Hello everyone, welcome to the Ceres Power AVL Collaboration Conference Call. My name is Lydia, I will be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, your lines will be on listen- only. However, there will be an opportunity for live questions. This can be done by pressing star one on your telephone keypad. You may register your question at any time. I will now hand you over to your host, Phil Caldwell, CEO, to begin today's conference. Thank you.
Good afternoon, everybody, and thank you for joining the call today. I'm joined here with Richard Preston, CFO, and also today from North America, Tony Cochrane, our Chief Commercial Officer as well. My intention is to walk you through the slides, explaining the strategic rationale of the collaboration with AVL this afternoon, and those slides are available on our website, and then we will open it up to Q&A. Okay, I'm now on slide two. Let's start with the strategic rationale. I think those of you that have followed the company for some time will know that we've been successful with our licensing model, and we've seen recent announcements just this week with Bosch and with Doosan and others.
We have an appetite to really grow the company, and we see that what we're doing with this technology has very broad range of applications, and there are certain parts of the world that we're just not yet active in, which we could be. We have a collaboration, a partnering business model, and it made sense for us to collaborate on front-end engineering and business development. We're very pleased to announce today that we've signed a strategic system collaboration with AVL. Now, for those of you that may not know AVL, they're globally recognized as one of the leading engineering consultancy firms. They're based in Graz in Austria, and they employ 11,500 people, and are operating in 26 countries. AVL is, for us, a natural partner, because with that global presence, automatically we get the reach that we want.
AVL already have considerable experience and expertise in fuel cells and considerable engineering experience. The strategic rationale is really to drive more systems customers to Ceres and therefore prompt demand for stack manufacturing licensees. The collaboration brings the benefits of increased global presence, enhances our brand. It brings technology leadership because we can combine forces on our system IP, which is considerable in both companies. It boosts our infrastructure and capability. They have extensive test capability within AVL, and it improves our scalability of execution. It removes any constraint that we would have in bringing new partners on and allows us to get more and more people working on the SteelCell technology. Already with this collaboration, we have a first agreement with an unnamed customer through AVL. A look at slide three, just to remind you of how the business is scaling.
We talk about a SteelCell ecosystem. On the right-hand side, we're seeing more and more interest in applications for our technology. Just this year, we've added the potential for utility-scale and marine through Doosan, and also you've seen the scale of announcements with Bosch, and a trend towards higher power. With AVL and their system expertise, we expect to be able to grow further into these applications. What that does is that will drive demand for our manufacturing of the SteelCell and therefore potentially grow our licensing business on the cell and stack side. The way we see the business growing is more and more people wanting to use the core SteelCell technology at the system level, driving demand from a smaller number of trusted, very capable, high-quality manufacturing partners. Go to slide four.
What that does in turn is on the system side, we can combine forces, doing shared engineering work, shared intellectual property, and have multiple systems and share system royalties with AVL. Driving demand on the stack side, which we don't actually share, that's core technology for Ceres, we drive more and more stack royalties through manufacturing partners such as Bosch and Doosan in the future. If I go to slide five. As I mentioned, AVL are already recognized in powertrain and engineering consultancy globally. What you may not realize is they have over 20 years of experience in fuel cells. What's attractive to Ceres is they have extensive test capability, very good capability in simulation and modeling.
They already have existing reference designs in commercial CHP, industrial prime power, large-scale power systems, 100 kW- plus, which is very important for us going into the future, marine, which is an area we want to grow into, and cars, buses, and trucks. Again, broadening out on the transportation side and also the stationary power side. They currently generate around EUR 2 billion turnover business. As I mentioned, 11,500 employees, 65% of who are engineers and scientists. A pretty similar DNA to Ceres and a presence in 26 countries, which obviously gives us instant scale on our business development side.
How does the framework of the partnership work? I'm on slide six. We create a systems engineering services practice together that offers customers state-of-the-art systems designs for our technology, for the Ceres SOFC stack. We will collaborate on customer acquisition and identify and exploit growing interest in SOFC technology in new applications and new regions that we're just not in yet today with Ceres. We will combine our two IP portfolios, as in sharing, to create a significantly stronger IP position in the market. That's common. You see that quite often in the fuel cell industry with large corporations coming together on IP. We'll collaborate on new system architectures and designs to expand the applications. As I mentioned, AVL already have capability in some of the system architecture that we would want to expand to in the future. Revenues from the systems side, we will share in an equitable manner where we're combining forces with AVL, but we expect to generate a much larger number of system customers from this relationship.
