remotely. And as a business, we have sought to support that where possible. In growing the business, we've had to balance continuing to bring in strong experience and expertise alongside growing and developing our own people and looking to future talent and building our future talent pipeline. And in that respect, we have a number of partnerships and initiatives with schools, colleges and universities to help promote young people in science, technology, engineering and math disciplines and offer them opportunities to work with us. And we're very proud about that. In terms of what we offer our people, we offer a very comprehensive benefits package, but we have a particular focus on development and engagement. Our people generally joined Ceres because they fundamentally truly believe in our purpose and they're hugely excited about the technology and having the opportunity to work with the technology. Therefore, an awful lot of their growth and development comes on the job through the exciting projects they get to work on. But in addition to that, we have invested in creating the Ceres Academy, which, amongst other things, offers 3 bespoke programs for our people. We have a leading sale program, which is targeted at our young ambitious employees who are keen to build their confidence and impact within the business. We have a leading others program designed for people that may be relatively new to leading and managing others. And we have a senior leadership program designed to help our senior leaders hone and mature their leadership skills. But from a broader engagement perspective, we want to engage everyone in the business, and we want to give everyone a voice. So this year, we introduced the Gallup 12 survey and had a good response to that with high levels of engagement. That gives us something to build on as we go forward. And from an engagement perspective, we also encourage people to take a real stake and ownership in the business. And we do actively encourage people to join our share save scheme so they can become stakeholders and shareholders. And we have strong levels of participation in that. When it comes to diversity, equity, belonging and inclusion, we believe that talent and ingenuity come from a variety of experiences and perspectives. And at Ceres, we have a very open and supportive culture for our people. So we want everyone to feel that they can be themselves and bring their best every day. We're very rich when it comes to cultural diversity. We have over 42 different nationalities represented within our workforce. But the area that we struggle with more so is on the gender diversity, we are predominantly male based in terms of our workforce. So that has been a clear area of focus for us over the past year or so. And I'm pleased to say that, that is increasing. We have some fantastic female talent that we are now bringing into the business working for us. In terms of employee workforce and representation, we have an employee forum called our Connect Group. They very much an active group of employees that want to make a difference, both internally in terms of the working environment for our people, but also externally in terms of how we engage with the local communities and communities on a broader basis. So the Connect Group support and indeed lead on many of our activities in relation to diversity. They also need on many of our charitable giving and volunteering aspects, and they support our ESG endeavors as well. And indeed, the Chair sits on the ESG Committee. You may have seen that we have recently added Trine Borum Bojsen to our Board of Directors. She brings with her 25 years of experience across the renewable space She's also actually just been nominated as our non-executive Director for workforce engagement. So, we're very much enjoying benefiting from her experience and involvement alongside all of our other Board members, and I'll let Deborah talk to that in a moment. But just before I hand over to Deborah, we do take our business and our roles very seriously at Ceres. And we believe in conducting our business in a socially responsible manner. Health and safety is crucially important to us, and we have a very strong track record in this, which we're very proud of. I'm pleased to report that we've had no major incidents or injuries over the past year. Equally, when it comes to our supply chain, we have a clear code of conduct, and we have a risk management system that we've put in place that allows us to conduct due diligence on our suppliers. And as we speak, we are just in the process of completing the audit for the ISO 14001 accreditation, actually to be completed by the end of this month. So as I've already said, community impact and involvement and academic partnerships are really important to us. That's something that we take pride in, that we enjoy participating in and that we will continue to do more of as we go forward. Thank you.

Thank you, Michelle, and good afternoon, everyone. I just wanted to set in context for you, the governance element of our ESG strategy and as delineated in our report. As Elizabeth said earlier, I joined Ceres at the beginning of this year and have a really strong focus on governance within the -- with supporting the Board and also within the executive team and the company more broadly. And as you can see here, the ESG Committee currently is an operational committee within the company. It's chaired by Phil, and it has currently got, Dame Julia King and Trine Borum Bojsen as non-executive Director advisers to that committee. And we have drawn on their experience and expertise quite highly during the preparation of this, our first report. This is part of the journey in terms of embedding ESG firmly within our governance structure and within our Board and committee structure. And the aim is to see that purple bubble on the right-hand side become white in the next year as the ESG Committee moves from being an operational committee to a committee of the plc Board. We will also retain within that an operational committee chair by Phil as he currently does. And the Chair of that committee, the ESG Board Committee in the future will be Dame Julia King, again, drawing on that continuity of support and expertise that Julia brings. So that's the context of governance of and oversight by the Board, by the plc Board in relation to ESG. And sitting within the context of governance of ESG, we also have incorporated our client-related risks into the corporate risk reporting process. And as you'll be aware, seen from the report, of course, the Board is ultimately responsible for risk and for reviewing the risk register with the material risks within the business and also foreseeing our strategic risk management and the mitigation of that risk and the plans associated with mitigation of that risk. The Audit Committee, obviously, with its over sight of risk management reviews our risk register and our material risks during the year, twice during the year, and those obviously ultimately feed into our annual report as well as principal risks. So in terms of our risk management, the Board receives that. The Audit Committee reviews it and facilitates the framework for managing that risk. And in line with our highest risk categories in our materiality process, we have previously undertaken a review of the materiality matrix. And you will see here in the graphical representation, the top 13 business issues relating to environmental risk management and governance. As Michelle said, stakeholder engagement and Elizabeth before, is really key for us, and this is part of our stakeholder engagement today. but we undertake a series of active communications with all of our stakeholders, whether they be our suppliers and partners, our shareholders at Ceres, our employees, as Michelle has outlined and wider society to generate social environmental impact, which is part of the go company's core purpose. So we want to ensure that our key stakeholders understand the company's circumstances in the context of ESG, our plans going forward and our targets on improvement and also the constraints around those going forward. So with that thought, I will hand back to Phil.

