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

Good morning, ladies and gentlemen, and welcome to the Ceres Power Holdings Full Year Results Investor Presentation. [Operator Instructions] Given today's attendance on the call today, the company may not be in a position to answer every question received in 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 your participation will be warmly received. I'd now like to hand over to CEO, Phil Caldwell. Good morning.

Good morning, everybody, and thank you for joining myself and I'm with Eric Lakin, CFO; and Elizabeth Skerritt, Director of Investor Relations. And I'm very pleased to update you on our final results for 2022. Many of you know the company, but just to remind you of our positioning, we're one of the world leaders in solid oxide technology for both power generation and for green hydrogen. We have a very unique technology, which is protected by well over 100 patent families and growing all the time. And because of that, we operate a high-margin licensing business model, which is unique within this hydrogen sector. And because of that uniqueness, we're able to collaborate with some of the world's leading companies to deliver clean energy technology at the scale and pace that's required to actually address climate change. The past year has been another year of progress. And I think it's only when you stop and look back that you realize some of the key milestones that the company has achieved and I'm going to talk to these briefly before I hand over to Eric, who will go through the details of financials, and then we'll come back and talk a little bit more about the business strategy and give you a chance to ask questions at the end. So just taking a look at the progress we've made in the past year. This business model requires us to license technology and enable our partners to scale manufacturing. This is all about scale. And I'm pleased to say that we're making good progress with our existing licensee partners, Doosan's factory in South Korea, we don't talk about too much, but that's now underway. And we expect to come on stream in 2024. Bosch, we talk about quite a lot, but they're our lead partner. And they've put in place that investment plan, which will total up to EUR 500 million, and again are scaling the technology in Germany. We're making progress with Weichai. They achieved certification for their stationary power system in China this year, again, something that's not been talked about too much, but it's quite a big step forward and obviously something that we want to put into the China joint venture. We've expanded the business quite significantly, quite dramatically into electrolysis and it's gone very well in terms of our first 100-kilowatt modules on test this year. and it's already demonstrating class-leading efficiencies, and we'll talk a little bit about that later in the strategic section of the presentation. And on the back of that, we've started to build the ecosystem of partnerships for electrolysis with the same quality of names that we've done on the Power Systems side. So we've added Shell in the past year and very recently a collaboration with Linde Engineering and Bosch. So again, collaborations with world-scale companies that can really move this technology forward. And finally, we've been investing quite significantly into our infrastructure, and we've brought onstream a new test center HORIBA MIRA in the Midlands of the U.K. So we continue to invest for growth for the company. We're able to do this scale because we have a platform technology, which is fundamentally the SteelCell and that cell technology we build into stacks, as you know, and many of you may have seen our facilities here in the U.K. And then we embed that into power system products and now into electrolysis technologies. So we have the names on the top here, Miura in Japan, Bosch in Germany, Doosan in South Korea, Weichai in China. I'm pleased to say now we're adding on the bottom of this slide, people like Shell, Bosch and Linde on the electrolysis side of things. So we expect to continue to grow out the ecosystem of partners. And that's important because this is a licensing business. So the more capacity that we have, the more future royalties we achieve and that enables us to maintain sector-leading margins. And again, we're still maintaining very good margins at this level. But once we add royalties into the mix, then we expect margins can be even higher. So that's a very brief overview. And I think just to make it clear, we expect the same asset-light licensing business model to apply both to the SOFC side and the SOEC side. So that's the very quick introduction, and I'm going to hand over to Eric to talk you through the financials in some more detail.

