Ceres Power H2 2020 Earnings Call Transcript

Quartr
Provided by Quartr
September 28, 2020

There are 6 speakers on the call.

Operator

Good morning, and thank you for joining us for Sarah's 2nd set of interim results for the 12 months ended 30th June, following our change of year end to 31st December. For those of you who don't know me, my name's Elizabeth. And while much of our week remains virtual, I'm pleased to say we have our Chief Executive, Phil Caldwell and CFO, Richard Preston, here together. They're going to run through the results and would be pleased to take any questions you may have at the end of the presentation. You can submit these via the conference call or the webcast.

Operator

Following the meeting, if you have any questions or follow ups, please do not hesitate to get in touch with a member of the IR team on investors at serespower.com. Without further ado, I'll hand over to Phil.

Speaker 1

Okay. Thank you, Elizabeth, and thank you everybody for joining this morning. So the story of these results, I think there are a solid set of results driven by continuing commercial progress with our key partners despite the challenging times of COVID. So we've progressed on all major contracts, and that's driven, top line revenue to increase by just over 20%. To around 20,000,000 just under.

Speaker 1

And, you know, we're having success with our asset light licensing model which gives us sector leading margins again above 70%. So we're very pleased with that. 1st and foremost, it's huge, thank you to the team at Sarah's and also support of our partners and suppliers that we've managed to sustain performance throughout this period and not just sustained performance, but continue to ramp up production and grow as an organization. You know, during this period, we've also been busy investing for the future growth. So we're investing in core technology.

Speaker 1

We're expanding into new areas such as electrolysis for hydrogen. We're seeing more and more customer demand for higher power systems, And we've started to invest in core technology with a further, further investment $5,000,000 into the sold oxide electrolysis side of the business. As I mentioned earlier, our strategy is one of licensing, And really the, you know, the target we have for this company is to embed our, our clean energy technology into world leading companies on their products. And what we're seeing coming out of COVID is huge stimulus packages globally from from countries like China, Korea, Germany and the EU, which is really starting to drive demand further for our technologies and gives us real confidence in investment for growth in the future. Just quickly, I'd like to highlight some of the the key, progress that we've made with partnerships in this, in the past 12 months.

Speaker 1

So we have 4 partners of the license stage now Bosch Weichai, Dusan, and Miura. Bosch, you know, is our first manufacturing partner that's taken a license to manufacture ourselves and stacks, and has successfully done so this year in in Germany. So that's a real first for the company. Bosch have also developed prototype systems, which are now on trial at different use cases and different applications within Bosch. And that's now at five locations.

Speaker 1

And, you know, we we saw, earlier in the year, they they've increased their investment further in the company, and we'll talk about that in a in a minute. Weichai, we've continued the, development of the 30 kilowatt range extender, with Weichai and having completed the 1st prototype back end of last year, we've now moved on towards building that into a small fleet of buses this year. We have had some some headwinds with COVID around completion of the of the the fleet trials, and there's been some delay now pushing back this formation of the JV into the first half of next year, but actually the progress that the team has made is, is is significant, and we're very, again, we're very proud of the the work that both we've been able to do and the Weichai team has been able to sustain, during this time. Do you sound, do you sound have a, you know, are one of the leaders in stationary power globally and, the Korean government has large ambition for deployment of renewable energy and clean energy technologies. We've formed a relationship with Doosan approximately a year ago, and we're making good progress on the CHP developments, that we announced then.

Speaker 1

And as we said before, we're we're hoping to expand our relationship with Doosan into all the applications in the future. And then with Miura and Japan, we now have the units on sale, through your in commercial products. The first units have been, in operation that are for every year, delivering 90% efficiency, lowering the carbon footprint, and Bureau are looking at expanding the the support support team to that to enable further, further deployment. So that's low volume to begin with, but it's been successful, 1 year in, and we're very, very pleased to be selling service technology into Japan. So that's a high level of where we are with key licensee partners, just a few more illustrations.

