Ceres Power Holdings plc (LON:CWR) announced today its final results for the year ended 30 June 2017.
Phil Caldwell, Ceres Power Holdings CEO, commented: “This has been our most successful year to date. We are ahead of expectations financially and are on track to meet our commercial objectives. Our ability to sign new commercial agreements and then generate revenues working alongside our partners has enabled us to accelerate the technical development of the SteelCell and explore new applications, giving Ceres Power’s technology access to opportunities in our target markets including the Residential, Commercial, Data Centre and Electric Vehicles sectors.
“The global demand for low carbon, flexible, near zero emission technologies such as ours has never been stronger. Our strategy of developing partnerships with world-class companies, addressing multiple growth markets, means the business is well positioned to further capitalise on opportunities in the coming year and I look forward to being able to announce further commercial progress.”
Highlights:
Strong commercial progress has driven improved financial performance
· Revenue1 and other operating income ahead of expectations, up 140% to £4.1m (2016: £1.7m).
· EBITDA2 loss down by 11% to £10.3m (2016: £11.5m) while continuing to invest in people, technology and operations to support growth into higher power applications, addressing new sectors including EVs and Data Centres.
· Equity free cash outflow3 reduced 17% to £9.4m (2016: £11.3m). As of June 2017, the Company held £17.2m in net cash and short-term investments, ahead of previous forecasts.
· Growing order book of £3.2m (2016: £1.7m) positions Ceres Power for continued commercial growth.
Rapid development towards commercialisation:
· First significant US commercial success with Cummins & US Dept. of Energy to develop multi-kW systems for Data Centre and commercial scale applications.
· Signing of fourth significant partner and first ‘go-to-market’ agreement to develop a combined heat and power (“CHP”) product for the business sector, adding to agreements with Cummins, Honda & Nissan.
· Agreement signed in May 2017 with an existing Global OEM to develop a residential CHP system.
· On track to sign fifth partner by the end of 2017.
Further technical progress highlights SteelCell’s proven performance and Ceres Power’s manufacturing expertise
· Successful UK field trial proved SteelCell™ is reliable, highly efficient, and can generate low carbon heat and power that could save home-owners around £400 a year.
· Formal release of SteelCell™ version 4 to customers with improved performance and manufacturability.
· Assessing options to increase UK manufacturing capacity to meet near term customer demand and continuing to explore manufacturing partner for large scale production.
1 Revenue includes the release of £0.4 million of deferred revenue in respect of contracted work completed for British Gas (2016: £0.6million)
2 EBITDA (earnings before interest, depreciation and amortisation) is calculated as the operating loss (£11.5 million) less depreciation (£1.2 million). Management use EBITDA as an alternative performance measure to operating loss as they believe that it is a more relevant and comparable measure of the operating activities of the Group.
3 Equity free cash outflow (EFCF) is the net change in cash and cash equivalents in the year (-£2.8 million) less net cash generated from financing activities (£19.6 million) plus the movement in short term investments (£13.0 million). Management use EFCF as an alternative performance measure to the net change in cash and cash equivalents as they believe that it is a more relevant and comparable measure of the overall cash flows of the Group as it excludes any funding activities or changes in investments.
Chairman’s statement
Major disruptions in the power generation and automotive sectors are providing exciting new opportunities for Ceres Power.
Driven by international commitment to achieve COP21 decarbonisation targets, legislative action to reduce carbon emissions and more recently action on air pollution, major changes have been set in motion around the world.
The first major disruption is to conventional power generation. The cost of renewables has fallen to levels at which integrating them into the energy system has become financially credible and centralised power plants are increasingly undercut by the ever-decreasing cost of renewables. However, intermittent renewable power needs to be balanced out with flexible power generation and, as a result, in countries like Japan and Germany there are active programmes to promote the deployment of distributed generation technologies including fuel cells.
The second major disruption is the rise of electric vehicles. While decarbonisation continues to be the focus of international efforts, the importance of improving air quality has risen rapidly up the legislative agenda. This has led to clear commitments to ban combustion engines by governments and cities around the world including by 2025 in Norway, through to 2040 in France and the United Kingdom.
Though 2040 still seems relatively distant, electric vehicles are predicted to match the cost of, and become cheaper than, conventional vehicles by 2020. This disruption is driving the major engine manufacturers to switch their R&D and product development away from combustion engines to electrochemical power generation technologies including fuel cells.
