Earnings Call: H1 2020

Mar 16, 2020

Good morning, and welcome to Sarah's interim presentation for the 6 months ending 31st December 2019. I'm here with Phil Caldwell, our chief executive and Richard Preston, our chief financial officer, who will run through the results for the period. We will take questions at the end and ask you please to state your name and in Tucian. Thanks for joining us. I'll now hand over to Phil. Good morning, everybody. Thank you for joining this call. For the interim results for service. Obviously, it's quite unusual circumstances given where we are with the COVID situation and I'll say a little bit more about that shortly, but let's focus on what the company has achieved in the past 6 months. So in the first half of the year for us, strong momentum has been maintained across all core areas of the business. Very strong progress with customers, which has resulted in continued revenue growth, of approximately 34% in the period to 1,000,000. And what's most importantly for us is revenue with a high gross margin, which is consistent with our asset light, licensing business model, which really set us apart from most of our peers in the industry. The strong partner success we've enjoyed, in that period, we, we signed several key milestones and new deals. First of all, Dusan, who are one of the leaders in fuel cells globally. We established a new system license in JDA worth $8,000,000 over 2 years. With Weichai, who are one of our main strategic partners, we actually completed the 1st prototype 30 kilowatt range extender for the electric bus program in the Chinese market. With MURO, we achieved a first for the company with the product launch CHP system for commercial applications in Japan in October. With Bosch, we also completed a 1st for the company where we've actually initiated low volume production of our sales and stacks remotely from Sarah's in Bosch in Germany that's going into their pilot system production. In combination with what we've achieved with customers, We've also brought on additional manufacturing facility at Red Hill, which is now supplying customers and also we continue to innovate, which is important as a technology license business to stay ahead. And given the growing focus on 0 carbon solutions, we actually produced our first 0 mission CHP system, which is designed to run on 100% hydrogen. As you know, we are fuel flexible, so we can run on everything from conventional fuels to blends all the way through to 100% hydrogen. A very significant, development in the period or shortly after was the strong cash position. And I think, Mitchell will talk more about this, but given global uncertainties and markets, I think cash position now is a real strength of this company and also, the cash runway that we have as a business. So As of December, we had 1,000,000 of cash, since then a big vote of confidence Bosch increased their investment into the company, putting an additional 38,000,000 in new shares, at a price of GBP 3.20 So they are now, moving towards 18% ownership of the company. And then Weichai also have increased or maintained their level of investment in the company of 20% with a further 11,000,000. So that raised an additional Gross proceeds of 49,000,000 for the company on top of the 64.6 we had at the previous reporting period at the end of December. So very strong, cash position and also strong endorsement because that cash is coming from our our main strategic partners. I've already touched upon the commercial partners, but just to give a little bit of insight on progress, as I mentioned, if we take it in slide 4, we commenced the initial low volume production of pilot stacks and systems with Bosch. The picture you can see there is is the Bosch 10 kilowatt system, which is targeting a variety of stationary power applications. It's a high efficiency, lower emission power system that can provide baseload power, provide power for commercial buildings, potentially for vehicle charging in the future. There's been strong interest and support across Bosch and we recently have been on, involved with their events with Bosch Connected World in 2020. So some of that's available, I think, on our website. And that's resulted in their increased confidence and increased stakeholding in the business. With Weichai, as you know, they are a world leading, power equipment manufacturer, they're one of the largest engine manufacturers globally and one of the largest commercial vehicle manufacturers globally. And we've produced the system that you see there in conjunction with Weichai is a 30 kilowatt range extender to, provide basically fuel cell power in a hybrid system for an electric bus. Again, progress with Weichai has been very strong and they've also further increased their stake in in service. Doosan, it's early stage, but we signed that contract to initially focus on 5 kilowatt power systems for commercial applications. But there's very ambitious targets in Korea for fuel cell rollout to target 15 gigawatts by 2040. And we are very optimistic that we can extend our relationship with Dusan to look at other increasingly higher power applications as well. So a huge opportunity there And then Miura, we have the early launch back in October last year. That's going well. It's low volumes to begin with, but Miara recently have established the maintenance team to support its wider deployment in the Japanese market. And we're very pleased