Speaker 1

Here, you can see the next slide, Bosch is now about this, hydrogen compatible 10 kilowatts system, which can run our natural gas biogas and blends of hydrogen, and are using that in deployment in different locations, within the Bosch group. Bosch had come out and said in their in their annual reports that the, the market size for this is estimated to be 1,000,000,000 by 2030. And as a result of significant progress that we've made, they've increased investments in sellers by 1,000,000, taking their investments up to 18% earlier this year. With Weichai, as I mentioned, you know, here's some some, pictures of the of the team working in in Shandong province. We're making good progress with the 30 kilowatt range extender for the electric buses, and also developing the capabilities at Weichai And really we're working towards the joint venture, which would provide a stage path to providing high volume manufacturing for the markets of buses commercial vehicles and other other applications.

Speaker 1

So despite what's, been happening with COVID, we're pleased to say we're making progress with Weichai. And again, when Bosch increased their stake early this year, Weichai also exercised their non dilution rights, and put a fair of GBP 11,000,000 to sustain their position in severance at 20%. So good strong progress with those 2 partners. And that's really driven the financial performance for the period. I'll now hand over to Richard to give you some more detail on the finances.

Speaker 1

Richard?

Speaker 2

So, I think Phil's mentioned, some of the highlights, and I'll just touch on these again with some of our key messaging. As he said, we've had really solid set of results, revenue up, just over 20% and maintaining, really excellent margins gross margins, clearly, we've maintained, a significant and healthy order book and pipelines just under GBP 70,000,000, this is natural and naturally, flex up and down as you get new orders, but it's something that would that that's still that's still pretty good. Otherwise, from a cash perspective, you know, we're, extremely pleased to have £108,000,000 of cash, on the balance sheet having raised 49,000,000, in the last 6 months from strategic partners. In terms of in terms of revenue growth, we've maintained, decent licenses, during the year, I think as we've said before, these will naturally flex depending on revenue reconciliation recognition and, and customers coming in, but it's still a decent proportion, and that's driving the high gross margins that you can see. And again, we can see that our gross margin at an absolute level, has has moved on, significantly, over the last few years from where it was.

Speaker 2

We maintain to we maintain investment in the company, and, really the messages, on, on the investment in the company are very similar to to those who said 6 months ago, we're investing into the future. We think there's a lot of value that we can get, through putting this investment in there, and we're sizing the company so that we can, we can reach these opportunities, and and that's why our cash OpEx is increasing at our adjusted EBITDA is fairly flat for the period compared to last year. Terms of cash again, really the point to note here is, the cash we have on the balance sheet is is very significant compared to our operating cash flows, which are in a few percent of the balance we've got. And again, this puts us in a really healthy position, going forward. Of the, of the cash flow in the year, we've invested something like GBP 8,000,000 in CapEx and in capitalized development, and that's the CapEx is principally finishing off our manufacturing facility in Redhill and, increasing our test capacity.

Speaker 2

And the fields and subs. That's really what's driving that. And, we've talked about the cash position already. So let me hand over back to Phil to talk about the business strategy.

Speaker 1

So for those of you that know us, the business strategy hasn't really changed, but we are growing. We are expanding as a company and what we're seeing and encouraged by is despite, COVID, many, global economies are putting in green stimuli packages, and we're seeing that in, in all our key markets, really. So, you know, if you think about China, just just this past week, they've set out the target being carbon neutral by 2016 and peak carbon by 2030, which is pretty significant. Given that China's, dominance really of the carbon impact and agenda globally, and we're seeing more and more stimuli packages in China. Korea has committed something like 70,000,000,000,000, Korean 146,000,000,000 of green funding, again, targeting to drive economic growth, and specifically, they have pretty ambitious targets for fuel cell power generation of 15 gigawatts by 2040.

Speaker 1

Including 2 gigawatts for stationary fuel cells and buildings. So you're starting to see quite granular policies coming out stimulate packages and specifics on targets. Japan remains committed to a hydrogen future and is is a leader in the space and, you know, we're pleased to say we have a number of partners in Japan and further in pipeline. And then in Europe, you know, EU has come out and announced funding, huge funding for green projects, 2027. And, you know, this statement that all EU budgets must do no harm to, to, to goal to become climate neutral by 2050.