Great. Thanks very much, Phil. So I'll just give an overview of the financial KPIs for 2022. So total revenue of GBP 22.1 million sales that was down from prior year, and that's largely due to an absence of new license partners being 1 with associated revenue recognized in the year. In the prior year, there was a significant element in particular from Doosan as we did tech transfer with them. And we look forward to a return to growth as the timing of which is really driven by booking new sales, new license partners, whether that's with existing partners, with the China JV or new licensees. Gross margin at 59% was down 3 percentage points compared to 62%, but in line with our guidance of approximately 60% plus. It's actually relatively high given the lowest revenue level, and that's driven by improved operational performance, so lower yield -- sorry, higher yield, which results in lower scrap levels and also a reduction of the warranty provision as we get a better data that shows a lower return rate from partners. So that offsets the lower level of revenue and the mix change. So that result, I should note as well as a footnote on here. We've changed one of the presentational points in our P&L, which is a move forward to make it more transparent in line with good practice, and that is we're stripping out our debt, which is R&D expenditure credits in '22 was GBP 1.1 million and report that separately under other operating income as well as other grant income rather than a credit to cost of sales. And the reason for doing that now from this year, it will become increasingly as in from 2023, increasingly significant component. Ceres being over 500 heads we're no longer eligible for the SME tax credit, small and medium enterprises. So more of our R&D spend is eligible for RDEC, which is an increasing rate as well from April this year, it moves from a 13% to 20% growth rate. So that could be of the order GBP 2 million to GBP 3 million this year. So therefore, it's important for more transparent to pull that out and show that as a separate under the operating income and not under as a credit to cost of sales. Other headlines are unaffected. So revenue and adjusted EBITDA and of course, cash flow not impacted by that change in presentation. So represented 2021 gross margin of 62%. It was previously shown at 66% when you include the RDEC credit. So that results in gross profit of GBP 13.1 million compared to GBP 19 million in prior year, driven by the revenue and adjusted EBITDA of GBP 43 million loss compared to GBP 16.7 million in the prior year. And that's driven by the planned expected growth in investment, particularly growth in the future, which we'll come on to later as part of our new projects to driving future growth and innovation. Cash balance at the end of the year was close to GBP 182 million compared to GBP 250 million in the prior year. Again, that's in line with our planned investments, and that is in high investment-grade money market deposits and banks and well diversified, so to anticipate questions in terms of -- we have no exposure to SVB or Credit Suisse. And in fact, neither of those institutions would have been eligible under our current investment criteria. As I mentioned before, increase in employees, so it's 570, an increase of just over 80 in the year, and that's in a range of different fields, particularly material scientists, engineering and increasingly and also our commercial team expansion as we look to leverage our technology and convert that into orders in different regions around the world. Order backlog, which -- and that is defined as total contracted revenue as the backlog. So all of our back orders that are yet to be converted to revenue. So that includes license fees, engineering services and hardware. It does not include future royalty potential. There's not an indication of future revenue. So for us, for Ceres and its business model, it's a less significant metric for future value than if we're a pure-play manufacturing organization. Nevertheless, it's a metric we track in it. It's an indicator of more short-term revenue potential. That was down from prior year of GBP 78.7 million, and that was effectively driven by the revenue recognized in the year was greater than the new license fee -- new contracted revenue booked in the year. And finally, an important metric for us is our planned partner capacity. That remains at 250 megawatts, and that represents 200 megawatts with Bosch and 50 megawatts with Doosan. So moving on to this, this chart shows the last 4-year trends in terms of revenue, gross profit and gross margin. It shows a consistent gross margin level at close to 60%. This is the gross margin represented to reflect having RDEC as other operating income rather than cost of sales. And it's strongly inferenced by the level of revenue and also revenue mix. But as I've mentioned before, the gross margin has held up relatively well given the lower level of license fee revenue in 2022 on account of other offsets, particularly around operational improvements in our pilot factory and also a greater level of KPI recognition from our partners as we move closer towards start of production and KPIs are effectively 100% margin revenue stream. What we show on this chart shows the breakdown of different revenue categories and how that's evolved over the years. So as a reminder, and for those that are not so familiar with our model. So the -- we've got effectively 3 revenue categories. We've got license fee revenue, which is effectively 100% revenue, and that's often recognized upfront to some extent over time, and that's during the tech transfer and joint development with our existing partners and recognize as we fulfill those obligations. Supply is effectively prototype stacks and sales, providing our partners to enable them to build systems and try them out with pilots with their internally and with their potential end users. And we also have Engineering services, which is really labor time of our engineers with joint development collaboration for both systems and other initiatives. And as I mentioned, with it's actually increased in the year as we've recognized a high level of KPIs with -- particularly with Doosan and Bosch. And the fourth category is Royalties, which is effectively a payment we received from every sale of our stacks and systems by our partners. So we don't have any royalties yet, but we're on track for recognizing royalties at start of production. I expect in the second half of next year as our partners go to that stage. So it's worth touching on investment. It's increased significantly in 2022, in line with strategy and the plan set out in the fundraise back in 2021. And -- so we define investment in the future is effectively all of R&D spend plus CapEx plus capitalized development and that increased to GBP 58.4 million in the year compared to GBP 34.9 million in 2021. The components of that includes, it's also personnel in R&D. We also got some significant projects. As Phil mentioned, we're investing in our pilot factory in Redhill, Surrey. We've also got a significant element of spend in SOEC, in particular, the prototype demonstrators in which there are 2 that we've announced with our partners, Shell and with the Linde Bosch collaboration. We've also had significant investments, including capital investment in our test facility in collaboration with MIRA as well. As I mentioned before, a number of these projects are sort of fairly nonrecurring in nature, they're spread over 2 to 3 years. So in terms of the pace of investments, we expect continued growth in investment in '23, but not at the same increases we saw in '22 versus '21. So the level of growth of investment is flattening from what we saw in 2022. And again, it's in line with our expected plan of investing in the future. And of the GBP 180 million fundraise in '21, about GBP 100 million of that was pegged for investment in SOEC, and we're about 40% through that particular investment program. This chart may be familiar to some. This is a reminder of our -- the development of our revenue streams in line with our business plan. So where we are today and as you saw earlier, we have revenue primarily from SOFC, the power fuel cell side of the business, and that's in the form of license fees, engineering services and hardware sales. Over time and moving into next year, we will start of receiving royalties. That's the darker purple part of the chart there, and that becomes increasingly important and sizable over time as our partners move to the announced 250-megawatt capacity and beyond. Laid on top of that in green is the hydrogen side of the business. So we'd expect to see to a small extent from this year an element of income from SOEC, and that's with the -- particularly from the Shell demonstrate when that comes live and over time, growing with Bosch and Linde and that we expect to be more significant as and when we receive license fees for SOEC, which there aren't any currently. And again, similar to SOFC over time, once stacks and systems are being sold by our partners in hydrogen and SOEC then we'll expect royalties as well coming from those contracts. With that, I'll hand back to Phil.