With more demand for power (a major driver being the exponential rise in demand for power-hungry data centres, a new market for Ceres), there is increasing tension on existing, centralised systems which are, in many cases, already struggling to keep pace with current consumption levels.
Distributed generation technologies, like the SteelCell™, avoid expensive grid reinforcement, as they can use the existing gas infrastructure. Established providers of conventional systems to the power generation and transportation sectors, such as Ceres Power’s world-class partners Honda and Nissan, are turning to us to develop our robust, highly-efficient, low-carbon technology that operates on existing fuels such as natural gas and biofuels.
Ceres Power had traditionally been focused on micro combined heat and power (Micro-CHP) in the residential market, however significant progress in the last year has enabled us to rapidly establish ourselves in markets where higher power output is required, expanding our ability to address the enormous opportunities that the global energy transition is enabling. Indeed, the majority of our customer demand is now for larger power systems.
Ceres Power’s partnerships with leading global OEMs positions us well as we continue to work to achieve our vision of embedding the SteelCell™ technology into world-leading products within the home, business, data centre and electric vehicle markets.
This strategy of developing partnerships with world-class companies, addressing multiple growth markets, means that the business is well positioned to further capitalise on opportunities in the coming year.
The Company strengthened its balance sheet by raising £20m from new and existing institutional investors in October 2016, which enables us to secure key commercialisation agreements by the end of 2018. The growing appetite for investment in the energy sector and the Company’s strong existing financial backing gives us confidence that we can access future growth capital as we continue to deliver against our strategy.
The Board has continued to strengthen its governance structure to ensure it provides effective control and oversight of the business as it grows and is very clear and focused on its priorities. The Governance Report in the Annual Report sets out in detail how the Board embeds Ceres Power’s culture and values in everything we do.
I would like to offer my thanks to the Board and all our employees for their efforts to achieve our targets over the past year.
We look forward to demonstrating further progress in the next 12 months, both with existing and new partners as Ceres Power reinforces its reputation as a world-leader in the fast-growing clean energy sectors.
Alan Aubrey
Chairman
Chief Executive’s statement
Overview of performance
This has been Ceres Power’s most successful year to date with significant commercial, operational and technological progress, further establishing our world-leading position in metal-supported Solid Oxide Fuel Cells (SOFC). Our total revenue and other operating income grew by 140% to £4.1m. We have secured two further world-class customers including Cummins and an OEM who remains confidential at this point, both of whom are focused on our 5 to 10 kW platform. This is in addition to the ongoing partnerships with Honda and Nissan, which are progressing well.
This progress with partners represents 4 out of the 5 joint development agreements which is our stated end-of-2017 target, additionally we have signed our 1st ‘go-to-market’ agreement which includes technology transfer and a license to our system architecture. We have also further demonstrated the growing maturity of the SteelCell™ platform by successfully completing field trials of 1kW home systems in the UK as part of the ene.field programme, as well as developing larger 5kW stacks to open up new markets.
Commercial Progress
In September 2016, we signed a Joint Development Agreement with Cummins Inc., a global leader in power systems, as part of a consortium backed by the US Department of Energy (US DoE) to develop a multi kW power system for use in data centres and other commercial and industrial applications. This was our first significant entry into the US market and our first development of a modular multi kW system. Together, Ceres Power and Cummins will work closely with consortium partners to develop an innovative, modular 10kW Solid Oxide Fuel Cell system which will target high electrical efficiency of 60% and be inherently scalable to meet multiple distributed power applications.
The initial target application will be the fast-growing data centre market which currently accounts for ~3% of global electricity consumption. Cummins are a global leader in supplying back up and temporary power systems to this market and are an ideal partner for us. I am pleased to say in the first year of this collaboration we have achieved all key milestones.
In December 2016 we announced our first ‘go-to-market’ partnership with a Joint Development License Agreement for a multi-kW combined heat and power (CHP) product targeting applications in the business sector with an OEM who is a market leader in this field. This was our fourth partnership and most notably the first agreement which includes technology transfer and a license to scale up our 1kW system architecture to a multi-kW scale, which leads to future Steel Cell™ stack supply. Details of this relationship are commercially confidential, but I’m pleased to report the technology transfer of our system architecture has been completed on time and the programme is proceeding to plan. Commercialisation should lead to further revenues for the Company in the form of future royalty payments and SteelCell™ stack supply.
