Status Update

Dec 7, 2020

Slides

Hello, and welcome to the Sarah's Power Bosch Collaboration. My name is Jazz, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only However, there will you. I will now hand you over to your host, Phil Caldwell, CEO of Sarah's Power to begin today's call. Hi, everybody and thank you for joining the call today. This is probably one of the most significant milestones in the company's history. And we're very pleased to talk you through the announcement this morning that Sarah's and Bosch are progressing towards mass production of the Sarah's technology by 2024. I'm gonna be referring to some slides that you can download, from our website. And then after we've talked through the shape of this announcement, this deal, we're happy to take questions through Patrick. So just going into the slide deck, slide number 2, so this really is a key milestone for sellers and those of you that know the company will know that we've been working with Bosch, for about 3 years now. And this morning, we've announced that Bosch plans to scale up its production, in Germany of the steel cell, reaching a target of 200 megawatts by 2024. Now for sellers in terms of near term value, that's worth about £23,000,000 of commercial revenue, million of which is conditional uncertain performance KPIs. I think what's probably more significant is it now shows the scale and the value to the to the business of future royalties coming from Bosch as a key manufacturing partner? The production of stacked and systems will take place across multiple sites in Germany. Bosch, as as you may know, have developed a very highly efficient system that we'll talk about in a minute. And they are firm believers in decentralized power using this for things like powering data centers, EV charging, businesses, factories, etcetera. So it really is exciting product development as well as the manufacturing side. And as I mentioned, coming pretty soon after the recent announcements from Doosan, it's another big validation of how our business model scales towards royalties. So just moving on to Slide 3, Here, you can see a picture of the system that we just talked about. Bosch's own estimates are that the market for decentralized power will reach 1,000,000,000 by 2030. And they obviously now believe SofC systems will be a key technology for Bosch in meeting demand for this distributed power. I think a key thing as we think about the energy transition, this technology is one of the few technologies that can work on fuels that we have today. Including natural gas can work with biogas and eco friendly fuels, and there's also hydrogen compatible for the energy system of the future. So it's obviously a key thing for Bosch that they're staying at the forefront of being able to deploy products today and have readiness for a net 0 future. Currently, there's more than 250 Bosch employees supporting the development and manufacturing of the SUFC systems. And that's on top, obviously, of significant team at Senes that supported this joint development over the past few years. And I don't think you should underestimate the endorsement that this provides for the sellers team because I think there's no higher quality part partner than Bosch really when it comes to the standards for engineering, for quality, for manufacturing. So the fact that Bosch putting more people on this, putting significant investments in here. And today, they've actually said they're now investing 100 of 1,000,000 of euros in this next phase by 2024. I think that's probably the strongest endorsement of the capability of service, not just the technology, but quality of our engineering and technology teams that we can partner with a company like Bosch. We move on to Slide 4. Just a brief timeline. We started working with Bosch officially in January 2018 after some no name type evaluation, which is fairly typical with Sarah's 1st stages. And then in August 2018, we announced the collaboration and license agreement, which was the initial 1,000,000 2 year technology transfer phase with joint development. And also at that stage, Bosch took an equity stake in the company of around 4%. Late 2019, early this year, Bosch started initial low volume production. Of pilot systems in Bamberg in Germany and also of our SPAC technology for the first time outside of service. And that was a key milestone again. Being able to successfully transfer the service technology into a Bosch facility and for Bosch to be able to produce the service technology to ISO standards at Bosch of the high quality that they need. That, I think, triggered a further investment to increase the stake in service to 18% and Bosch appointed to the service board, Uber Block, who's one of the senior leadership team who looks after a Thermo Technic. And then we have the announcement today, which is, we always said that the first stage of the collaboration license agreement was about a 2 year deal with a key milestone coming up at the end of this year. And we're very happy to say we've now obviously passed that milestone, and we're now going into this next phase, which is the scale up phase of the relationship. Just moving on to Slide 5. So the structure of the deal, we've now completed the successful manufacturing post type phase, and Bosch is now planning to manufacture the Station power fuel cells based on the service technology. This is going to be produced in several sites across Germany, including the Bamboo facility, Vernau and Hamburg production sites, and supported with development continuing in facilities in Stuttgart and Farbach and Reingen. So this really is across several of the major Bosch facilities in Germany. And I think it's worth pointing out that Germany is really at the forefront of the energy transition in Euro Powering recently announced something like 1,000,000,000 of targeted subsidies, a framework for hydrogen, production and hydrogen related technologies. So again, a very key partner for us in and probably the leading, the leading market for this in Europe. We are also, optimistic that this production from Bosch, not only will it potentially satisfy the Bosch demand for their own products that you saw in the earlier slides, but could also expand to meet future third party. Demand for the service technology. And I think Bosch are a trusted manufacturing partner who very often operate as a Tier 1 to others in the industry. And as I mentioned, it builds on the initial 2 year collaboration to our to produce the 5 kilowatt technology, with manufacturing. I think we move on to slide 6. Some of you may have seen this before, but we've said recently, we've successfully grown our revenues through engineering services, through licensing. And a key for the company is to work with our partners to bring to market mass production. And