Okay. Thank you, Eric. So just a few words about the business strategy. As I mentioned at the beginning of the presentation, there's 3 key pillars to our business strategy. The first pillar is enabling our license partners to succeed and that's all about supporting them to scale up and get into production. The second pillar is building the commercial scale of the business. So this business doesn't operate just on 1 or 2 partnerships. We need to have more licensees and hence, the growth agenda diversifying into electrolysis, but also adding licensees on both the EC and the FC side and maintaining technology leadership. If we don't stay ahead, then we cannot operate a licensing business model. Just taking each of those in turn. We're very focused on supporting Bosch and Doosan to start production next year. And we're still working on the third planned collaboration for China JV with Bosch and Weichai. So that's our near-term focus. In addition to that, we've been investing quite heavily in the commercial team, and we're starting to build up the ecosystem as I would call it, of potential partners on the SOEC side. with Shell and Linde Engineering as new names into the mix this year. So we're very pleased to have those as collaboration partners and they are maintaining the technology leadership. We'll talk a little bit about some of the progress we've made this year on technology, particularly on the electrolysis side. And as Eric has outlined, we've put quite significant investments into the business, into the professionalism, the [ rigor ] at which we actually develop this technology because of the company we keep and the partners that we have service needs to be as rigorous to high quality to high standards as any of our partners, which are of all blue-chip partners. We've already discussed the scale, but as you can see on this map, we have 2 plants at the being scaled build stage and third in the planning stage. We don't often -- we're not often able to always show the progress here, but this is the picture of the plant that's now being built in South Korea in [indiscernible] and that's going to be 50 megawatts to begin with, coming on stream in 2024. But there are plans that we will expand that to 170 megawatts. So we're pretty excited to see that starting to happen. Again, we don't always talk too publicly about progress in China, but it was nice to see a few weeks ago, quite a big public exhibition, if you like, of the progress that's been made by Weichai. What you can see here is actually a stationary power systems using the Ceres technology 120 kilowatts in total which actually achieved EU certification. So I think we are quite proud of that because, again, the quality standards from China are as good as anywhere in the world. And Weichai's own estimates are, if they can produce a gigawatt of stationary power based on the Chinese power system, they'd save about 2 million tonnes a year of carbon. So you can see the big opportunity there. We're still working on the China joint venture. Obviously, we're frustrated, it's taken longer than we'd hoped, but we're now waiting for the progress to be made with Bosch and Weichai to get that one finalized. Bosch, we've already mentioned our investing up to EUR 500 million in this technology, the recipients of IPCEI funding. So you might have had various different initiatives around the world. There's the IRA bill in the U.S. There's also REPowerEU in Europe. One of the benefits of our business model is even though we're a U.K. company, indirectly, we benefit from our partners receiving some of the incentives that are going in, in different parts of the world. And Bosch, one of the people that will benefit from that IPCEI funding. They have a number of systems in different trial locations in Germany. So one is now in a hospital [indiscernible] in Germany and another in things like data centers, I think if you go on Bosch's SOFC website, you can see a lot more of the pictures and a lot more of the progress that's happening on the SOFC side with Bosch. And then that kind of segues a little bit into where else the technology can go. So just recently, we announced a 3-way collaboration with Bosch and Linde Engineering onto the electrolysis side, the SOEC side. And that's to really assess this technology again, at a megawatt scale, but this time at a Bosch facility in Stuttgart in Germany. The reason for this collaboration is we're not a pure-play manufacturer. Bosch is one of our leading industrialization partners. Bosch and Linde have obviously quite a strong history and collaboration and they bring different things to the part. If you think about the value chain for electrolysis, we bring the core technology. Bosch potentially could bring the industrialization of the technology and the manufacture of the core cells and stacks. And then Linde is world-leading in hydrogen, in terms of integration into electrolysers and into also selling to the end market. So I think this is a good example of again, our license and potential into the value chain because we occupy a very strong position as the technology provider, but we work with partners who can then scale and bring this to market. So we're very pleased to get that one underway. And when we raised the capital just 2 years ago, as Eric mentioned, we allocated about GBP 100 million into the electrolysis development, pleased to say and this was a schematic of what we intended to do. We're pleased to say we have the first results on the module level, and we're already achieving less than 40-kilowatt hours per kilo of hydrogen that's significant. If you think, this chart is interesting because very often when people are looking at electrolysis, they're very fixated on the CapEx, particularly how does this compare with alkaline or PEM et cetera. What they sometimes overlook is efficiency really matters. And if you can achieve the targets here for SOEC, and these are industry targets as low as 37 for the same million tons a year, you're basically saving 26% of the upstream CapEx, which when you think about upstream wind or solar or all of that infrastructure, that's a very significant saving. Also, the energy costs, the biggest input into green hydrogen is the cost of energy. So again, 26% OpEx reduction is significant. And on the CapEx side, even if SOEC may cost more than alkaline, it could cost us as much as I said, higher and still have the same CapEx basis, if you see, because you actually need fewer of the units to give you the same production. So I would encourage analysts to start to think more about the overall system rather than compare the Ceres technology to low-temperature technologies. And then finally, this technology really plays for industrial decarbonization where you can use the waste heat. And I believe that's firmly one of the unequivocal areas where hydrogen must play to decarbonize green steel, green ammonia, petrochemicals, synthetic aviation fuels, et cetera. That for me is the key target market and where SOEC can really make a big impact. And then finally, to bring to life some of the pictures, some of you may have seen this in our facility, but here's the containerized system that's been built and will be filled with the modules, which we have on test in Horsham. These modules will go on test in Germany with our partner, AVL, later this year and then be shipped and go on test at Shell in Bangalore in India in the second half of this year. So again, we're doing exactly what we said we'd do. We've raised the money. We said this technology would be class leading, it is. We said we'd sign big partners. We are and we continue to invest in the business, and we're continuing to deliver on exactly what we said we would do. So as we look forward to the year ahead and our focus, we're going to continue the growth of investment, as Eric talked about into both the SOFC and the SOEC side because we think we are one of the world leaders in this technology, and this opportunity is huge. We are supporting our partners as they scale in Germany and South Korea. We're building new commercial partnerships with the expanded team. And as you can see, we're starting to expand into electrolysis on the commercial side as well. We haven't talked too much about it, but we're making progress on some of the new applications, higher power systems, utility scale and marine systems. And that's definitely some of the markets that Doosan are looking to go after as well. And part of that capacity that's coming out of South Korea will go into those markets. We're continuing to progress on the China JV. That's obviously a focus for us in this year. And we're still looking to move up to the premium list and the main market on the London Stock Exchange. So I think we've got an exciting year ahead. We're very pleased with the progress we've made. And I think 2023 will be a year where we can build on the significant investment we've made over the past couple of years. With that, we'll take any questions.