with that because that's probably one of the only instances of non Japanese fuel cell technology, which is now being sold in the Japanese market, which I think is a real testament to our technology and the work done by our people. I obviously have to address the COVID situation, just to say, obviously, like most companies, the health and well-being, of our staff and our partners remains our 1st priority. We're monitoring the spread of the COVID literally day by day and liaison with partners to ensure alignment. And if you think about service as a global operation, you know, we're talking to the Chinese, our German partners Korean partners, etcetera. We are implementing appropriate measures to minimize the risk of impact on our business we do have operations as well as professional engineering services as part of our business. And if there is potential impact, it's short term. So I don't think it changes the longer term value of the company and we are looking at how we minimize that impact on partner programs and manufacturing output. If we are impacting our manufacturing, obviously, that could have a, an impact on delivery to partners. Notwithstanding these risks, our guidance currently for the full year remains unchanged. So, in line with market expectations, we're on track as where we stand today, but we will continue to assess potential impacts and updates. Accordingly, if necessary on future trading. I'd now like to hand over to Richard to talk you through the financial highlights, Richard. Thank you, Phil. So I'm just moving to, if you have the slide deck. Slide 7, a high level, view of the last 6 months. As Phil said, we've had very strong revenue growth at a consistently high margin, high gross margin, and we have a lot of visibility on our future revenues with an order book strong at 22,000,000, pipeline maintaining at 50,000,000. So we're very pleased that we've got good visibility, on on what we can, on what we can deliver in the future and revenue in the next, 12 to 24 months. EBIT is flat, sorry apologies EBITDA is slightly down, with cash slightly, slightly up, but I'll go into that in a in a little bit, but I think most importantly, our cash position, as Phil said, very strong, and I think that's particularly important, with what's going on in the wider world with COVID 65,000,000 49, come in just after the year end. Just moving to the next slide, you can see the progression here of our revenue growth at the decent margins that we have So it's continuing to grow. Margins down from last this period last year, last last year, we had, significant license. License is recognized. These tend to be a bit lumpy. But nonetheless, this is, very much ahead of our target gross margin of greater than 50%. And moving into the future, clearly our business is a licensing business and the future value of our business will be based on the royalties, that we will get when products with our technologies go to go to market. And the slide, the slide 9 looks at looks at the future and really some of the drivers and some of the milestones that we might expect before we get to this position. So clearly royalties will be dependent on a full market launch from from customers, but, what we will be able to see before market launch is partners investing in mass production facilities. And we'll see this, we anticipate in the next few years from our varying customers. And I think this is what we should be looking out for. Otherwise, in the meantime, expect to see revenue growth coming from licenses, as we have seen in the last few in the last year or 2, but and also supply of customer programs coming from our new manufacturing facility. Just going to the next slide, really the messaging here is, as we announced, back in January with the Bosch and Weichai investment, we're looking at more addressable markets, than we had. And so as a company, we're looking to invest more in the company to maximize future value from these markets. Some of these are from fuel cell markets and some are from electrolyzers as fuel going to a bit later. So as a principle, we have the cash to be able to capitalize on these opportunities and we're making sure that the company is the right size, to do so. And therefore, that's why in the last last year or so, we've increased our our cash burn, at an OpEx level, and this has been fed from, from the revenue gross margin increases that we've seen. And to the cash slide, slide 11, really this reiterates it. You can see that we are continuing to invest in the business with, with CapEx and development that we've capitalized of just under GBP 4,000,000 in the last half year, and really just reiterating our strong cash position, and really what we should be looking at is the cash flows in relation to the cash position. So with the Baboche and the Weichai, new equity will have over £100,000,000 of cash and our, our, net cash burn, per year, is stable at around about £10,000,000 a year. So we have plenty of cash to deliver on increasing value for shareholders. And I'll hand you back to Phil. So I'd just like to address a bit more about the wider business strategy. And strategically, we look at where Sarah's is today, and I think we've established ourselves as starting to become the technology of choice in SOS see for Global Partners. But when we look at the trends around hitting a net 0 by 2050 and also the large now interest in the climate change agenda and ESG investment