The core SteelCell and stack IP is outside of the scope of this collaboration, obviously, we will continue to develop that and license independently as Ceres. If you look at slide seven, we are at that stage of ramping up with key partners of cell and stack production with the recent announcements with Bosch this week and Doosan last month. This will drive more demand on the engineering services side, potentially system licensees, and ultimately royalties through more manufacturing licensees or scale and demand for the SteelCell and stack.
If you look at slide eight, this is some of the references that we talked about earlier. On the power system side with AVL, they already have expertise and experience of developing systems from 10 kW up to megawatt scale in solid oxide. They have system availability at what we call Technology Readiness Level 7, which is pretty mature, everything from 5 kW to a megawatt. On the automotive side, they're obviously very strong already on conventional vehicles, but also have extensive experience with fuel cell vehicles as well. They've developed range extenders for a number of years, including with Nissan and on bus and truck applications as well.
In summary, on slide 10, the combination of Ceres SOFC technology and AVL's engineering will create, we believe, a world-leading systems engineering competence for solid oxide technology. It will significantly expand and accelerate the adoption of Ceres technology, which I think is key at a moment where more and more people are looking for technologies in the fuel cell space. It's important that Ceres grows fast and establishes ourselves as the world leader in solid oxide technology. It will create one of the largest combined portfolios of solid oxide systems IP jointly, and that's something that we can exploit jointly with customers. Ultimately, it will drive demand, we anticipate, for fuel cell stacks from Ceres' manufacturing licenses. With that, I'll take any questions.
At this time, if you would like to ask a live question onto this call, please press star one on your telephone keypad and you will be advised for your turn. Again, that is star one at this time, if you would like to ask a question. All right, our first question comes from the line of Marc Elliott of Investec. When you're ready, please go ahead.
Thank you. Thanks, Phil. A couple of questions. I just wonder if you could provide a little bit of color on- So, if you do a deal with AVL and you sign an agreement, can you talk a little bit about the mechanics of, let's say, that agreement on a system moves into commercial production, and how could it unfold with regards to, let's say, that agreement with a third party sourcing stacks from Doosan and Bosch? Would it be kind of a bidding thing? Would one have to make a commitment on additional capacity? Just thinking about the mechanics of how that goes forwards.
Another little question. When, let's say, if you sign a partnership agreement and it's sort of the payments to develop a system together before it goes commercial, would the fees to kind of do that work, that partnership work, be split 50/50, or would it be on a case-by-case basis subject to the relative assessed workload to each party between the Ceres and AVL?
Okay. Marc, I'll answer your first question, and then since we've got Tony on the line, I'll hand over to him because it's not often you get exposure to Tony as well. I think to your first question, it's a very difficult one to answer, apart from if you think about the way that some of our partners like Bosch operates today as a Tier 1 supplier. It could become a competitive market. What we're doing with this relationship is driving demand for systems that will require stacks. Where those stacks come from will be subject to the normal commercial terms of who's best on quality, price, et cetera. Ultimately, we hope it will drive more demand for cell and stack for sales, because that's the whole point. We are looking to grow and expand this business.
As we've said already, in the past month, we've announced about quarter of a gigawatt of committed capacity, but that's only a fraction of what you will need to address this whole area of decarbonization if we look at all these different applications we could be in. Our job at Ceres and with AVL is to drive more and more demand for the core technology. How that's fulfilled will ultimately drive demand from our manufacturing licensees. Tony, would you like to talk a little bit about the mechanics of how it would work on the contract?
Sure. Happy to. Hello, everyone. A couple of points. First of all, I'll just build a little bit on the previous question. A typical entry point to a relationship with a third-party system licensee would normally include a joint development agreement proposal delivered by either AVL or Ceres, depending on how we decide to hand off the customer interface. They typically, before they make an investment of that size, want to understand what kind of supply assurance they might get for the stacks themselves. Often, we will broker a discussion with a Bosch or a Doosan so that they can understand the commercial terms of that supply and signal interest. For the most part, a company such as Bosch has full intention to deliver Tier 1 stacks to whatever the market demand is and build the capacity accordingly. They in turn get high visibility to future demand and are therefore more ready.