Phil, Eric, thank you very much, indeed, for your presentation this morning. [Operator Instructions]. While the company take a few moments to review the questions submitted already, I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A will be accessed via your Investor Meet Company dashboard. [Operator Instructions].

It's Maggie Schooley from Stifel. I had a few questions, if I may. The first on Slide 14, the indication of capacity for Doosan at 170 megawatts. I haven't seen that number before. Is that just based on the footprint of what they're building and would it be your expectation that, that would be fully served by Ceres technology. So the 50 they have possibly going to 170 and if that is the case, by what time frame? And then the second question I had is on SOEC, I understand your argument on efficiency and CapEx, but just to understand a bit more, the life cycle of SOEC, how long do you think versus alkaline and PEM, that system would last? And how often do you need maintenance for it? Just to have a better understanding of the end-to-end costs when you're thinking about pairing this with industrial projects. And sorry, finally, the third question and possibly not able to answer, yet, but given the test data that you've had, obviously, you've always said you wouldn't hook up an electrolyzer to solar or wind. So you'll be using grid power in these industrial, some of which will be fed in with solar, some of which will be fossil fuels, but on a blended basis, what's the GHG reduction do you think you can get in terms of the green electrolysis versus gray, if you know that? And then if it was fully green when we see more renewables, overtake the grid, what you think the reduction would be on that basis as well, if you know it at this point.

I [indiscernible] remember all those.

So Doosan first. The factory that's being built is 50 megawatts. This -- Doosan is a public company. So if you go on the their websites, et cetera. That's where you'll see the plans for the 170. My understanding is that would be additional -- an additional build-out of the facility. But yes, using service technology. So that was the first question. The second one, Maggie. Yes. So yes, we -- the modeling we're doing on this you would expect stack replacements. The plant life around 20 years, I think, is what most people look at with several stack replacement cycles. I think we start our modeling a minimum of 60,000 hours and onwards from there. So -- but even on that basis, we've previously talked about levelized cost of hydrogen approaching $2 a kilo. We're still very confident towards those kind of numbers. The question..

I was just trying to get some understanding of until we get a fully green grid in stages, what the reduction of carbon is?

Yes, that's quite a complex question. I mean, look, the way I think you have to think about it is you are basically 25% or more efficient. So whatever you're feeling it with, you're going to save that much carbon or if not carbon, then you're going to require less capacity upstream to feed it for the same tonnage of hydrogen, but I couldn't give you a simple rule of thumb right now. I think that's part of the best indication.

Yes. I mean, there might have been an implication of the question. I don't know whether the solid oxide, it's likely to be baseload power in there from the grid and what's the mix of the grid, but it's worth noting we think as with the increase in renewables, it's actually very compatible with our technology because you've got basically with a buffer, whatever that buffer could be held as or other sort of batteries. I think that's going to be increasingly important part of the overall system. So you're going to have renewables, so fully green electrons, if you like, with a buffer with solid oxide with the efficiency from that. So there's other technologies are better responding to dynamic load, et cetera. If you look at the overall economics, actually, it is not very appealing for the point you made earlier and need a lot more of them because of the efficiencies. So you've got that higher -- potentially higher CapEx, but also the overall levelized cost of hydrogen is dominated by the overall efficiency of cost of electrons. So you're doing the math, it's renewables with a buffer and solid oxide is quite compelling as well as the ones we've talked about before, obviously, having a baseload power whatever source that might be. So it's true. I mean even if even with the improvement we make in durability and so on, if it doesn't quite meet standard of durability of other technologies like alkaline, and we expect the cost per kilowatt is always going to be higher because the lower amount needed in terms of the total system capacity, it could be more or less a wash, but even if it ends up still being a higher overall CapEx over the lifetime, including replacement, it's going to be a lot -- basically your cost per kilogram of hydrogen is going to be much lower overall and a lower upfront CapEx need because of the lower capacity.

There's so many different use cases we are starting to do feasibility studies with a number of people. That's the beauty of this business model is. Yes, some of the work that we're doing with the partners we've announced, but also so EPCs, et cetera, we're starting to look at different use cases for this technology.