in general We think that we're one of the best place companies to take advantage of this and merely this is a becoming an 8,000,000,000 person problem, in terms of addressing how do we keep, the temperature rise below 1a half, which is already a significant challenge how do we start to mitigate things like health issues from air quality? And obviously a lot of what we're doing on the transportation side addresses that you're starting to see increasing, interest globally in this whole net 0 agenda with 66 countries now committed towards that future and also a growing realization that electrification on its own is not the whole solution. So that potentially is driving a huge increase in the demand for electricity, which can't be met with battery technologies only, and therefore, fuel cells are becoming a very strategic energy conversion technology for the future. Our partnership progression, just to remind you, has shown this progress as in we've successfully developed the business model for joint development, engineering services with 6 name partners, wage I do San Bosch Cummins, Honda and Meurer, of which 4 have progressed to the licensing stage, and we we continue to work with those, others that haven't yet at the joint development stage. And one has already gone all the way through to products to market. So we've established a successful licensing business model. As we look at the current business, what you can expect to see next is The real value in this company comes from having more and more licensees and establishing this technology, as as the industry standard. To do that, we are looking at having global manufacturing partners as we see with the likes of Bosch and Weichai today, to be able to produce technology at scale where it's required and also to increase the applications for the core technology. So we've grown in recent years from 1 kilowatt residential systems through to 10 kilowatt commercial systems to 30 kilowatt, range extenders for transportation. And what you can now expect to see is following the market demand, the company addressing high power applications. So next step is to go into low 100 kilowatt applications for this technology. To do that, we are also exploring, partnerships with engineering systems companies so that It's not just a case of Sarah's initiating the business development side and the initiation of projects, but how do we how do we scale this business faster to address more markets? So we're in discussions with a potential partner around how we do that, which would allow us to scale the core business more rapidly and take us into more markets. The reason that we've been successful is we have a very highly differentiated and unique technology in the steel cell just to remind you of its key attributes, it's fuel flexible, so we don't have to wait for a wholesale change of infrastructure we can run on nat gas today, blends of nat gas and hydrogen all the way through to hydrogen as we demonstrated with our first hydrogen prototype this year, because it's based on steel, we believe we have a robust and cost competitive technology And we're one of the few SOFCs that can actually address both the stationary and the transportation markets And with the business model, we are able to address the high volume mass manufacturing approach that's required from energy conversion technologies through our partners. So we've established, a very strong position in SOS today, and we're looking to exploit that further. If you move on to Slide 17, I think when we've strategically looked at this as a company and you look at the wider energy system, we also realized that there was an increasing role to play for things like hydrogen and efuels, and they are basically, the same family of technology. In fact, if you take an SOS and you run it in reverse, you can actually run it as an electrolyzer, so solid oxide electrolysis cell, and that is very interesting when you think about the need for the future for 50 where you can actually generate hydrogen or potentially generate efuels. So it's an early stage for the company, but because of the synergistic nature of this technology from the fuel cell side and electrolysis side, this is a natural progression for us to broaden out our offering beyond the power system into other areas of the business. As a technology licensing business, we have to generate new technology to stay ahead, And the reason that we are focusing on this particular area is we believe that it represents a very high value potential market in the future. Hargent Council estimates this market to be worth $2,500,000,000,000 by 2050. Just like fuel cells, there are already established technologies for electrolysis, alkaline, pem, and solid oxide and each have their strengths, alkaline is the most established. It's very good for bulk production. It's the lowest cost today. PEM is very good for dynamic response, grid balancing, refueling stations, where we're focusing is really on the industrial side of the market where we think the synergies with our temperature range and also with the ability for SOEC to generate interesting technologies such as efuels in the future. If you look at this strategically for the company, our core business in the near term remains on the power systems. And our heritage is going from 1 kilowatt to 5 to 20 kilowatt power systems, as you can see on on slide 19 with the work we've done, for example, with the commercial