I think you're on mute, Phil, sorry.

Thank you. I hope what you can see from this first sustainability report is we've made quite substantial progress on our ESG journey. In the past year, we've obviously completed the employee surveys, the divesting inclusion policies. We're now up to speed with gender pay gap reporting. We've got pretty good visibility into our supply chain with some of the management tools that we're using there. We're on track with the SASB framework and we're very close to securing the ISO 14001 accreditation. So as Chair of the ESG Committee, I'm pleased with where we've got to in the past 12 months. As I look ahead, we've got some very specific targets for 2023, including SBTi accredited Scope for 1, 2 and 3 emissions. We're going to start to report with TCFD by the end of 2023. We intend to achieve the carbon disclosure project rating, I think by towards the middle of '23, and we will formalize our strategy towards the SBTi pathway to net zero. So there's a lot of good work being done by this committee. And we'll continue to update you. I think we've provided a very good base on which we can build and start to measure progress as we go forward. So I think that's the end of the formal presentation. But I think with that, we can go to Q&A, Elizabeth, if people have questions.

Yes, absolutely. And there has been a couple of questions come through. And perhaps Phil to you could pick up on that last point you made in terms of moving towards a net zero sort of accredited pathway. And Tom C. has asked, has Ceres signed up to the climate pledge? And if not, why not?

Yes, it's a good question. We've looked at it. And a lot of companies have signed up to these pledges and then they're going to figure out how they're going to get there along the way. We wanted to make sure that the scientist and here we had a very, I suppose, a very logical approach to how we're going to get to that net zero. And indeed, how fast we can get there and, if possible, even accelerate that. And hence, we are doing quite a lot of work on our pathway and then we'll choose the -- we'll publish our own targets when we're ready to do so. And I think there's a number of these targets and schemes that you can sign up to. But for us, it's more important that we actually commit to what we believe we can deliver on and explain how we intend to get there rather than just put a target out there and not give any color on how we're going to get there. So that's the approach we've taken at Ceres.

That's great. Thanks, Phil. And Mark, maybe I could come to you. Someone has asked, as we're using higher temperature solid oxide technology, what do we do about the carbon dioxide, which is released if you're using on nat gas line, I assume that's the question.

Yes, sure. It's a good question. I think the first thing to point out here is that the level of CO2 emitted is substantially below alternative methods of producing power. So on a G20 carbon intensity grid equivalent in combined in [ Palmer ], we've nearly 50% lower CO2 emissions than alternative power sources. So we're already looking at substantially lower CO2 emissions with our technology. Secondly, we are a hydrogen-ready technology we are able to accommodate multiple fuels and natural gas is one of those things. So the technology is readily available for zero carbon emissions when the right fields become readily available I think in terms of answering that particular question, we are starting to look at linked technologies such as carbon capture and the level of CO2 or the type of CO2 emissions that we're getting out of our stack technologies is well suited, I think, to linking it to carbon capture technologies as an interim solution until hydrogen is available. But I would want to make the point that our technology is already highly efficient.

Great. Thanks, Mark. And then there's a question here, perhaps, Phil, you can take this. someone's asking about whether we could use ammonia, but perhaps you could talk about future fuels as a source of kind of electric generation and our plans around that.