It's Martin Wilkie from Citi. A couple of questions on the U.S. obviously, you touched on the Inflation Reduction Act. Are your agreements with Shell and Linde global? Could they use your technology in the U.S. now or to access those tax credits for $3 hydrogen in the U.S., do you still need to find customers or partners in the U.S.

It's a good question. Look, everybody is very focused on the U.S. right now. We -- part of our [ limit ] is to grow the number of licensees. So we would look for U.S. parts as well. However, we tend to avoid exclusivities. And to be clear, the relationship with Shell and Linde are at the early stage, they're not at licensing kind of stages. But in terms of the freedom to operate of our partners, our existing licensees could potentially extend on the FC side already into the U.S. So Bosch and Doosan have licenses that would [ not ] allow the expansion into the U.S. On electrolysis, we haven't granted any licenses yet. But again, we were -- it's such a big opportunity, we'd obviously look to license into that market.

And if I can ask a question on Europe as well. I mean you talked about the projects of common interest, but obviously, we've now got this net zero Industry Act, which is obviously not yet finalized. Obviously, the EU has highlighted both fuel cells and electrolysers as strategic technologies. Do you have a sense as to whether that is going to mean that IP has to be sort of European or it's sufficient that your customer, whether it's Bosch or whoever else can be within the EU, and therefore, you still benefit from that? Or is it just still too early to see?

If you look at what's happened with the IPCEI kind of funding, it's really about EU content manufacturing rather than IP. So obviously, the relationship we have with Bosch, and we're starting to get incoming interest on the back of favorable subsidies in the EU as well. So look, if you're trying to grow the infrastructure rapidly that you need for green hydrogen, et cetera, I think it's all about capacity rather than who owns the IP. And under a licensing model where we can enable capacity in any of these regions for our partners without them having to -- it's very hard to stimulate a market if new entrants have to start from scratch and develop solid oxide, it's problematic. One, it is it's hard. And two, it's quite -- the freedom to operate is quite limited because people like ourselves and some of the other players have got pretty extensive IP portfolio. So you're much better come with the Ceres and licensing technology rather than trying to start from scratch and it would take too long and a lot of money to do it. So that's why I think some of the initiatives that are going off in different parts of the world actually can stimulate demand to license our technology.

Erwan from RBC. Thanks Phil, Eric, and Elizabeth for hosting. Two questions, have been partly answered, but one on the Bosch Linde partnership and second on policy. So on the Bosch Linde partnership, can we still refer to the Stage 1, Stage 2, Stage 3 framework that you put out for fuel cells and is it fair to assume that the Bosch Linde is right now in the Stage 1? And do we still stick to like the same kind of like timing from moving to Stage 1 to Stage 2, Stage 3. And then second question on the policy front. I assume the discussion with the Bosch Linde have taken place before the Net Zero Industry Act. But I'd like to have your view on like, a, whether it's game changing for you; and b, whether it potentially forces you to update your longer-term growth plans in the second part of the decade.

Okay. So the Stage 1, Stage 2, Stage 3, yes, we have the Stage 1. We're doing evaluation and some joint development with Bosch and Linde. The time it takes to step through is that changes from partner to partner. The one thing I would say is the thing that's often a criticism for electrolysis is, there's a perception out there that electrolysis has this potential to be the highest efficiency, but it's still early stage. And the same level of industrialization hasn't gone in as with mature technologies like alkaline, which has been about for decades. However, a lot of the work that we're doing currently on the scale of supply chains of manufacturer on the FC side, I believe, will mean that our partners can potentially scale faster, one of the beauties of solid oxide is it's truly reversible. So the same factories that you starting to see being built now with an extension of license could be producing cells and stacks for EC as well as FC. So the timing of once the license is taken, the timing to market could be shorter, this is what I'm saying. So I think that's key. In terms of our plans, I think the third part of your question was about, is this a game changer for our plans. I think what we're seeing with electrolysis, I think if we can get electrolysis right, I think that could be a game changer for us in terms of the amount of demand that's out there now. We -- look, these deals take time. So yes, this predates the more recent announcements in the EU. But I think what it does do is it creates the demand for our partners to pull which then pulls on the licenses.

Okay. And within the Net Zero Industry Act, which is the most like, I'd say, game-changing instrument, is it like the 40% domestic electrolysers manufacturing? Is this the potential production tax rate, it's the way we see in the U.S. with the IRA. Is there any particular part of the act that is more attracts you as more game-changing in Europe?

Well, I think the 40% is significant because I think there had to be a response towards what's happening in the U.S., and I think we'll see a response in other parts of the world as well, but I think it definitely creates that stimulus for the European market. And I think we're definitely seeing a lot of interest now from the European players as well.

Just thinking about the year ahead, I guess, Obviously, the China JV is a big moving part, but also sort of relatively easy to take a view on. Can you maybe just give us a sense of some of the other moving parts we should be thinking about when we're trying to model the financials for this year. And then I guess just thinking about the Bosch Linde partnership. Can you maybe just run through some of the steps that you -- the 3 of you need to get to before a license agreement, so the discussion becomes a bit more concrete. And then just lastly, just because Phil mentioned earlier. You increased their stake in RFC earlier this month, what sort of thought process around that? Would you expect to take the rest of it next year?

Yes. Okay. Do you want to talk about this year?