Speaker 1

Germany is probably at the forefront of that, and has announced €9,000,000,000 in stimuli for, hydrogen technologies. And again links with fuel cells as a path to decarbonization. So we're seeing, you know, big stimulus packages coming through, not just in Asia, but in in Europe. And then in the US, you know, it's a wait and see, but again, on the democratic side, there's this big ambition, towards decarbonization, depending on the outcome of the US elections. All of that is, is strong, pull for the kind of technologies that that Sarah's has.

Speaker 1

And also it, it plays into continuing with the the ESG agenda, really. So, and that's something that that we take, takes seriously at Sarah's given our our purpose. So like I mentioned, most of the major governments globally have committed to green initiatives, and we're pleased to say that we have pretty strategic partnerships in all of these, these areas that we just highlighted. So, we're, you know, at Sarah's, we believe we're a big part of making an impact, not just in the UK, but globally on the, on the clean energy agenda. As I mentioned at the at the start of the presentation, you know, looking after people in this time is in important.

Speaker 1

You know, I'm pleased to say that at SEVERAs, we haven't had to make use of any of the government's support or further schemes. In fact, we've actually continued to grow and we've recruited throughout this period. So we're a growth story at a time when there is a lot of difficulty around. And Again, the commitments and resilience of our people is is is fantastic, and we, big thank you to them. We've had to adjust in new ways of working.

Speaker 1

But during this period, we've actually brought up new production. We've managed to continue to work with partners globally. It's it's very impressive what the team at Sarah's has done that underpins these results that we have today. And then on the on the governance side, you know, we we're continuing to to get more and more stringent on on governance. We've, appointed a new chair this year with Warren Fine Gold and we're seeing some, new, new members join, join the PLC board and, you know, we're, we're, we have more and more scrutiny as we get to become a larger company on risk and on maturing the business to mitigate risks and to, to have very strong governance.

Speaker 1

So it's a big area focus for the company. We've talked in these results about investment for growth. The way we see this strategically and as a board is, you know, service is 1 of one of the few organizations globally with technologies that can have, have a major impact on on clean energy. You know, we've we've established ourselves with a very strong reputation in solid oxide fuel cells for power generation and our heritage we've We've been coming up in power from single kilowatts to tens of kilowatts and we're investing now to look at to going into 100 kilowatts type application to start to address power systems for getting, getting up towards utility scale. We see the residential and commercial sector as just one part of the challenge that we face for decarbonization.

Speaker 1

When you think about global demand for energy, we have to also think about how can we decarbonize transportation, how can we decarbonize industry, And that's why we're starting to invest in high power systems with some of the work we're doing with Weichai, around 30 kilowatts, potentially looking to increase that further in the future because we see big market opportunities for other applications like trucks, like rail, potentially in efuels in the future. And then the on the SOEC side, which is the electrolysis side, we've committed initial funding for, further development of the electrolysis side based on the fact that we've made very significant progress in the past 12 months with encouraging results on the initial work that we've done on electrolysis. And again, we see a huge market opportunity here for hydrogen and efuels, particularly to decarbonize areas of industry, such as steel, cement, ammonia production, etcetera. So we see that as a as a future, value creation, driver for the business. So that that's where we're seeing the business and as we said, we're extremely well capitalized.

Speaker 1

We've got one of the best teams globally, and we think there's this huge value creation to be made, by going into these areas, and it fits with with our purpose of providing clean energy, for the globally. So as we talk about scaling of the business, I've already mentioned this, but this ways we see the business. 1 is to sign more manufacturing licensing partners, with global reach, and the other is moving into more and more, diversification of of the end applications. So you can see on the right this is where we are today with the with the the dots, but you can see where we're starting to look at going in terms of future progress into into other markets. And as previously mentioned, we're exploring ways of how we partner with, potentially with engineering partners to actually take us into these new areas and, you know, commercially, how we, secure further demand which will then drive capacity quick one in terms of a reminder for those of you that might not know the company that well.

Speaker 1

The partnership progression tends to go through joint product developments into licensing, and then we get royalties per unit sold. We've we've had 6 partners currently at the joint development stage, Weichai Dusan, Bosch Cummins, Honda and Meurer, of which 4 have progressed into licensing and 1 has progressed into, product sales. You know, we continue to work with with Honda, and you know, we're looking to forward that bring that relationship forward. With Cummins, we're coming to the end of the Common Development Program with them. We don't currently have a follow on at that point.