To the question on how the development work occurs, what we've decided to do was we would have a primary interface with the customer, and that would depend on the market segment and the respective relationship, so that would be on a case-by-case basis. The other party would be a subcontractor to the joint development work based on the right skills mix and competencies mix. We just described the size of AVL. There are 11,000 engineers and scientists for the most part. We're much smaller, and the whole purpose of this relationship is for us to be able to scale quickly and absorb many more contracts in parallel.
We anticipate that as the portfolio grows, we'd be quite happy to let AVL take on larger portions of some of these contracts, and Ceres would be quite selective about the ones that we fulfill the lion's share of, so that we're using our resources in the areas where we add most value and where perhaps the most core IP related to our technology occurs. Our objective is to make sure that we, as Ceres, are never a bottleneck to adoption of the technology through these systems contracts.
Thanks, Tony. We'll take another question.
Before we move on to our next caller, another reminder, that is star one at this time, if you would like to get in the queue for questions. Our next caller is Anthony Plom of Berenberg. When you're ready, please go ahead.
Yeah. Hi, guys. I think these might be more questions really for AVL, but sort of interested in your thoughts anyway. Yeah, firstly, have AVL kind of given you any specific reasons as to why they've chosen to partner with Ceres over some of your peers? Secondly, presumably Ceres has kind of become AVL's exclusive partner on the solid oxide side with this collaboration. Do you have any, I guess, any sense at all of who AVL was working with before on this tech or who you've displaced?
Tony, do you want to answer that one?
Yeah. I'm happy to. A couple of things. First of all, a clarification. There is no exclusivity on either side contractually in this relationship. If AVL chooses to work with someone else on another SOFC program, they are allowed to, as are we, if we decide it's in our best interest not to include AVL in a particular relationship. Now, that would be an exception, I think, on both sides, but there's no contractual obligation that forces either party to use this collaboration.
Right.
Having said that, the reason AVL chose to do this is because the Ceres technology is very unique. Our metal-supported technology is the only viable SOFC technology for any motive applications. The industry has already concluded that metal-supported SOFC is the only technology robust enough to ever be put on a vehicle and survive. AVL's practice is quite strong in motive applications. They were seeing very strong demand f or Ceres technology that could only reasonably be fulfilled by Ceres. Obviously procuring a preferred relationship with Ceres offers them unique access to that technology.
Similarly, on the distributed generation side and marine, Ceres' SOFC technology is very robust and very cost-effective. They were again seeing the market shift towards a preference to use Ceres cells and stacks in those applications. Through the multitude of inquiries we were receiving from AVL to support them in these contracts, the relationship blossomed into what we're announcing today.
Okay, great. Thank you.
All right. Moving on to our next caller. We have a question from Maggie MacDougall of Stifel. Maggie, when you're ready, please go ahead.
Afternoon, everybody. Thanks for taking my call. Mine was more about the communication. Obviously, this collaboration should propel you into doing many deals. As a smaller company, can you explain to us or give us some understanding of how you're going to manage the internal communication to ensure that no balls are dropped, particularly while you're continuing to innovate your core SteelCell offering, to ensure that no one's disappointed and to create that virtuous circle and virtuous momentum? How do you ensure that the communication, given the potential opportunity, won't let you down?
Maggie, I think we already operate an engineering services kind of offering to our customers, and we already successfully are able to innovate on core technology and advanced manufacturing at the same time as do the system engineering for partners. We're already used to working in that mode, and I view the AVL relationship as very additional to how we already work. Again, I'll hand on to Tony because I think that we already have management of how this will happen with AVL, and maybe Tony, you could explain that to some extent.
Yeah, certainly. What we've agreed to do, Maggie, with AVL is try to adhere to some of their best practices on program management interfaces with customers. We're leaning on a company that has a tremendous pedigree and brand delivering on engineering services contracts, and frankly, have world-class best practices to make sure that customers' needs are fulfilled. We, Ceres, can benefit from that and are agreeing to try and adhere to common practices and err on the side of using AVL's tested practices to do that. The other thing that we are doing and what we benefit from here is we no longer have to worry about overstretching our resources and fulfillment of contracts because if we are stretched, we can always lean more on AVL to bring some of their capable engineers to achieve the success.