launch with Miura and now the prototype systems that we're developing with Bosch, the next step that we've already taken is to start to look at addressing transportation markets like buses, increasing power for things like trucks and the potential that could take us into other applications in the future potentially like marine and rail, which we haven't touched yet. And then if you think about the need to decarbonize industry, so hydrogen for industrial uses such as steel, cement, etcetera, then you start to, look at potentially electrolysis for hydrogen and e fuels. Now first, that's a that's further out. We're just at the development stage, but if you take a 5 to 10 year view, how do we develop core technology that could be very valuable in terms of licensing for the future. So that's strategically where the company is going. In terms of the level of resource and investments in that, the good news is if you think about service today, we've got world class development and test facilities. We've got a world class R and D team of electrochemists. A lot of what we already have on the SOS C side reads right straight across into the SOEC side. So we're able to build up, in the existing organization, the SOEC capability and utilize a lot of the synergies that we have on the Sofc side. So it's a logical next step for the company. Then just to remind you on slide 20, how this works today with the licensing model, with all about generating new technology in which we license to partners, whether that's on the system side or on the manufacturing side, our manufacturing partners potentially supply in high volume, the core technology to, to more and more applications on the system side and we take a upfront license fee and a royalty per unit sold in the future. And the beauty of this model is we're able to address multiple applications in multiple geographies simultaneously and scale the business with an asset light core, core business in the UK of technology development. So, bringing new technologies on board is a absolutely a key priority for sewers as well as broadening out the core technology that we have today to new to new customers. So just to give a closing summary and outlook, I think it's clear that in the past, even the past 6 months, there's been a step change in the market for technologies that can address climate change. That has never been stronger. And you can also see that with our corporate partners and partners globally in terms of the level of investment that is now coming in from major power system and OEM companies into the whole space of decarbonization to address climate change. That trend is not going away. That is just accelerating the good news for Sarah's is we're right in the center of that and all the foundations we've put in place over the past few years are really now starting to pay off for the for the company. However, finding ourselves in this leadership position, we're not complacent on this. We we actually want to maintain that leadership position and become you know, the global player in SUFC and related technologies. So we anticipate this year more momentum with our core partners like Bosch, like Weichai, like Doosan and others And now is the time for us to invest for growth. So we are investing, in the expansion into higher power applications. Which is a logical step for the core power system business. We are exploring partnerships with engineering companies into do we grow the business faster in terms of the opportunities and accessing the huge markets that we're not yet touching And then how do we ensure that we create future value for the business? And that's by initiating R&D now on new applications such as electrolysis and efuels, which, we all need for this decarbonization agenda in the future. And do that, with the consistency of the business model, which is for a high margin technology licensing business that is extremely well capitalized. It's well supported by our core partners and we're very well positioned for the future. So that's the summary of the half year, and, I'm happy to take questions if there are any. Thank We will pause for just a moment to allow everyone the opportunity to signal. We will take our first question today from Anthony Blom of Berenberg. Please go ahead. Hi, Apti. Hi, Apti. Hi. Hi. Yes, sorry, I've had a few problems with webcast. I'm apologies if you've already discussed this. I guess first question was on just your comment at the end around exploring the partnerships with engineering companies to scale technology quicker. I don't know whether you can say too much about that, but is that, I mean, is this existing partners? Is this sort of new players? No, it's different from the existing partners. So this is how do how do we actually, reach more applications faster because one of the key things with our business model is the way we originate deals is through our core engineering services team. And as we take on more key partnerships, those teams grow as the deal size grows, but then there's lots of other companies that would like to start to access this type of technology. And sometimes the bottleneck is on the business development and the the early stage engineering services side. So we're really looking at people that can bring us into more partners and do some of the early stage work to actually embed the technology into the programs because for us the the value generation is having more, more