Speaker 1

Beyond that. But what you can see is this is like a pipeline, so we have more people at the earlier stage, and then As we progress, we expect to go from joint programming into further license deals. What that driving in the past few years is the move in the revenue mix towards higher margin licensing business And really in the next 3 to 4 years, we expect, our partners to come on stream with investments in mass manufacturing production. And that's really what will take us through to royalties where the business really scales into a high margin licensing business. But in the near term, we're still able to command a high growth, high margin business based on the engineering services that we provide early stage supply to customers and upfront license fees, which, which obviously are very valuable to the company in this, in this next, say, 3 year period.

Speaker 1

So just to summarize, you know, as I've said, the the whole climate action, emergency that we've got currently hasn't gone away, and it is driving demand for for these type of technologies globally, it's fair to say the company's probably never been busier, and we're not short of opportunities on some of our key partners we're coming, to, critical stages, I would say, in the next 6 months or so in terms of making good progress on to next steps. So Bosch, we're due to finish the initial phase of our collaborations the end of this year, and we expect to move into the next stages with them. Weichai. We've you know, we're now getting the 5 buses built and into trials in China, and we expect to again, make progress into JV next year. Yora 1st commercial units are running well and, you know, we're we're looking to support Yora as they they continue to to make commercial sales, but do sound when a year into that relationship, but that's going well.

Speaker 1

And we're hoping that we can, you know, continue to to grow that relationship, and we expect to announce further partnerships, in 2020. The core business and investments in us, in the strategy, like I mentioned, we've been growing. We've got a world class team of scientists and engineers. We're starting to diversify and look into, development of new technology, not just the core fuel cell power system technology, but also on the electrolysis side. And to support that, we're investing in R&D test and manufacturing capability to underpin that.

Speaker 1

And, you know, we we continue to invest in the core business to mature, mature the technology that we have, and expanded into further applications. So overall, we're extremely pleased with the progress in the past year. We've got a high margin clean energy technology business that's very well backed and is well positioned for growth. So with that, I'll hand you over to Elizabeth and we can

Speaker 3

please. And we do currently have a couple of questions in the queue. The first question comes from the line of Lacey Mitchell from Panmure Gordon. Please go ahead.

Speaker 4

Good morning, Phil, Richard. Thank you for the presentation. Really useful. I've got a couple of questions on two areas, really. I split them up, I think it'll be easier.

Speaker 4

On electrolysis, obviously, a lot of development in solid upside market, particularly this year. A lot of companies now pursuing that, and my of the debate, you know, centered around efficiency versus flexibility between, you know, sort of upside and pen. I'll just be interested really to get your thoughts sort of high level thoughts on what you think the main advantages of solid oxides has over pen and outline. I mean, is it purely an efficiency benefit? Do you think there's more to it?

Speaker 4

Just some some color on that from both would be would be really helpful at first. Secondly, on electrolysis, just some initial thoughts on what the total requires, investment would be to commercialize or what you expect that to be on its own day that that an idea would be would be useful. And then and then lastly, the business model, you know, in electrolysis, will it work the same as the fuel cell licensing model, or do you think it will require, a different, approach? That's the 1st year on electrolysis. I'll let you do those first.

Speaker 1

Okay. So, to answer the first question, the way the way we see it is we're not we're not looking necessarily to compete head on with with Pam Technology. I think we you've answered the question yourself. The the big promised the big advantage of solid oxide is really efficiency. And efficiency is important because when you start to look at the cost of of hydrogen in the future, it's dominated by the energy cost that you're putting in.

Speaker 1

So therefore, the efficiency is gonna have a big impact on that cost of hydrogen. There are other benefits, all these technologies have strengths and weaknesses. The big, the other big, attraction for solid oxide is because of the operating temperature, we believe there's, compatibility with some industrial processes where with closer thermal integration, there can be further efficiency gains as well. So when we're looking at this, we're not necessarily targeting all markets with the electrolysis, we're thinking industrial applications are the sweet spot for solid oxide, particularly around applications like steel refineries, those kind of a higher temperature type processes. So that's how we see the positioning of the of the technology.