As the majority of our partners are based in Asia or the US it was pleasing to have the opportunity to join the European-wide field testing programme of residential micro-CHP units (ene.field) supported by British Gas. We entered this programme in September last year and while we have now successfully completed the formal programme which finished at the end of August 2017, we intend to run on a number of units to continue to gather real-world lifetime and durability data.
The field trial programme here in the UK has successfully demonstrated the robustness of the technology to our OEM partners around the world and was a contributory factor in the signing in May of this year of a new two-year agreement with an existing OEM partner to jointly develop power systems for residential applications. Recognising decarbonisation of residential heating as a critical success factor for meeting CO2 reduction targets, the UK Government is supporting our technology through the provision of £0.7 million of funding from BEIS (Department of Business, Energy and Industrial Strategy) and Innovate UK.
In addition to developing new partnerships we have deepened our existing customer relationships with partners like Honda and Nissan. We are now in the second year of our two-year joint stack development with Honda R&D and have hit key deliverables to date. Furthermore, we are working with Nissan UK to develop a 5kW stack which runs on biofuels. This would extend the range of electric vehicles, enabling drivers to experience the same range and refuelling time as a conventional combustion engine vehicle, but with significantly lower carbon and emissions. I’m pleased to say we have met all of the performance targets set by Nissan and are on track to put on test our first 5kW stack by the end of 2017.
Over the past year we have also carried out a series of new Technology Evaluation Agreements with prospective OEMs in Asia and Europe which have advanced to the point of negotiating potential new partnerships. The order book4 at the date of this report stands at £3.2m and we are confident of continued success in 2017/18.
4 Order book is the contracted commercial and grant revenue scheduled to be realised in future years. There is no comparable figure disclosed in the “financial statements” as this figure represents future anticipated revenue and other operating income in the form of grants. Management use order book as a performance measure as they believe that it is a useful measure to demonstrate the Group’s progress towards commercialisation.
Technology Update
An important focus for our Engineering Department this year has been the development of larger 5kW stacks and modular multi-kW systems to support our customer programmes with Nissan and Cummins and includes data centre, commercial-scale CHP and power-only applications. We have demonstrated a number of firsts, including rapid start-up times, over 3000 repeated cycles and Ceres Power now has two stack configurations to address the 1kW and 5kW+ markets.
Our Version 4 (V4) technology was officially released to customers in the summer of 2016 and has performed well with the longest running stacks now in operation for more than 18 months. The next generation R&D cells are showing higher efficiency, lower degradation and increased power density. Our core fuel cell R&D team has a continued focus on improving lifetime and performance and this year has delivered a number of exciting developments around degradation. By unlocking a significant reduction in underlying degradation rate the programme has demonstrated a potential 10-year life. Degradation is not the only factor that is important for lifetime and we have several projects looking at increasing lifetime and reliability at the cell and stack level. Some of these improvements will be brought forward to customers in our V5 platform release next year, as we look to maintain our leadership position in metal-supported solid oxide fuel cells.
The technology team has enabled rapid progress with our first ‘go-to-market’ customer by completing a successful technology transfer. The customer has designed and built its first prototype multi-kW commercial CHP in less than 9 months, after a successful transfer of our 1kW SteelGen design.
Furthermore, in support of customer programmes Ceres Power has underscored the fuel flexible potential of the SteelCell™ technology in multiple projects including running Solid Oxide Fuel Cell stacks on fuels as diverse as diesel – without generating SOx, NOx or particulates – and pure hydrogen.
Operations Update
In 2016/17 we manufactured a record number of cells, having invested in manufacturing processes and new equipment during the year and added a third shift to give us additional capacity. The new process technology not only reduces material usage but also increases yield levels.
We are now at a stage where we need to invest in additional manufacturing capacity, particularly for higher power applications, due to a significant increase in customer demand. As such, we are currently evaluating options to invest in further capacity in the UK to ensure the Company can deliver against customer demand for the next few years, as well as demonstrating the scalability of our manufacturing to potential partners.
In addition to this investment in near-term additional capacity in the UK and consistent with our long-term strategy we are continuing to discuss potential manufacturing partnerships for high volumes to meet our customer needs locally in different parts of the world.