licensee partners in the future. And then maybe possibly talk a little bit about, Cummins and Honda. Obviously, really good progress with the other 4 partners. I guess, what could we should we expect to see from those 2 guys? Yes. So, we, you know, Again, we can't say anything that's not yet publicly, domain, otherwise we would have said it. You know, we are continuing to work with those guys and we're making progress on different applications with both I expect that we can say more, probably of at least one of those later this year. And then there's other partners as well that aren't on this list, which come through as well. So we've always said that it's a pipeline, not everybody comes in, we'll go all the way through. And I think our conversion rate is pretty high if you look at it of the 6 that we've commonly got in JDA's 4 have gone to license. One's already gone to market. We're still optimistic that more of those will progress further and we'll have more to say about that. I hope, in the next 6 months. Okay. Yes, very clear. And then so it's interestingly on the electrolysis side, I mean, how do you sort of expect those partnerships? I know it's very early stage, but how do you expect those partnerships to develop? And I guess would it be, I mean, be slightly different partners? I'm just thinking the sort of Linden ITM power, JV. So I guess what, yeah, what sort of different partnerships could you see there? Yeah, I think it is a different, a different access to markets, different customers. I think where we're focused today is on the core technology development, because again, our business model is slightly different from from others. So what we're looking at is can we develop a very compelling SOEC technology that addresses things like the industrial applications and the efuels applications in the future, it's early stage, but I think we should have, start to have more to say on that in about 12 months' time in terms of early stage results are very positive at the R and D level, but then we have to bring it through into prototype level and also work with partners. But to your point, on the business development side, it is, it is a different potential set of end customers than our power system customers to So you're in more of the, oil, gas and fuel type businesses. Okay, cool. And sorry, just one last question. Obviously plenty of cash on the balance sheet sort of cast my mind back to the Bosch RNS back in January. You mentioned, sort of, the potential for acquisitions. I'm assuming these would be with very small kind of bolt on technology acquisitions, but any sort of color there be useful? I think it's there's nothing to say on that. I think where we are today, we are in a strong position with options. So If we do see something that becomes strategic in any of these areas that we want to reinforce, we can act quickly to do so. I think at this time, there's nothing else to say on that. Thank you. We now move to Adam Forsyth from Longstreet. Please go ahead. Morning. Just a really follow-up question on the, electrolyzer, and I hear what you're saying about it being early stage. But just looking at the way we've presented it in the pack, working with targeting industrial customers, it feels to me slightly like we about synergies with the temperature range, you're perhaps making a virtue out of necessity. Would that be unfair? And from that, I'm guessing your this is going to be something with the kind of base load type, high utilization rather than taking incremental advantage from perhaps curtail power given given those characteristics. And I wonder if that's right. And if not, are you looking at things like response time? Is that an issue for you? I think you've answered the, your own question there. If you look at that slide, we're positioning the SOEC, I think differently from the the dynamic response side. Like I said, I think all technologies have strengths, different attributes so we're not really focusing on the response side and the grid balancing side. The issue about around the temperature range actually, SOEC has the potential highest efficiency and actually can do things that the other technologies just can't do. So we are, again, the way we focus the company is we we tend to tackle things that are highly differentiated because that's how we extract the maximum value as a licensing company and the sweet spot we see for the SOEC technology is really in the industrial side and in the e fuel side, which, you know, I think is the logical the natural place for SOEC to play. I think the challenge with SOEC to date Again, it's a younger technology, but, but, nobody has really got to the point of, establishing it as a credible commercial offering yet. And similar to what we've done on the SOFC side, we're very confident with the steel cell approach. We can do that on the SOEC side. Great. Okay. Okay. Thanks. And just a question on why she, as you go through the field trials this year, assuming they're successful and you make the million investments. I can't remember if you've talked about what's the level of volume that would give you in terms of production facility? We haven't. We haven't discussed that yet. Thank you. We now move to Margot Crow of Edison. I've got a couple of questions. They're both, perhaps digging a bit more deeply into, areas that have been touched on already. So the first one is, looking at working more closely with an engineering