Yes. In terms of ET, we're not giving any much quantified outlook guidance for this year. Sure we'd appreciate that given our stage of the development as a business. However, what I would say is as a guide, and I mentioned earlier in terms of the investments in the future, that will grow again this year compared to last year, the rate of growth won't be as high. So we do expect an increase in OpEx. CapEx I can say certainly expect to spend in the range of GBP 15 million to GBP 20 million, so again, up from last year. But that's not, as I mentioned, we've got some nonrecurring projects. So that's not expected to be a continued level of investment. So from '24, I expect it to be lower than that range. So that leaves a not insignificant point around top line growth. And all I can say is that's hugely dependent on the timing of new license fees, including the JV. I can't really say much more on that, but there's a range of outcomes.

And then the second question you had?

Yes. So look, that's a very fresh agreement as of last week. What it does open the door now is to share information. So we're going to start -- look, we work closely with Bosch already on the FC side. So a lot of the -- it gives them -- allows them into the tent, if you like, on what we're doing on electrolysis in terms of the data that we're already producing. And at the megawatt scale as a 3-way. So it really allows that assessment to happen with Bosch and Linde. And the -- it's a 2-year evaluation. It's obviously going to take some time to prepare the site in Germany, which is going to happen from now to probably early 2024, and then the deployment will start after that. I would say though that before that, we'll be sharing data progress, et cetera. So it doesn't have to always be sequential as to when the next stage could follow on from that. So that's our focus this year with Bosch and Linde. Yes. So yes, look, we're interested in technologies that contribute towards our mission and sit in our sweet spot of being world-class in electrochemistry, which is what we really focus on. We've seen quite a lot of progress from the RFC work. And yes, we've taken the decision to increase the collaboration by another year and put some additional funding in to really prove it at the system level. We've seen some interesting results at cell and stack level. Yes, we're pleased with progress there. It kind of is complementary because long-duration storage, we believe, is going to be one of the key things for decarbonization.

Yes. So just to recap what we did, the investment we did in the year. We invested total of GBP 2 million, GBP 1 million in cash to provide funding for the business, another GBP 1 million in factory services that we're providing over the course of 18 months. So that increased our stake from 8.4% to around 24%. And we renegotiated our option to acquire the remaining shares, so to get 100% from 1st of January to the end of April next year. So it's given the time to, as Phil talked about, to really get a better understanding of the business and support them in the development investment, particularly in a stand-alone demonstrator, which would be really important part of that -- about diligence basically.

A couple of questions. Firstly, just on the Bosch, Weichai, JV. I mean, any incremental detail or assurances around completion of that. Also, it does sound like it's kind of out of your hands at the moment. Is there an expiry on this agreement? I mean is there a risk of completion simply just slides back to H2 and beyond? And secondly, just thinking about applications. Specifically, I think there's been a lot of -- I think if you look at industrial processes and hydrogen, it looks like steel is the most talked about area. I mean are you in discussions directly with steel makers? Or is this an avenue that you would probably be pursuing through your existing customer partnerships?

Well, if we take the second question first. Look, where we sit in the value chain, one of the reasons we're building the partners that we are with people, let's say, like Linde Engineering is they have the footprint into a lot of these kind of end-use cases. However, what we do like our partnership with Shell, we often go to the end user to create the pull for the core technology. So we do -- we are discussing all different kind of use cases with some of these applications like steel, like ammonia, et cetera, a lot of people come to us looking for this kind of technology. So it's a bit of both. But ultimately, we're not going to be the company selling directly to the steelworks or whatever, that will be through a partnership and our business is obviously to license the technology that enables that to happen. Going back to your first question on Weichai, yes, at this point, it's largely out of our hands. It's a very significant investment if you think about we have -- will be a minority in one of the joint ventures but a significant investment decision will be between Bosch and Weichai. It doesn't have an expiry on it, but we obviously want to get to a conclusion on this because we've been pursuing it for quite some time. But obviously, Bosch and Weichai are also significant investors in this business as well. So I think they've also minded to conclude on this. So when we can, we'll obviously update you.

Just on the SOEC business again, what would you deem a success over the next 24 months from both demonstrators and what are the key data points that you're looking out for? Is it the same that to confirm the same as the 100-kilowatt in terms of less than $40. And then secondly, just on in the announcement you put the second generation of fuel cell tech. Any more color there on the improvement on the product offering? Any more detail there would be great.

Yes. So next 24 months on SOEC, yes, exactly that success will be proving at that megawatt scale, similar kind of efficiency performances so 40 kilowatt hours per kilo. And we're -- look, the results on the module give us a very high confidence level on that because you're going to have some puts and takes on power [indiscernible] et cetera, but you're also going to get some efficiencies with scale as well. So proving this out at that scale, to partners like Shell and potentially Linde is a key endorsement of the technology. However, the modules that we've got are not the modules that we would expect our partners to industrialize. They need to be larger. So hence, the part of the second generation Gen 2 technology we're developing on the FC side, which is also going into the EC side will be larger stack footprint, simpler construction, and those of you that have actually visited us in Redhill may have seen some of those later cell technologies actually starting to come through the development side there. So that's well underway now. and that's really about industrial scale and cost of manufacture. And we anticipate building those into larger modules, larger repeating units for the electrolysis market really.