Financial
This commercial success has put us in a strong financial position. Revenue and other operating income grew 140% to £4.1m (2015/16 – £1.7m), which was split £3.1m revenue from customers and £1.0 million from grants and other income. This progress led to a reduction of EBITDA loss of 11% to £10.3m (2015/16 – £11.5m) despite the Company investing significantly in people, technology and operations to support the strategic growth into higher power applications. Equity free cash flow reduced 17% from £11.3m in 2016 to £9.4m in 2017.
We have had a strong start to the 2017/18 year and our order book is currently £3.2m, up from £1.7m at this time last year. We expect to continue to grow top line revenue as we increase our number of new customers and as existing customers progress through from evaluation to product development and to commercial launch. Subject to any investment to increase manufacturing capacity we expect this will translate to a continued improvement in our financial results.
In October 2016 we raised £20 million to fund the next stage of the Company’s growth through a placing with approximately £10 million from existing institutional investors holding or increasing their position in the Company as well as further new institutional investors. As of June 2017 we held £17.2 million cash, cash equivalents and short-term investments, which puts us in a strong position as we look to secure key commercialisation agreements by the end of 2018.
People
Once again we have been able to attract talented people to join the team at Ceres Power. The growth in the team this year has added to the commercial, engineering and programme delivery side of the business to support our growing number of customer programmes.
I would personally like to thank everyone within the business for their continued contribution towards what has been a very successful year and I am looking forward with confidence to next year.
Outlook
Ceres Power is making good progress against our aim of securing our fifth global engineering company as a customer in a Joint Development Agreement by the end of 2017, with the intent to be in two launch programmes with OEM partners by the end of 2018.
We intend to maintain our technology leadership position through continually advancing the performance and maturity of the SteelCell™ and by advancing manufacturing readiness levels and scaling up supply of our core technology to meet customer demand.
The Company’s reputation continues to grow within the industry and the demand for low carbon, flexible, near zero emission technologies such as ours has never been stronger. This is an exciting stage in the Company’s growth and I look forward to being able to announce further commercial progress against these objectives in the year ahead.
Phil Caldwell
Chief Executive Officer
Zeus Capital Comments:
Ceres Power Holdings Plc industry leading solid state fuel cell is now nearing the point of commercialisation, with four major industrial OEMs signed up to work in partnership to develop the technology. Ceres should increasingly be viewed and judged on progress made in monetising its technology with the business benchmarked against financial, commercial and operational milestones as much as technological ones. The efficacy of Ceres’ SteelCellTM has been proven and, whilst still early days in respect of commercial sales, progress is tangible each time Ceres reports. This is evidenced by today’s FY17 results which are materially ahead yoy, and marginally against estimates, and with material commercial progress in the form of two Joint Development Agreements. Revenue of £4.1m was 140% ahead of the £1.7m reported in FY16 and marginally of estimates. Loss at the EBITDA level improved £1.3m to £10.3m and net cash was £17.2m at the end of the year.
Highlight of FY17 results is the commercial progress made as the business nears to achieving its stated short-term milestones: Today’s results report that Ceres has again moved forward commercially with two Joint Development Agreements in the year. One with Cummins Inc, a major US provider of supplier of back-up and temporary power to the data centre market. The other was a Joint Development License Agreement with an unnamed OEM to produce a multi kW combined heat and power product to target the Commercial market. This latter deal was important, being the first go-to-market partnership announced by Ceres. The business is nearing the commercial milestones it set itself in December 2015. Four major JDAs have been signed with a fifth expected before the calendar year end of 2017 and a further launch programme announced prior to the end of calendar 2018 would mean the management had delivered on its stated goals. We caveat that revenue estimates do not include anything from the full commercialisation of programmes as they will take time to come through.
Financial performance improving: The £4.1m of reported revenue shows a 140% increase yoy and was ahead of our £4.0m estimate. This resulted in a better than expected performance in the EBITDA loss of £10.3m, a £1.2m improvement on FY16. With revenue expected to increase c.50% in FY18 to £6.0m we expect the financial performance to continue to improve. Net cash stood at £17.2m at the period end.
Successful share placing underpins the balance sheet and further investment into the business: Ceres raised c. £20.0m from new and existing shareholders in October of last year. This will underpin continued investment in the business as it moves into the next phase of its development.