Speaker 1

In terms of the investment required. I view the the what we've done this year really is is is the seed funding. And I think if you look at how we've managed our business, we've leveraged sometimes partnerships to, to, fund core technology and sometimes we're putting in our own capital. Well, I think we're in a position now where we can put in our own capital to accelerate, development where we need to. So I can't give you numbers today, but if we're continuing to be successful in electrolysis, which we believe we will be, we believe this part of the business can be as significant as the core fuel cell business.

Speaker 1

So therefore, why wouldn't we invest? So that's, that's definitely, on a on a staged approach where where we the way we think about about this. In terms of the business model, I think that's a good question. We believe that, you know, the the license and model works well for us, and, it's about having the right partners in that value chain. But it is a a whole different area of of potential end users and customers.

Speaker 1

So we're moving from the power side to the fuel side So it it will really, I think depends on the on the partnerships we form and and how the the business model applies to that. But again, I think one thing for sure is we'll be looking to do this in partnership or in collaboration with with with companies with A, with market access and B, with, with the balance sheet strength that you need to really take these, these technologies through at scale. I think The one thing that you see on on this whole clean energy challenge is the size of the scale that you need, and you know, what works well for Sarah's is we're able to leverage our partners significantly and go after application of these technologies globally, which we couldn't do if we didn't have this partnering business model. So we will definitely pursue a partnering business model going forward for electrolysis.

Speaker 4

Just two follow ups just in partnerships, if that's okay, just really quickly. To do stand, I think you gave a good update in the statement and the presentation. I just wonder, you know, what do you think or do you expect to be the next milestone and likely timing of that. And then I'm coming just to clarify, you said there's no plans to for further collaboration at this time. I just wanted to check.

Speaker 4

Does that mean on the current data center program or more generally outside of that? I think it's the first look.

Speaker 1

Yeah. Look, I mean, I I I can't I can't give I can I can only say what what we can put in the in the public domain? So with with with with Cummins, we're coming to the end of, the program that we have with them in the US Department of Energy, I think it's going to be a successful outcome, but, you know, for you know, from where we are today, we haven't got, we haven't got next steps with them at this point. So I think that's that's a pretty clear statements of where we are now, with, with Dusan, we're very pleased with the progress that we've made in the the past year. And I think when we formed the partnership, we always felt that this one had had greater potential and you know, we that, that, our view on that hasn't changed, and our working relationship is good.

Speaker 1

And we'll we'll update you when we've got more more to say on that. I mean, I think you'd appreciate we with the business model we have, we always have to respect the confidentiality of our partners. So we tend to announce things when we've got things to say, but right now, things are progressing well with our partners.

Speaker 4

Understood. Thank you.

Speaker 3

The next question comes from the line of Adam Collins from Liberum. Please go ahead.

Speaker 5

Yes, good morning, everybody. A couple of questions from me, please. First of all, in the statement, there's a very enticing paragraph, which says you're intending to form a strategic relationship with a global engineering consultancy. Which will increase your ability to scale the business. Could you talk a little bit more about that?

Speaker 5

You touched on the potential for partnerships around SOEC, does this also take in power? And any more color you could provide on the strategy around that? And then the second question is in relation to the manufacturing JV in Shandong with Weichai. Which is going to happen, first half of next year. What can you tell us at this stage in terms of the way that might develop thereafter?

Speaker 5

What kind of investment might you need to put in, what might be the timelines in terms of taking that business to 1st production?

Speaker 1

Yeah. Sure. So I think in in terms of the first question, you know, when you when you look at the strategy for the company and you see the where we see the business in terms of revenue projections going out and getting getting towards licenses and royalties. The thing that makes this company a global success is really increasing our our number of licensee partners. And as we get further in with the engineering programs very often, a bottleneck for us is is how do we originate more and more licensed deals, more and more partnerships.

Speaker 1

So short of organic growth, and we have grown significantly in the past year, we're now thinking, okay, we may be missing opportunities where people can be bringing us applications and also help us to initiate that through the engineering. So that's really what's behind that. And we've been exploring that as a strategy for the past year. And I think we're you know, we're we're we're confident that's the way forward, and I think we'll have more to say on that in the near future. So so that's what's behind it.