partner. What happens about the IT in that case? Would they be developing, would the engineering partner be developing anything that had material IP in it. So I'm asking that because if you are wanting to monetize your own IP, having an engineering partner who's been providing some makes that a bit more complicated. Yes, I think there's a very clear, segregation, if you like, between the core IP of the steel cell technology and the system level IP of what an engineering partner can do. So the valuable core IP is obviously service technology. When you get on to actually how you build systems around that, as we've seen with other partners, some of our partners have that capability already themselves. Some of them rely on it from service. So there's already a mixture of capability out there in terms of the system level IP. And so we don't see it as a as a big issue in terms of the the IP situation. Right. Okay. Now that's very helpful. And would this be something that you could perhaps apply an M and A strategy to actually buy a company, which had that skill set? Potentially, but I think, the key lens that we put when we look at the growth of the business, it has to be consistent with a high margin licensing technology business. So we're not necessarily looking to acquire things like engineering services capability what we are investing our time and effort in is developing technologies that the global companies need to address climate change. So, you know, there's no agenda there, Alan, at the moment, is the is the answer, but if we were to look at any kind of inorganic growth, it's really got to be complimentary with our core technology licensing business model. Right. And then my final question, you referred to temperature advantages from the SOEC Technology. What would those be? Well, I think there's a couple, when you and I I think this is a bit of a technical question that we could spend quite a long time on, so we can have a follow-up on this. But I think where you have waste heat available in industrial applications, there's a good synergy around the efficiency and the operating temperatures of SOECs compared with other technologies. So that's the first one. I think the second one is when you think about efuels beyond hydrogen, so you start to look at can you develop synthetic hydrocarbons, then again, the temperature range of SOEC I think is uniquely placed to be able to do efuels synthetic methane, synthetic long chain hydrocarbons that other technologies wouldn't be able to address. Right. Okay. That's helpful and actually quite intriguing. So maybe when we've got a bit more time something to talk about. You. We now move to leasing Midley of Panmure Gordon. Please go ahead. Good morning, Phil, Richard. Can you hear me okay? Yes. Yes. Good morning. And just a couple from me, 2 of which have been sort of answered by Austin anyway, I think. And firstly, on the order book and pipeline, can you any more color on the split? So in terms of partners and licensing and engineering, is it still the majority Weichai license and then the balance mix between Bosch and Dusern. Is that still the case? Yes. Let me try and answer that one. It's Richard here. So it is a mixture and the pipeline number hasn't changed from 6 months ago. So the, obviously, what it's made up of is is the same as a mixture of license and licenses, and engineering services, probably with the weighting towards licenses, and the order book I mean, it clearly is something that, you know, is sometimes, is sometimes lumpy, clearly, it comes off as you recognize revenue and it comes on as you bring new customers in. And this is a mixture, probably it's a it's a fair to say it's a mixture. Of license and insurance services from our major customers. And secondly, on the comment in the statement, you've touched on it a little bit on exploring new partnerships. Does that suggest that you're now more actively seeking to engage with new partners than maybe you were previously. I'm assuming it is from your comments from other questions. And if yes, what's the reason and rationale for that? I think, I think we've always been looking to to to grow the business with engagement with new partners. I think, we've been very successful in the partnerships that we've developed with some very large organizations that we've talked about already. I think if you start to establish SOSC as a technology that can address stationary power in increasing power out outputs, then that's a whole area of new customers that we could address And then on the transportation side as well, I think the work we've done with Weichai is starting to to grab people's attention as an alternative technology to some of the established technologies out there. So it's in response to more and more people wanting to start to access this technology. So I think it's a case of responding to growing market pull for these kinds of technologies, really. And from our point of view is how do we address those opportunities in the future? I think, we can't necessarily do everything ourselves. So therefore, how do we grow fast is obviously a key strategic question that we face at the moment given that we believe that we're in a a market that's accelerating and we've had a very solid position. So the strategic questions we're asking is how do we how do we do things better? How do we do things faster? So I wouldn't say it's a change of, looking for new partners. I think