Good morning, ladies and gentlemen, and welcome to the Ceres Power Holdings plc full results investor presentation. Throughout this recorded presentation, investors online will be in listen-only mode. Questions are encouraged. They can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Please just simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself.
However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet Company dashboard. Before we begin, we would like to submit the following poll, and if you would give that your kind attention, I'm sure the company would be most grateful. I'd now like to hand over to CEO Phil Caldwell.
Good morning.
Good morning, everybody, and it's great actually to see real people in the flesh here, and also welcome to people joining us online. I'm very pleased to talk you through the results for Ceres for the period ending December 2021, and also delighted to have Eric Lakin alongside me as our new CFO. Just for those of you that know Ceres and some of you that maybe don't, I just wanna remind you of our purpose, our mission. At Ceres, we've built one of the leading technology businesses in clean energy globally. We have a leading solid oxide technology protected by over 100 patent families that's quite unique to Ceres. Because of that, we operate a high-margin licensing business model, which is unique in this sector.
Really, we are successful in this because we collaborate with some of the world's leading companies, and it's all about delivering technology at scale and pace to meet the urgency of the climate change agenda. I think over the past few years, you can see very strong evidence that we are succeeding on our purpose and our mission. The evidence I would say for this, and I think how you should judge success for Ceres, is for Ceres, it's all about getting our technology into global applications at scale. You can see from the top line here, what we have is we have a platform technology, which is the Ceres Steel Cell, which we build into stacks, and we've successfully now built into products with partners that are going through to market.
We have in Japan, we have Bosch in Germany, we have Doosan in South Korea, and we have Weichai in China, all on the power systems side for a number of applications, including homes, businesses, data centers, and even taking us into things like transportation and into maritime as well. The number of applications for the power systems side of the business is growing substantially. Last year, we took the decision to broaden the scope of the business and essentially double the size of the business by moving into green hydrogen. Again, one of the beauties of this technology is it's truly reversible. Again, taking all of the technology on the cell and stack side and all of the infrastructure that we're building out with supply chain and manufacturing, taking that into green hydrogen to electrolysis.
We are now engaging with commercial partners and looking to put a first of a kind demonstrator later this year on SOEC. The business has grown on the application side. What that does is that really stimulates the demand for manufacturing globally, and I'm very pleased to report upon progress we've made there. Obviously, Ceres is a U.K. business. We're very proud to be a technology business based here. We have approximately 500 people across two sites, and we're broadening that with the recent announcement of a new test center with HORIBA MIRA, also in the U.K. Really from this technology hub, we're exporting this technology globally, and we're enabling manufacturers to scale.
Our lead manufacturing partner is Bosch in Germany, and they've committed about EUR 400 million investment into commercialization of this technology, and also are in the process of replicating production in Germany and have plans for 200 MW by 2024. Closely followed on that is Doosan in South Korea, one of the leading players in stationary power technology. Their initial capacity is targeted around 50 MW, but we expect it to grow beyond that. They've recently announced USD 90 million investments in that plant as well. Earlier this year, we announced a very exciting three-way collaboration between Bosch and Weichai for a first manufacturing facility in China. China is probably the biggest market for clean energy technology globally.
With this combination of Bosch and Weichai, we've got a pretty formidable partnership there with two of the biggest players in the industry. We have the collaboration also with AVL on business development and engineering. So really our global footprint is growing. Why that's important is the success of this business is all around future royalties. We're very healthy on high margins today. But what we're really targeting on is getting the technology into more and more applications, which therefore drives demand in aggregate for gigafactories globally. That's what we're trying to target here, and that's what really drives the scale of this business in the future. It's been a pretty transformational year for the business. I mean, the last two years have been interesting for the company since the whole pandemic.
Since that time, we've more than doubled the company. We've more than doubled the ambition. We continue to deliver on top line revenue. A 44% increase this year to just under £32 million. We've got a very healthy balance sheet, so we're in very strong financial shape. Not only do we operate a capital light business model, but we are investing for growth, particularly on the electrolysis side, and Eric will give you some more color on that. We're building capacity globally. We're seeing more and more partners now moving towards commercial scale and the manufacturing, as I mentioned earlier. On top of that, we're investing in new markets as well. We intend to enter new markets like marine. We're doing a lot of work on future fuel capability as well.
We're really in a growth phase because the more we grow now, the more we capture these huge markets, the more value we create from this licensing business. That's quite different, I think, from anybody else in the sector. I think the other thing to mention is we've more than doubled during this period. We've attracted something like 160 people just in the last year, but more than that over the last two years. These are very highly skilled scientists and engineers. We're probably the leading tech company in the U.K. in this space with probably the highest caliber team anywhere, I would say. We're in a very strong position to be one of the world leaders in this whole clean energy technology space.
With that, I'm gonna hand over to Eric, and he'll talk you through the financial highlights.
Thank you, Phil. Just from the top, I'd like to say it's a real pleasure to be here today presenting my first set of results for Ceres. It's a genuine delight to have joined such an exciting company and to do this event in person. I mean, Ceres is a business with, I mean, highly talented people, truly innovative products and a genuinely compelling purpose. I've been here two months now. It's been an intensive learning process and I'd like to give a special thanks to Richard Preston for his support and advice during the handover period. With that, I will turn over to the numbers for the year. As you can see, the headline sales grew very strongly, 44% up in the year to GBP 31.7 million.
Much of that driven by Doosan, license fees and engineering services among other customers. We've maintained gross margin at high levels at 66%. Gross profit increased to GBP 20.3 million. That's about a 40% rise driven by the growth in sales. The EBITDA losses increased in the year to GBP 16.7 million, as expected, as we begin to ramp up our investment in fuel cells and the electrolyzer business. At the end of the year, we finished with a very strong cash position of close to GBP 250 million of cash and investments, thanks to the fundraise of GBP 179 million in the year. That puts us in a really strong position to fund the existing business plan as we see it.