Speaker 1

It's particularly focused on the power side at this point, because for electrolysis, we're at an earlier stage in its commercialization. But, so it's really growing the core, the core power business, our pace, and that scale. I think your next question was about the Weichai JV. And in terms of timing and and scale, as well as what we're doing on the the technology, development and and the field trials, we also are in in discussions around the the business plan with that you know, the business plan that underpins that, what we've said on record previously is, you know, we're we're committed to putting in you know, a minimum of around 9,000,000 or so in this first stage, we think it will probably be more than that depending on the strength of the business plan. But obviously, it's it's going to be of a scale that's appropriate to the the ambition of the business plan and also consistent with with servers in terms of our role in that versus Weichai as a as the number 3 commercial vehicle manufacturer in the world with considerable balance sheet and considerable, capability.

Speaker 1

So, so, you know, we we'll have more to say on that. I think Again, when we we get further through the the business planning stage that we're we're we're currently in at the moment, We also

Operator

have a couple of questions that come through on the webcast. I'll try and get to as many as we can. Probably first offer it to one for you. Adam both sides at Longsper are Is it possible for us to give a bit more color around the revenue mix and its impact on gross margin? There was a big increase in engineering hardware but a fall in licensing income, which might have suggested a lower gross margin than a cheese.

Operator

Are you seeing margin expansion or better pricing on the engineering side?

Speaker 2

Let me try and answer that one. So you're right. The mix has changed from the previous year, and we've we've got slightly less, license revenue than we had as a proportion in 1920 compared to 18 19. There's a couple of, there's a couple of, drivers going on here. So clearly, license revenue is very high margin.

Speaker 2

What you've also got within engineering services, we've got an increase in, in output from our factory in Redhill. A year ago, it didn't exist. It wasn't, it wasn't manufacturing. And for the last 6 months, we've just begun to to manufacture out of that. That's clearly a little lower margin.

Speaker 2

Than, than engineering services. So what you find is you've got 2 different drivers. Engineering services is still providing, decent margin. License revenues are very, very high margin, then what you've got is, and that tends to be lumpy. And then overlaying it, you've got an increasing volume of output from from our RedHill facility, which will depress margins slightly.

Speaker 2

But, nevertheless, you can see that we're, on average, maintaining very high gross margins.

Operator

And another question from Adam, just asking why the drop in commercial costs and note for

Speaker 2

This is, tends to be, tends to be lumpy again, and it depends it depends on, the deals that we've done in the period. So what you find is there are some deal related costs in the last year, which aren't repeated this year. And that's broadly what's driving it.

Operator

Okay, great. And probably one for Phil, Kantor Mart Elliott at Investec. On the fuel cell scale up, the profile as well explained, I. E. Moving from 100 moving up into 100 of kilowatts.

Operator

In the context of electrolyzers, how should we think about this in the past to develop commercial systems that would likely need to start out at Megawatt scale. Any any other insights on the development pathway would be useful.

Speaker 1

Yeah. I think, the what we've been doing is really on the core technology side. So, you know, at the at the R and D level to begin with, but I think what's logical is we start to have to build out in the same way we do with power systems, we'll have to move into prototype systems of sufficient scale there is a, an increase if you like in power running and electrolysis compared to into power generation. So what we what we anticipate is, you know, doing proof points at the appropriate scale, which obviously needs to start to address the megawatt type, applications to begin with in the future. But we we'll have more to say on that, I think, towards the end of this year when we complete the phase that we're in on on the core development side with electrolysis.

Operator

And, some questions through from Anne Crow, at Edison, she asked, if fuel cells are going to be part of, you know, fully green economy, then gas they run off needs to be created in an environmentally friendly way. You know, at the moment using electricity from wind or solar to generate hydrogen via an electrolyzer. However, the efficiency of this is substantially less than using batteries and cells. And do you think this will halt back deployments of fuel cells?