therefore, that's when we get royalties. In the past, month we announced the first will do so, but now with this this agreement, particularly with Bosch, you can see that our partners are now investing significantly in the mass production facilities, which should come on stream by 2024, and that then leads to recurring royalties for the company. And that's really where the company scales. Just moving on to slide 7, if you think about the licensing model as a company, What we're doing at service is we're building more and more of an ecosystem, if you like, and one more demand for the core technology. Through lots of different system applications. So things like data center applications, combined heat and power, power for buildings, distributed power, more recently moving up in power to utility scale and potentially into new applications like marine. All of those partnerships drive more and more demand for manufacturing, of course, sell and stock. And that's where trusted partners like Bosch come in, who are not just looking at this for production for their own means in Germany, but are a global global company with operating sites in many different countries. And what we see is, a number of trusted partners who can manufacture and scale the service technology to defeat demand of a growing number of system partners that takes this technology into more and more applications and really does, establish this as as the standard, if you like, in solid oxide globally. So to summarize, This really is a major milestone for the company as they've moved towards mass manufactured with Bosch. It's significant value creation to service near term of 1,000,000 over the next 3 years, but particularly important is this anticipated, move towards royalties for 200 megawatts of targeted production by 2024. And it's a big validation of the service license and business model with now 2 global manufacturing partners committing to mass mass production of the steel cell partially 200 megawatts and do sound at 50 megawatts. If you combine that together, that's a quarter of a gigafactory, but it's being done in a different way We're doing it in an aggregated way in different parts of the world where demand is required. So we're very excited to hit this this milestone today. And I'm happy to take any questions you may have. And the first question comes from the line of Lacey Mitchell from Panmure Gordon. Please go ahead. Good morning. It's Phil. Can you hear me? Yes. Hi, Lacey. Go ahead. Hi, Phil. Firstly, congratulations. Great news again this morning. Questions for me, please. Firstly, you mentioned in the announcement and the presentation that in time you could expand to meet this growing global demands in multiple third party systems. I wonder if you could give any more color on that, who those third parties might be and what applications, etcetera. Secondly, perhaps there's a couple of sort of sub questions in here that on the Bosch production sites, you mentioned that that's one of the multiple sites. Can you give us any more detail on where washer thinking of those being, you know, how that 200 megawatts will be split and potentially prime phones on getting up to 200 megawatts. And then lastly, just be interested to get any sort of color on wage charge reaction to this deal. Obviously, do sell and Bosch have now steam ahead, with scaling this up, that'd be just interesting to know what their thoughts are. Okay. Yes. So on the 3rd party demand question first, you know, we, we have 2 types of licensees. We have system level, and we have stack level. So, for example, Miuora in Japan is a system level licensee. We provide them with stacks or one of our partners could in the future. Certainly, with Weichai, they have system level license for some aspects and as those do so. And we obviously work with other partners as well, such as Honda in Japan, we've named before. And then there's a growing level of interest I think, as we've mentioned here, just in all things, distributed power, and more and more partners wanting to to take this into new applications. We had the recent announcement with Dusan on a marine application, which is a totally new area for us. And as we go up in power levels towards 100 of kilowatts, towards megawatts scale applications, then demand demands rises. Significantly. So I think what you can expect really is the manufacturing partners will will benefit from an economy of scale and, in some ways, aggregating demand either for their own products and or third parties as well. So it's not just a case of every single system provider will take a manufacturing license because very often their demand alone may not provide the scale. But it's that aggregation with key trusted manufacturing partners that can provide pencil supply to different third party system, system licenses. So that's how we see it. In terms of the split of production, that's not really for me to to share. I think this is a joint announcement with Bosch. I think there'll be more information coming from Bosch this morning and in general. I think what we can say about the effort with Bosch in the last couple of years, it has been split across several sites just as it has with Serra's across functions in terms of their their engineering people, their manufacturing people at Berenberg, etcetera. And then obviously they will decide how they will scale that production across different sites. And I think your question about the progress towards 2024, This really is a ramp up of scale. Obviously, Bosch are capable now of producing the stacks to the service quality, but obviously the next stage of scale up requires a lot of work still ahead on ramping up supply chain quality, manufacturing and that takes several years to do to get to this kind of level of scale. So I think it's from now onwards, we're going to continue to develop that manufacturing capability, with Bosch. Response from Weichai, obviously Weichai is a very important partner for us and also, is a board member, so they they obviously know, progress with the company. And I'm sure, Weichai want to see Sarah's growing into the global company that we are becoming. So, I think that, that's probably what we can say about that. Understood. Thanks, Phil. Thank you. The next question comes from the line of Maggie Scoley from Stifel. Please go ahead. Sarah has significantly grown this year as an organization, adding lots of engineering skills, a lot of people to work. But against that, you've had quite a lot of licensing momentum. Can you give us an update, in terms of your capacity, internal capacity, or speak further about the potential engineering deals that you've spoken of in the past to allow you to, accelerate your ability to go out and continued displacing momentum and not butt up against engineering capacity. Sure. That's