Thank you. That's very clear.
All right. At this time, I'll make one more call for questions. Again, that is star one on your telephone keypad if you would like to ask a live question at this call, and I'll prompt you for your turn. Again, that is star one at this time for questions. All right. Moving on to our next caller. We have Edward Ruff of Citigroup. When you're ready, please go ahead.
Good afternoon. Hi, Tony. Just had one question around the potential for any sort of conflict between maybe a customer that you're working with not wanting to collaborate with AVL. Is there any potential that there could be a conflict there?
I'm pretty sure, Edward, that as Tony mentioned, there's certain mechanisms where for either party, we don't necessarily have to work with AVL or with Ceres. It's as appropriate. As we've pointed out, our existing customer relationships are not included in this. If it wasn't appropriate for whatever reason for one or the other not to work together, I think that exists. Tony, is there anything to add to that?
Maybe if I can just follow up. Is my understanding correct that to the extent that AVL brings on new customers into the sort of joint collaborative agreement, they will also be bringing the engineering heft and hence there's no additional engineering headcount responsibility on your head?
I'm not sure I fully understood your question there. Can you just repeat that?
My question just revolves around engineering headcount, that any additional customers that AVL brings to the agreement, they will also back up with engineering capacity. Would Ceres also now have to perhaps step up on engineering headcount?
I think the point of this agreement is we leverage the engineering capacity that AVL has. Obviously, as appropriate, where we're putting engineers in, we'll be obviously getting a share of the revenue from that. As Tony mentioned, the scale of AVL compared with the scale of Ceres means that a lot of the system engineering that sometimes Ceres takes on will be largely supported by AVL. I think this is a way for us to actually scale Ceres and the licensing business, which is the valuable revenue generation of the future for this company, without having to continually bring on large engineering teams, particularly as we get into some of these other new areas of application, which may require quite considerable system engineering.
Understood. Sure. No, I just wanted that clarified. Thank you.
All right. Before we take our next caller, again, that's star one for questions. Our next caller is Austin Earl, Marshall Wace. When you're ready, please go ahead.
Hi. Good afternoon, everyone. My question is really just regarding applications, particularly in terms of transportation. Slide nine has, I guess, pictures of a minivan and bus. I just wondered, would the solid oxide only ever be used in hybrid, or is there any possibility of it being used as a principal powertrain source?
We see the best combination as being hybrid, in general, because you have the dynamic response of the battery, and you have the range or the duration that a fuel cell gives you as a range extender. I think a lot of fuel cell companies have moved that way. I think when I started in fuel cells years ago, there was this idea that you would have fuel cell-only vehicles because batteries were prohibitively expensive, as were fuel cells. Now, with the economics of batteries, I think it makes sense to have a hybrid approach.
Which fuels do you think will be used first? Will it be natural gas, or do you think maybe ammonia or hydrogen?
I think it really depends on which part of the world you're in. If you look at our relationship with the likes of Weichai, it's natural gas as the first application. Also, if you look towards marine applications, that's largely what we're seeing is, again, could be LNG. Then there's a lot of interest in transitioning to future fuels such as ammonia. It really depends on what's the application in which geography. I think what's fair to say is there's large parts of the world which will take quite a long time to transition towards hydrogen and have hydrogen infrastructure, and big areas like China have already transitioned a lot of their heavier transportation towards natural gas. Tony, do you have any insights you want to share on the transportation side?
Yeah, sure. As you said, Phil, there's markets, especially in very diverse geographies and large landscapes that are going to struggle to transition quickly to hydrogen. The applications for the foreseeable future will be natural gas, and especially on vehicular, initially. Europe might be an exception. Europe, because the hydrogen infrastructure is much better and there's a stronger mandate. I think our hydrogen-ready technology will be enabled more quickly. Ammonia will be a growing segment of the market, but more into, as you said, shipping applications, we believe. The good news is ammonia is very compatible with our cells and stacks. It offers some other technologies in the fuel cell sector a lot more problems. We feel that we're ready for natural gas, but we're also ready for both hydrogen and ammonia future fuel logistics in many of our applications.