Speaker 1

Well, I think there's 2 parts to that question because, if you look at deployments of hydrogen. Obviously, we need further penetration of green hydrogen through electrolysis in the future, and I think If you look at any of the hydrogen council work, today only about 2% of hydrogen production is coming through green hydrogen. There's obviously historically been a cost disadvantaged degree in hydrogen, but as we move into higher efficiency, electrolysis, we're confident that you can get towards the right levels of hygiene costs that you need to to make it viable. But in terms of deployments of fuel cells, if you're used, if you're developing hydrogen, such as blue hydrogen with CCS, then, you can still use that, that hydrogen to to run fuel cells. You can use green hydrogen, or you can use, biogas in, in current systems we have or natural gas today for a lower carbon solution.

Speaker 1

So in many ways, where we're fuel agnostic. And I think Anne's question probably speaks more towards what's the potential rollouts of of hydrogen in the future rather than fuel cells because you you've already have significant deployments of of stationary fuel cells, globally today. So I think it's more around the what's the pathway for the the rollout of hydrogen in the future. I think obviously that pathway helps commercialization of fuel cells, but I don't think it prevents it.

Operator

Yeah. And we have a few more questions on the line around the deployment of, SOEC, and I think to reiterate Phil's point, we will be coming back to give more granularity on this slightly later in the year. So if we can address it that way, that would be great. Another question comes from Michael Law What are the opportunities in the UK? Most of the activity seems to be overseas based?

Speaker 1

Yeah. I think it's it's a function of our our business model really, that we work with the world's leading power system and, and automotive companies. And, and today, they tend to be in, in some of the geographies that we're we're in today. The way we see it is, you know, in the same way it's been in the news recently, Arm became probably, you know, one of the largest tech companies in the UK, predominantly developing technology in the UK that was that was that was used globally. That's the way we envisage the future for Sarah's.

Speaker 1

In terms of applications in the UK, if we have the right partnerships, we will obviously look to form partnerships in the UK. And similarly mid deployment. But I I wouldn't confuse the 2 in terms of deployment of this technology versus where our partners lie because most of our our partners are fortune 500 companies that tend not to be based in the UK. It's a function of of where those those businesses are located.

Operator

Great. And a question through from Nicholas Percy Davies who are who says morning, still and Richard, were you surprised the IT group decided to all the exit they're holding in the business?

Speaker 1

No. I think with IP group, it's it's a case of they they back, early stage technology businesses and and backed sellers at a key point, for the last 8 years, through from stepping in when very few investors actually backed the company in the low millions and taking it up to the valuation that we have today. I think as strategic partners have become more involved and as the company's grown in size, you know, the investor base has has involved significantly and, you know, that transition, it felt like the right time for for IP group and I think for Sarah's as well to transition it towards an institutional investor base that is appropriate to the size of where Sarah's is today and where we're going globally. And I think what What's also been positive over the past few months is as IP people have have diversified, we've attracted investments from US and German institutional investors. So our geographic reach of investors has also spread as well.

Speaker 1

So it's actually provided some liquidity, I think, for for new investors to come in and and back the company, which has been very pleasing.

Operator

Great. And we had quite a few questions actually through from Anthony Placidenburg, see if I can run through these. On euro, he says seems very encouraging. Can we have a little bit more color on the expansion opportunity if Muirah did want to ramp up quickly, would we be supply constrained, and I guess linked to that, we're increasing capacity we've announced from 2 megawatts to 3 megawatts at Redhill Could we expect further investments around that?

Speaker 1

Do you mean beyond the 3 megawatts? Yeah. Look, I think with that, our model is really to get partners into mass production. Because we don't want to turn into a mass producer by default, because obviously the more lucrative side of our business is developing the core technology. But if it's necessary to create more value in the future, then we'll look at it on a business case the same as any other company would do so.

Speaker 1

In relation to, our work with Miover, we're not really capacity constrained, that's going to be quite a modest ramp up and very specific to a single market in Japan. So we're not we're not concerned by that at this point.

Operator

Quite a bit of recent news flow from competitors around partnerships and developments of PEM fuel cells for shipping and and civil aerospace effect of, please could you run through the potential merits of solid oxide, in those markets, particularly in shipping?