If I could just ask 2, please. When we -- and kind of following up on the electrolysis opportunity. When we think hypothetically, a partner comes in on licenses in 2025, is it -- do you have an assumption of when you think the royalty could hit? Is it now quick as you were saying, if we could just expand hypothetically, what you think the timing might look like? And then secondly, maybe to Eric on gross margins for 2023. Is there some kind of broad range you can think about, clearly, we haven't seen the license revenue as high in '22. That's a big question into '23, I guess, but is there some kind of ballpark range you would be thinking about? Or are you happy with where consensus is? And then just the last one on the order book. Is the Weichai deal or potential license fees, are those within the order book now? And equally, would we expect that the main market listing you spoke to come post any potential Weichai license deal?

Okay. Do you want to take the last 2, 3, Phil, and then recap one on the SOEC timing.

So the SOEC timing, as I've alluded to, the incompressible part of actually getting this technology into production is standing of the first factories, getting the supply chains up in different parts of the world as well, European, Asian, et cetera. Once you have factories in place, whether that cell is going to a fuel cell or an electrolyzer cell, in many ways, it's the same. So if somebody decides to extend their license, they could be paying royalties very quickly if they decide to utilize capacity they've already put in or capacity that they want to add on quite quickly as an additional production lines. So even though we've still got development work to go through the stages to get to electrolysis licenses, I think the ramp up on electrolysis could happen. You don't have to go through the same. We've been in about a 3-year period, if you like, with the likes of Bosch, 2 years with Doosan to actually get to the point where they're building factories and putting that in, that will be much shorter for electrolysis. Obviously, for new partners, they have to go through that stage, but there's a lot of learning. We're doing a lot of work on compressing the timing for factory builds in the future. So that's one of the key things for us is how do we enable more factories faster to get us into royalties. So that's...

Yes. Chris, thanks for the question on gross margin. In fact, I meant to add that to the mix with James' question around guidance. So yes, we still -- as we said previously, we expect gross margin to be in the range 60% to 70% and where it is in that range is dependent on total revenue. So you've got a level of cost absorption to that equation also the mix. So the proportion of license fees, which is a very high margin compared to engineering services and hardware. In order book, the current order book includes close to GBP 30 million from the China -- existing 2018 China JV agreement. I think that was your question. So that's in the order book. If as and when the new China JV agreement is signed, that effectively adds GBP 30 million of new order intake, but the preexisting would be eliminated. So it will be a net neutral impact overall, all else being equal. And in terms of the timing of the main market listing, I think it's reasonable to say that the plan is to -- if we're going to move up this year, it should be by the end of June because we want the last set of audited accounts. 2022 accounts would need to be within 6 months of listing. And there's -- given the uncertainty on timing of the JV, we're effectively decoupling it from the now from the China JV timing. It's just not something we want to be holding to.

That's great. I think we've touched on a lot of questions from the room. If there are any more. Obviously, we'll give you -- raise your hand up, one at the front.

Perhaps it's been answered by the gross margin question, but I wanted to ask about inflation. I mean, engineering work implies wage inflation, steel prices, materials costs imply, the cost of hardware that you supply to people. So basically, you're saying you're happy that you're able to pass through those cost increases? And could you -- obviously, you're not buying materials at the scale the manufacturing partner would buy. But what's your impression of what the cost inflation on the CapEx bill as it is for all equipment that's made a bit of metal basically. But what do you think the cost inflation has been over the past year for hypothetically for manufacturing partner?

Yes. Okay. Yes, it's a great question. The inflation is something that has affected us as it has every other company, particularly those in our peer group as well. I wouldn't put a number on it, but it's material. If order of magnitude, call it 10%, if you take into account many different factors, whether it's labor costs, supplier costs, raw materials. There's obviously a big range within that. So it's something we monitor closely and look to offset through various measures. And we also have our own pilot scale manufacturing, so that's directly affected. But as you've said, Ken, it also affects the economics of our partners. So what we're doing to offset that is looking to accelerate our development and get down the cost curve, that looking at change in materials, suppliers of steel, for example, lower waste, as I say in the year, the gross margins held up well relative to the amount of revenue and the mix because we've managed to improve yield in our factory, reduce scrap and other areas. And for our partners, where it's a different order of magnitude challenge, they're looking to do similar things. It's really about sourcing suppliers and looking to offset some of those inflationary pressures, which are there. So probably that's a good answer as I can give at a high level at this stage, if that's helpful.

If I could ask a supplemental question. We haven't heard much from Japan, but they're meant to be preparing kind of renewed hydrogen and fuel cell incentives as it ripples around the world. Any comment on that and MIRA?

Yes, Japan is interesting because I think Japan has lost the leading position I think they had when I started out in this industry 20 years ago, it was all about Japan. I think now South Korea has taken a leading position of what's happening in the U.S., in Europe. Japan does need to respond, and I think they are preparing to respond. We had again, our team out in Japan last week, the FC Expo, big keynote speech, et cetera, huge interest. But I think Japan is -- Japan needs to catch up again. We have opportunities there, but I think they've -- I wouldn't be surprised to see a similar kind of incentive plans coming in Japan and other parts of the world, I think. I think what's happening in Europe and North America isn't the last of this. I think you've already got very strong policies in South Korea. That's why South Korea is one of the best markets where there are several other players in South Korea, I think Japan probably needs to reciprocate as well.