Could I just maybe ask one more in terms of AVL's expertise in fuel cells? Is that in PEM fuel cells that they've been active for many years?
Both PEM and SOFC, t hey have a fairly large PEM practice because they are quite an automotive-focused company, and most of the automotive applications today have been PEM. They have had a solid oxide practice for a long time as well, and I think there are obviously some synergies on the system side between those two practices in that some of the reforming of fuels and some of the hydrogen subsystems are c ompatible across both platforms. I think we benefit from their broad competence in fuel cells in general, but we also benefit from a pedigree in solid oxide fuel cell systems as well.
Sorry, does that explain your point, if they have expertise in solid oxides, about the Steel, which is in terms of using it in transportation, then therefore needs to be robust and that's the bit that they're missing?
Correct. Their automotive partners, and they have many, they're very active in the automotive sector, have come to them, and some of them have wanted to explore putting solid oxide fuel cell range extenders on vehicles. The only viable solid oxide technology available is Ceres'. AVL needs the Ceres solution to enable those customers to succeed.
Oh, got it. Thank you very much.
Moving on to our next caller. Our question comes from Jonathan Jackson of Patronus. When you're ready, please go ahead.
Good afternoon, guys.
Afternoon.
As large shareholders, did Bosch and Weichai have any input regarding the deal? Is the first question. Then second one, the first agreement you've signed with the unnamed customer, when will we get further disclosure on that? Can you talk about a pipeline of further deals through this arrangement? Thanks.
Let me answer the first part. Tony can talk to the pipeline question. I think this is quite important. Obviously, Bosch and Weichai have board representatives. We have to sometimes separate that from any commercial discussions which may or may not be in conflict. It's not as though we have to have consultation necessarily on the commercial strategy with Bosch and Weichai. That said, I think Bosch and Weichai know AVL and respect AVL. They already buy, certainly in the Weichai case, buy a lot of test equipment and capability from AVL, on their conventional engine side. I think this is where the industry is, if you look at our partners, you've got a lot of established combustion engine, automotive engine type customers who will know AVL very well, and their pedigree and their capability is well respected. In terms of a partnership, obviously Bosch and Weichai at the board level are very supportive of this. Tony, do you want to talk about the pipeline?
Yeah, certainly. The deal was signed today. That is one of the gating items to trigger what will be the first pipeline review by the two parties. The first project was a bit of a test case that we ran ahead of time, and it required what I call some special arrangements on both confidentiality and making sure that we didn't get locked up into IP that was unintended. We now have the agreement we need in order to fully collaborate, both on the commercial side and on the technical side. That will broker the initial portfolio review, which is set up very near term. Obviously more to come on the programs that that will stimulate.
We can't disclose who the first customer is that's active. It was a customer that was brought by AVL, and it fell squarely into what I described earlier, which was there was no other solution other than to use the Ceres SOFC technology. We agreed to start that because there was a sense of urgency that demanded us to do some things on an exception basis before we had this agreement. Both Ceres and AVL have a portfolio of projects that we've been waiting to stimulate these collaborative discussions around. We hope to get those on the rails quite quickly hereafter.
Okay. Thank you.
Great. At this time, we have no further questions. One last call. If you would like to ask a question live on today's event, please press star one on your telephone keypad now. With that, I return the call over to you, Phil.
Okay. Well, thank you everybody for joining. I think the last few months have been a very strong end of 2020 for Ceres, both progress with manufacturing partners, like the announcement earlier this week with Bosch committing to 200 MW, and earlier Doosan committing to 50 MW of capacity and also scaling up in terms of higher power and taking us into new areas like marine. This announcement today completes one of our strategic intentions, which was to scale demand at the system engineering level to take us into more applications and more geographies. I go back to that ecosystem slide. I think what we've done in the past few months has really accelerated, again, the potential for the commercial adoption of the Ceres technology.
With this deal, driving more and more demand for future partners, and also with what we announced earlier, satisfying that manufacturing demand to our trusted licensee partners. I think we've had a very good end to 2020, and it really puts us in great shape for 2021. Thank you for taking the time to join us today, and I wish you all the best, and we'll talk to you in the near future. Thank you.
Thank you for joining today's event. You may now disconnect your lines.