Speaker 1

Gosh, that's a that's quite a long question. Well, let me start with the simple one. I, I don't really see any role for solid oxide in civil aviation, at small scale. Where where solid oxide really plays is in high efficiency, long duration type power applications. So for stop start type applications, then pen is often a better a technology choice, and what it but it's not it's not without its challenges, and I I've worked on I I was part of the first project until you entered it years ago on on Boeing, having a lighter path, etcetera.

Speaker 1

I think the way we see the aviation side, it's more of an interesting to, how do we decarbonize fuels and synthetic fuels in the future I think that's what we we see as the future there. In terms of shipping, that's another broad topic as well because you have all kinds of different potential fuels coming in, and you could use solid oxide as, obviously, with power units when shipping's in ports all the way through depending on the size of the vessel it's a primary proportion, but then also there's interest in things like ammonia as well, and that's a, that's a different topic that I don't think we we really have time to get into on this call today. So look, I think decarbonization is a in all these sectors is a big challenge. I don't think that all of these technologies will necessarily win in all sectors, but it's going to require you know, whole different approaches and different technologies applied in different ways to to actually decarbonize. And I think you know, solid oxide has a strong role to play, PEM has a strong role to play, synthetic fuels will have a strong role to play, batteries will have a strong role to play.

Speaker 1

It's going to be a combination of all all of the above.

Operator

Great. And probably just the last one for you, Richard. Do you mind reminding us of the likely phasing delivery of the order book and pipeline.

Speaker 2

Yeah, certainly. So, maybe just as a reminder of how we define, how we define order book and pipeline. So order books, the, contracted commercial revenue and, you know, there's really no milestones associated with that, no difficult milestones. It's just something that we have to deliver on. Order book tends to be, shorter term.

Speaker 2

So at the moment, it's maybe, you know, a year, 18 18 months, maybe 2 years, Pipeline is something that, is contracted. It's not sort of in, in, in the ether. So we've got this contracted but it's contingent on on some things that are, maybe us delivering something or maybe on options, maybe not under the control of service. So, pipeline tends to be slightly longer term. I would say this is probably from 6 months, going out to, probably 3 or 4 years.

Speaker 2

That's probably where we are.

Operator

Great. And a couple of follow-up questions from Adam Collins at Liberum, just a question on Bosch. He He mentions that the Bosch CEO recently mentioned CHP in relation to Sarah's for the first time, and, we obviously have a new Bosch, non executive on the board with background and heating markets, is this a a new focus?

Speaker 1

I'm not quite sure I understand fully the question. Is it a new focus for Bosch? I think Bosch, have started to, publicize what they're doing on the stationary power side. And I think the number that was quoted is a Bosch number there about the size of the market by 2030. I think, Mr.

Speaker 1

Who who've a glock who joined the board is is very experienced in in European heating markets, having run Bosch Sturm a technic and and Booster Bosch, etcetera, as a subsidiary. So, I don't think it's a change of strategy. I think it's just a it's part of, I think, Bosch's commitment towards their decarbonization agenda in the future, and, and hopefully, we'll have more progress coming forward from Bosch. I mean, a lot of what we we do in some ways we rely on our partners to to, to promote and inform people on the progress that they've made. And I think, hopefully, we'll we'll have more we'll hear more follow-up as in the in the coming months as we're getting to that stage where we're moving from product development into deployment now.

Speaker 2

Not focusing on right now, but it could be something.

Operator

Great. Okay. I think we've gone through a broad range of questions. There's a couple that are fairly similar. So we'll make sure to drop a note back to everybody directly.

Operator

And as I mentioned, we're available for any follow-up on investors serrispower.com. Otherwise, I'll hand back to films, please, sir.

Speaker 1

Yeah. Well, thank you everybody for your continued interest in the company. I think the level of questions we're getting, we could spend probably spend an hour or 2 talking about the merits of various approaches for decarbonization. I think it just shows you how important the topic this is right now and kind of highlights, I suppose, some of the conversations that Sarah's is in every day with a growing number of of partners. So We're very focused on delivering the partnerships we have and continuing to grow the business and invest in the right areas for the future.

Speaker 1

So we'll hopefully, be talking to you all again in the in the future, in the near future with, new new news on partnerships. But, for today, thank you for your time.

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Earnings Conference Call
Ceres Power H2 2020
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