a good question. So this year, I think during the COVID lockdown alone, we've added 100 colleagues into service power. So that's quite significant. So we've grown from about 250 to more than 350 people now. And we are investing obviously to support these major industrialization programs that we have with our partners. So we are investing within Sarah's ourselves. What we have mentioned before is as we focus in making sure that our partners like Bosch, like Tucson, like Weichai are successful, we still want to grow that this ecosystem, if you like, of new applications for the technology. And, we we're still that's still our intent, and, we'll we'll have more to say on that. In the near future, I think it's fair to say. But I think if you think about the business model, we're looking to scale obviously through collaborations and partnerships as well as supporting it internally. So we've we're growing our internal capability ourselves and also we are growing through partnerships. The next question comes from the line of Sanjay Jay from Panmure Gordon. Please go ahead. Hi, guys. Thank you for the question. I just had one question. You said that Bausch thinks that the demand for there's a huge amount would be centralized power generation. Can you sort of, I just wanted to understand, is this kind of are they talking mainly domestic heating, CHP, or are we talking something bigger here? No. I mean, if you look at the Bosch product, it's predominantly prime power. So it's 60% efficiency or more, as a prime power unit without any heat recovery. And that's interesting because at that point, you are more efficient than most conventional thermal power plant. And I think if you look at the trend towards electrification, you see more and more need for additional provision of power in general. So I think what Bosch are strategically, very focused on is is this whole agenda of electrification, and therefore, more and more distributed flexible power systems that are also compatible with a hardship future as well is the key thing that I think gives them confidence that there's huge market potential for this technology? It's interesting because you mentioned data centers, electric vehicle charging infrastructure, that implies that there's obviously going to be availability of natural gas and alternate in these kind of locations because at the moment most of it is connected to grid, isn't it? I'm guessing they have got products that can fit into the electric vehicle charging infrastructure where they can use your technology. Is that Is that fair? I think what the reference said is, if you think about this is power generation, not distribution. So if you think that you need to reinforce for example, substations or whatever it is to charge the final mile for electric vehicles, etcetera, you could be potentially thinking about that in a different way. And generating power on sites using natural gas or hydrogen? Generating so it's power generation. Don't think of it as power distribution because you're I think you're Okay. Yeah. Understood. Okay. So you're Junishing power at the location. Okay. Understood. Okay. Thank you, guys. The next question comes from the line of Edward Maravanyika from Citigroup. Please go ahead. Good morning. Good morning, sir. Thank you very much for taking my question. Just had a question around if there will be any CapEx slash cost indications of the scale up to Sarah's power directly, which you kind of know about already as a result of this deal. And then is there, you know, can you talk about what the pipeline might look like? Because I guess after the Dusa announcement, Bosch was a little bit behind in not having a mass production agreement. Are there any other people that you're talking to who may not be where Bosch was up until today? I I can't I can't really talk further about the the the pipeline. On the manufacturing side. I think you're right that these two deals are very significant But if you think about global capacity for if you think about that, the demand we just talked about for this technology, the global capacity that's required, we see that coming from key partners like Bosch scaling, and continuing to scale. And that's a huge opportunity. But equally, it makes sense to have manufacturing partners localize to where that demand is. So In the future, we will look at other manufacturing capability in key regions for fuel cell technology in the world to match up with production. So I think I think that's the key. So can you repeat your first question? The first question was just if there's any kind of known CapEx uplift directly to those power as well? No, not not directly as a consequence of this. I mean, obviously, as a business, we're continuing to invest in the company. And when we're talking about CapEx, We're talking about our own test and validation infrastructure and sort of our manufacturing capacity as well to meet near term needs of partners. But that's kind of a continuous development. And therefore, continuous investment in the company, it doesn't suddenly trigger a significant CapEx investment. That's the whole beauty of this licensing model is if you look at the announcement Bosch are the company that's committing to the 100 of 1,000,000 of investment that's required to bring up that CapEx to bring it to market. And that's why as a company, we enjoy probably the highest margins of any of our peers in the industry because we have this asset light model. So another way of looking at this is people get very excited about gigafactory and gigafactory announcements. If you look at the last 2 announcements there, as I mentioned, that's 250 megawatts now that Yeah. Sarah's isn't investing indirectly, but our partners are. And that means that we can scale this business putting capacity in the places where it's required globally. And that starts to aggregate quite rapidly now. So it's a bit I think this CapEx question is one that's that's worth reiterating is this speaks to our asset light model. It's not us putting in the CapEx it's our partners. There are currently no There are no further questions in the queue. So I'll hand back over to your hosts for any closing remarks. Okay. Well, thank you everybody for joining the call today. As I said, we're very excited by this major milestone that we've achieved with Bosch today. It's a joint announcements, so there will obviously be, information as well coming through from Bosch. It's significant near term value, as we've said, but more significantly, it's a big validation of the royalty model. And, for the validation of our whole licensing business, we still anticipate as we mentioned, further progress this year, and hopefully, we'll have further announcements in the future. So thank you for that. Thank you for joining today's call. Please stay connected.