it's just a case of haven't been successful to this point, how do we grow the business faster? Okay. Perfect. I think linked to that potentially is increasing the Redhill facility from 2 Megawatt to 3 Megawatt. Is that based on disambition of entering those new partnerships? Or is it the progress that you're seeing with your current partners or perhaps a mixture It's a mixture really. I mean, if you think about what partners need, the the the main, function of Red Hill is enable technology transfer for manufacturing partners as we've done with Bosch successfully this year and also to provide, the initial sales and stacks to enable the engineering services of the joint development of prototype issue prototype products for partners. As we've gone from, say, a 1 kilowatt prototype to a 30 kilowatt prototype, and if we anticipate in the future, going up to 150 kilowatt type level of above, then you need more capacity just to service those markets. So as we go towards higher power, we need more initial capacity to service those those initial markets. So it's a combination of servicing the growing demand of the partners that we have already and also this ambition to go into higher power applications as well. Perfect. Okay. Thank you. And then lastly on COVID and the specific risk for Sarah's. Can you talk a little bit more about your thoughts on that? I'm assuming, it's low. It really just pushes projects to the right, I guess. I know it's difficult for you to sort of quantify anything at the moment, but any thoughts on that would be helpful. And also what you're seeing specifically in China, just thinking about the Weichai manufacturing JV Is there any sort of risk of that being delayed at this stage? So, I think the first thing to say is it's very early days on this. And if you think about our business, a lot of what we do, we can do remotely in terms of the engineering design, engineering services side. A key thing for us is obviously the key stage of starting to ramp up Red Hill So maintaining production is key to enable us to keep those partnerships on track. Also, our partners also have to play their part. So, that those projects in China and career in Germany, etcetera, also have to stay on track. So we see near term, the situation can be contained and managed I think longer term, it really depends on the global response to this, I think what we're starting to see is, in conversations with Weichai in China, I think that they they are through the worst of this now and I think they're starting to come out of the other side of it. So I think there's, the conversations that we're having with Weichai are very very supportive, very positive, they offer help, so a very strong relationship there. And I think we're just starting to go into it, if you like, on the European side at the moment, but hopefully this is a a near term issue that doesn't really impact on the longer term, value and the longer term or medium term progress that we're looking to make with these partnerships, partnerships, like I said, we'll keep you updated as the situation develops. Everyone's still going to need the technology, aren't they? Is there, our view on it? Sorry. That's very helpful. Thank you very much. For your help on those questions. Thank you. Please move to Mark Elliott of Investec. Francisco. Good morning guys. This is a very quick one. I just wondered if you could speak a little bit towards sort of scale up in terms of the power, output that you reckon you can achieve. And I was just thinking of a longer term, how some of the gas gensets are looking to try and deal fuel with hydrogen with the view that you get more hydrogen to grids and so they need to be able to be flexible in that context or as you would have automatically be flexible? Is that sort of a competitive advantage you may have or will gas sort of have the advantage of the real megawatts scale? I'm not quite sure I follow the whole question there, Mark. I think if what you're asking is is how how how competitive are we on the megawatt scale and above? It depends really. I think the way we see it is more distributed power solutions. So I think we in the 100 of kilowatts to half a megawatts scale, we definitely see applications there, which are competitive. I think we'd have to look again as we what what where the alternative technologies crossover. I think one one key thing that distinguishes us is this fuel flexibility. So it really depends on an application by application basis. But right now, we see, big opportunity in the stationary power sector going up to say the half a megawatt kind of level. Okay. Yeah. So just think for that at the moment. Okay. Half megawatt. I mean, you can't combine blocks you know this is very modular so but it the way we tend to think think of things is in terms of system products that our partners would develop. Okay. Thank you. Thank you. We take our next question from Hugh Kings Mill Moore of Alverium Capital Partners. Please go ahead. Hi guys and congratulations on another great 6 month period. Just a quick one on intellectual property. You guys have been at this game a long time. I just wanted to be reminded of whether you've got any core patents that might be expiring anytime soon? Yes, I think, we've been at this for best part of 20 years. But if you look at our patent portfolio, we have over 50 patent families and and growing. And if particularly given the rate of innovation now, we