I think you've touched on a lot of topics, but Elizabeth, if I may hand back to you just to see if there's any questions from those online that maybe we haven't touched upon. And of course, we will review all questions submitted today, and we can publish those responses post the meeting as well.

Yes, that's great. Thank you. Sorry, I know we're out of time, but we have had a lot of interesting questions come through. So maybe we can take a bit of a quick fire guys. Eric, if I can come to you. Could you just remind us when we should expect royalty revenues starting from the Bosch scale up?

Well, I'd say, generally, we're expecting royalties start of production for both partners at Bosch and Doosan in the second half of next year. That's probably.

Yes. Great. And Just a question in terms of can we assume we'll still see an investment in the China JV this year from our side.

Well, so the investment in the China JV will be triggered once the agreement is signed by all 3 parties. And as a reminder, that would lead to the regulatory clearances, a process which could take anywhere from 2 to 4 months. And at that point of establishment of the JV then under the contracts, our total investment is of the order of GBP 20 million that represents 10% of the total funding for the system JV, of which around -- it will be broken into phases over a number of years. The initial investment would be around GBP 8 million. So if it does happen, the net cash impact is fairly neutral because we'll receive about GBP 10 million of license fees from the first tranche and invest about GBP 8.5 million.

That's great. And just a question around any plans for fundraising in 2023?

No, I think the implicates do we need to fundraise. I mean the answer is, our current business plan is fully funded and the investment is in line with plan. But the caveat there is very dependent on revenue and income, which is uncertain.

Yes, absolutely. Great. And then just coming to you, Phil, if I may. Just obviously, we spoke a lot about the development of Weichai and the system for buffers in the sort of first phase. any update on this with the JVs coming into players at more focused on the stationary products?

So the systems joint venture that's planned that Eric referenced that we will be a minority shareholder in will actually combine system IP, both from the Bosch and the Weichai Ceres collaboration. So that will continue as part of the system JV. I think what we're seeing is we actually see a near-term opportunity, I think, for stationary power in China. So I think the first products will be more focused on stationary.

Great. And a quick question that's come through on Linde is they obviously have existing partnerships with other electrolyzer technologies. Do we see this as competing or how do we view that?

I think that -- it's a bit like fuel cells, the different technologies have different strengths. And I think the key thing for us is, I think people talk about alkaline and PEM, now people start to talk about Alkali, PEM and solid oxide. And most companies in the molecule business have solid oxide somewhere on their road map particularly for industrial decarbonization coupling with waste heat. So I think it's not a zero-sum game as in I think Alkali has its place, but PEM potentially has its place. I think solid oxide will have its place. So it's not unusual, I think, to have different technologies being focused on different parts of the market.

Yes, absolutely. Okay. And then just a couple of final questions, if I may. Just around -- we've obviously continued to increase our headcount, are we seeing any challenges within the market, securing kind of talented engineers and scientists, any issues around relocating people, achieving leases for overseas recruits.

Look, we've been through a very significant period of growth from 200 to 600 people over the past 2 or 3 years. The market has got tighter. I think it's maybe getting a bit easier again more recently, but we've always been able to attract the talent that we need, hybrid working helps. So it's not all about relocation always, and we're able to collaborate in different ways. And look, what we're doing, say, with MIRA, et cetera, are starting to look at how do we actually locate people in different places to continue to grow the business. As Eric said, we've probably seen the peak increase in heads. So we will add more heads this year, but it will probably be in response to new commercial partnerships and servicing those. So we will have headcount growth this year, but it will be more modest than what we've done previously.

Great. And then final one, just someone mentioned, do we still have the site in Horsham and are we keeping this plus our sort of Redhill manufacturing center. So our own U.K. footprint, what was that a bit like?

Yes, very much so. Horsham is as busy as ever. And Horsham is really the technology center, the R&D innovation center and Redhill is our manufacturing innovation center. So they perform very different roles. And we've invested quite significantly in Horsham this year, and that will continue to be our base.

Fantastic. I'll hand back to Mark.

Thank you, Phil, Eric, Elizabeth for your update this morning. Before I redirect investors online to give you their feedback, Phil, which I know is particularly important to you and to the company. I wonder if I could just ask you for a few closing comments and then our redirect investors for your feedback.

Yes, certainly. Well, look, thank you, everybody, for attending this morning and online. I think it's great to get the level of interest and support. And I think it shows you how important these technologies are to people. I think we've been investing in the past couple of years. What I hope you can see is we continue to do exactly what we said we would do. It's very much about delivery for us. We set our plans and then we execute against those plans. I think the company -- 2022 was a difficult macroeconomic environment for many reasons that we've talked about today. However, the investment that we've put in, in the past year or so, I think, will really start to bear fruit as we continue to grow into '23 and '24. And as partners progress to market and scale, that's really where we validate this business model. And I think that will actually just enhance the demand for this technology and with new initiatives coming through like electrolysis, et cetera, we continue to layer on the growth. So I think we're very excited about the prospects of this company. We're well positioned, are well capitalized, and we look forward to sharing updates with you all in the future.

That's great. Phil, Eric, Elizabeth, thank you very much indeed for updating investors. Company ask those investors online, not to close the session as we're now automatically redirect you for the opportunity to provide your feedback in order the management can better understand your views and expectations. It's going to take a few moments to complete, but I'm sure be greatly valued by the company. On behalf of the management team of Ceres Power Holdings plc, I'd like to thank you for attending today's presentation. Good morning to you all.