Yes. So if you look at some of the applications we're getting into now, we focus very much on the hard to decarbonize the hard-to-abate sectors. And that takes us into some of the more difficult technical challenges such as how do we decarbonize things like shipping. And also, if you believe in hydrogen as a worldwide energy vector, how do we move it around. So ammonia is definitely one of the fuels that we're looking at on our future fuels roadmap in 2 ways. One is, we believe with the electrolysis path we're on, we have a very good fit because of our temperature range into industrial processes like Harbor Bosch to actually produce ammonia using green hydrogen. So we definitely see a future where ammonia plays. And because of that also, we're also looking at can we use ammonia as a fuel in the fuel cell systems. And we're doing some work on that right now. I think ammonia is one of the more challenging fuels. I think we probably can't take it directly into the cells as we have them today. But with some preconditioning, we're looking at how we actually can build it into the power systems that we're developing. And we're also looking at future fuels like bioethanol, methanol, et cetera, which is also a fuel that's being considered for some of the shipping and heavy-duty transportation applications. As we've already said, we're already hydrogen-ready. We can use nat gas, we can't use biogas and we can use blends as well. So from our point of view, because of the high efficiency and the fuel flexibility, we want to be able to utilize as many of these future fuels as possible and also enable their production through the green hydrogen pathway into synthetic fuels and indeed, ammonia in the future. So it's very much at the core of what we're developing on the technology side.

Brilliant. And there's a question here from Robin C. who asked, are there comparable manufacturers or comparable processes to understand whether Ceres' carbon consumption and sourcing of scale and materials is efficient or better or worse than others? I mean I don't know whether we could speak to a particular industry, but.

I think it depends where you draw the boundary on the industry. So if you look at other alternative solid oxide producers, there are, they tend to use more of the [ whereats ] ceramic materials, and they often they're hard to source. So on the ceramic side, we use the most common of the ceramic materials, which is Ceria, and we're also very careful in terms of how we source that as well. So we believe that by using less of the hard to source [ whereats ] and use highly recyclable steel and with the [ whereats ] that we use the most abundant, we do believe we have an advantage, if you like. When you look at wider technologies such as membrane or PAM-based technologies or even alkali based, we avoid altogether some of the harder to source materials. We don't use things like iridium. We -- in an electrolysis mode, we don't use some of the platinum-based catalysts that others are reliant on. So there's a lot of work done by other companies about the recyclability of some of these materials. We tend to just try to design them out if we can and then ensure that our product is highly recyclable and considering that about 80% of all the goods that we manufacture today contain common steels. Steel is one of those materials that is highly recyclable. Now in the future, we need to move to a world of green steel. And again, part of our agenda is to enable that through the green hydrogen production as well. So we already use a high proportion of recycled material in the steel we source. And going forward, we want to also enable green steel production globally. So I think inherent in our materials, we do have advantages, but I think you'd have to do a comparison over, first of all other solid oxide technologies and then wider technologies that are involved in the electrolysis fuel cell space.

Great. And there's a question here. How do we quantify and what specific KPIs do we use to establish whether ESG and sustainability adds value to the business?

Like, I can speak to that. I don't see ESG as an added -- an add-on when we talk about added value. I just don't see the world that way. It's absolutely core to what we do. So I don't think we need to justify additional spending or reporting on what we're doing to tick an ESG box. I think it's absolutely core to everything that we do at Ceres. And I think the direction of travel that we're having on reporting and disclosures is actually really helpful for us internally in terms of making the right decisions on how we operate the business and how we look after stakeholders and employees. So I just don't recognize it in that way.

Yes, absolutely. And just one last question here, which perhaps goes to a similar point. Have we seen any interest from potential new institutional investors on the back of the report? But I guess, actually, we've been speaking to many of these aspects of our activity and indeed, we're probably playing catch up a little bit on the reporting versus what we've been doing and embedding into our business. Would you agree, Phil?

Yes, I would agree. And I know, Elizabeth, you particularly. We did actually seek investor inputs and feedback into what was important from the investor lens. Obviously, the investor lens is only one aspect of the audience for the ESG. But I think we felt we were already doing a lot of these activities, but we needed to be more transparent and more clear in how we reported it. So hopefully, this is our first report, but it certainly won't be the last, and this will continue to build upon and be improved upon in the future.

Yes, absolutely. There are no more questions on the sustainability aspects at this time. So I'll hand back to you Phil to close out.

Look, thank you, everybody, for joining the webinar today. We wanted to give a dedicated time today to just focus on the progress we've made on sustainability and for you to meet some of the team responsible for the governance and the production of this report. It's very key to us at Ceres. We're going to continue to put more and more effort into this over the coming years. And you can expect to hear more from us as we go on this journey. So thank you for your time today.

That's great, Phil and to the ESG Committee. Thank you very much indeed for your time on updating those on the call this afternoon. Could I please ask the attendees on the call not to close this session as well now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. So it'll 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 at Ceres Power Holdings plc, I'd like to thank you for attending today's presentation. And good afternoon to you all.