continue to adding more patents into that mix as well as know how. In terms of, some of the early stage patents, they will they will roll off, but I think the key thing here is when we do licensing, we don't really do it on the basis of 1 or 2 patents. You need the patents to know how and the capability all altogether. And the technology from 20 years ago and the technology today are very different as you would hope. So, that doesn't give us any concerns. Cool. One quick supplemental. If people aren't choosing your technology, who are they choosing? In the SOS, I think the main competitors that we we see currently are in the Japanese industrial conglomerates. We've we've competed successfully in Japan and we've but they are probably the most advanced of the competition as we see it today. But I think there's 2 things here. We have highly differentiated technology, you know, as in we're the only company really globally operating in this temperature range on metal supported SoFC. And secondly, our business model you know, lends itself to if you want to get into solid oxide or fuel cells, being able to source the technology and license it from us versus going into one of these large Japanese industrials is is a lot less accessible. So I think that's why if you look and the deals we've done or the people who've selected SoFC in the past few years, they've tended to select service, Bosch, Weichai, Dusan, Miura, Honda. You know, they've all got choices of where they can get SOS, particularly the Japanese, but they've they've they've chosen service for a reason. It's the combination of the technology and the the the business relationship that we provide to them. Perfect. Thank you very much indeed. We have no further questions at this time. We just have a couple of questions logged online, from Adam Collins at Liberum. He asked, can we provide any further details on the Mura product and how it's been received? What's its power rating price and how is it selling versus expectations? So I'm gonna go from memory. I think its power rating is about 4.2 kilowatts. Its performance is, high efficiency, particularly in combined heat and power mode for the Japanese market. So it's being well received. The commercial market in Japan is at an earlier stage than the residential market, but there's There's a lot of appetite in Japan for these kind of products. It's relatively early stages, but so far, performance is good and, we all recently have increased their support on the ground for for future rollout of the product. So things are going well. And probably one for Richard. How do you determine what R and D is capitalized and what is charged against income and what's your midterm guidance here? Yes, certainly. And we're sort of bound here by, accounting regs. So generally, development can be capitalized if it's got future value, and, about, just over a year ago, we began to do that because we had sufficient confidence in our technology and the commercial ability of it on the back of the two licenses with Bosch and Weichai. How we do it, and we tend to do it on a program by program basis as one's meant to, and it's, once a pro a development program or a research and development program has passed certain milestones and we'll begin to capitalize that. I'm giving some form of guidance. I think the rate that we've seen in the last two half years, which is approximately 1,000,000 a half year is probably a good, a good proxy for what to expect going forward of what we would capitalize for development purposes. And finally, just more color on the electrolyzer and higher power cell opportunities. What sort of investment will be needed and what are the expected timelines to prototype development? Yes, I'll take that one. I think if you look at the investment that we've put into the business on the OpEx side recently and continue to do so, that's covering core teams of R And D And Engineering that covers both the, the core fuel cell side and starting to have teams working on the SOEC side. But as I mentioned earlier, we share a lot of the synergies across, R and D, prototype manufacture, the facilities that we have, etcetera, So, the higher power systems we just see is an evolution of the business, and a lot of that is already being put in now. In terms of investment for future growth. So I don't think we're going to see a sudden step change in, investment on the high power side apart from obviously adding some additional capacity in what we're doing. At Red Hill. On the, on the electrolysis side, it's really, we're going to ramp that up over the next few years So we get to, proof points now at the R and D level. We start to get into post type system development and then that will, that will grow. But I think it's in the low millions kind of level at this point. So a lot of this, again, when you look at our growth of top line, We are investing for growth on the back of very strong revenue growth at high margins. We have to invest ahead of the curve to maintain that future growth and in anticipation of future programs coming on. But I think overall, that, that growth is very manageable, compared with the growth that we're seeing on the top line from the business. So hopefully that provides the color Adam's looking for. Okay. I think that concludes all the questions from today. Thank you very much for your time, and, hopefully, we'll catch up with some of you face to face in the future. So thank you.