We increased headcount by over 160 people to 489 to support the growth across the business. Order book and pipeline collectively finished the year at GBP 80 million. That compares to 98 million the year before, and that reflects the level of revenue recognition in the year. The order book and pipeline will vary subject to the order intake during a given period and the amount of revenue recognized in that period. It's still a high amount, and I think about that GBP 80 million, that's effectively covering our current sales runway over two times. In terms of the revenue growth, you can see we've had continuous trends of revenue and gross profit growth over time, maintaining high margins.
Overall gross margins in the range 65%-70%, we expect to continue in that range this year. In terms of mix, as a reminder, many of you will know this, we've got three main income streams as it stands, depending on the progress within a given development arrangement with our partners. License fees, which are upfront or over time, which are very high margin, 100% in effect. We've got engineering services of the order 40%-60% margin, and that's providing working collaboration, working with the partners on developing new systems and improvements to the stack design. We also have what we call supply of prototype hardware and technologies.
These are samples and prototypes used ahead of our partners ramping up their own large scale production to support development of new products and systems as well. The margin around hardware prototypes can vary from period to period, typically in the range of 20%-30%. It was the reason for gross margin not being as high as one might expect in a year, given the high portion of license fees is really down to the hardware margin. Last year was a key year for Ceres as we got CP2 Redhill facility on stream, making more investments in capability in capacity before the volumes have really increased there, which expect high, much higher volumes this year. On account of that, you've got less overhead absorption in effect.
Also, we had a warranty increase in the year as we're getting better data and getting more products into the field with our partners, so we can quantify what that should look like over time. We expect margin trends to continue to improve this year. They're the main building blocks as it stands. As Phil mentioned over time, and from 2024 onwards, we'd also then look to see royalty income coming through as well, which is in effect another very high margin stream, in effect 100%. Just finally, other operating income that's effectively grants income increased in the year to GBP 0.9 million. We expect that to be less significant going forward unless perhaps we get additional grants from some of our new products, possibly within the electrolysis area.
We'll be monitoring that as we go forward. As Phil mentioned, it's important to note, 2021 was a significant investment year. You can see we've got this measure we call investment in future growth, and that's simply defined as R&D spend plus CapEx plus capitalized development. It's important to look at all of that in the round. That measure increased to close to GBP 35 million in the year, up from GBP 26 million in the prior year. The CapEx increase was down to increasing our capability around fuel cells, but also ramping up electrolysis investments as well.
It's worth noting that investment is expected to increase substantially this year, as we're looking to improve our capacity and capability, especially a lot of that growth is in the electrolysis business, which really started to grow last year, and much of that increase will continue this year, as we build the demonstrator, and other products and ramp up that business. You can see more of that, when we talk about the segmentation analysis as well. Just to give more color around the type of investments we're making, as you see it announced, there's the outsourcing of test as a service with HORIBA MIRA. That's really important in terms of growth, test capability is really important to support the capacity that we need for our own lower scale production and supporting the partners.
What HORIBA MIRA brings is effectively this, outsourcing flexibility, so they can increase capacity over time, and potentially in different locations and scale up with us without us having to make the investment in our existing facilities. As I mentioned, we're also making significant investments in the Redhill facility for prototypes, and automation, investing in some very sophisticated equipment such as laser drilling, and test stands to support the existing product, but also the upgrade. This year, for example, we're upgrading from Gen one, Gen one B to Gen 2 for fuel cells. Another significant investment this year, as previously announced, is the 1 MW class demonstrator for electrolysis, which is really crucial for proving to our potential partners how that works.
That's obviously what the fundraise was designed to do, and we importantly put that money to work. There's a significant opportunity here, and it's important to maintain our competitive position and capture that addressable market by investing in people as well as equipment. The people, it's scientists, systems engineers and so on, and maintain that world-class technology company that Phil mentioned before. As you know, we've split the business and showing sales and EBITDA for both electrolysis and fuel cells. This provides better visibility because you've got two business lines with different levels of maturity in their growth. As you can see, the trend has reduced losses in the fuel cell business. That will be influenced by the level of sales, of course, in a given period of time.
We expect for this year, subject to the amount of sales for fuel cells, reducing losses again for the fuel cell business. On the other hand, electrolysis, as I mentioned, is in investment mode, and I expect those losses to increase this year as we invest significantly, particularly into the demonstrator and other technologies around that before we see material revenues coming through from that side of the business. Finally, this is a reminder of the profile of our sales build up over time, and we're currently in that near-term growth phase. We're picking up new partners, extensions of business with our existing partners, so the build up is primarily license fees, engineering services, and supply of prototype hardware and technology.
Over time, we'll build up the similar revenue streams on the electrolysis side of the business. Then once they're monetized and our partners start producing and selling the fuel cells and electrolyzers, we'll get royalties from those. As you know, from 2024, our existing partners, Bosch and Doosan, are planning production, and we'll start to see royalty income from that. Over time, these different revenue streams will layer on top of each other, supporting strong high margin long-term growth. With that, I'll hand back to Phil.
Great. Thanks, Eric. I just have a couple of slides here to remind you and report on progress against the business strategy. If you go back to our purpose, we're a technology business that enables people globally to address climate change. The business has grown substantially. You know, the core business that we started with was really focused on stationary power, and I think you can see the evidence of that coming through with the partnerships that we have, the products going to market now, et cetera. If you think about global decarbonization, our buildings that we work in, that we live in, is only about 30% of the issue. We have to start to decarbonize the really difficult, hard to abate areas of society. That includes transportation and industry.
On the transportation side, we obviously have our relationship with Weichai, looking at commercial vehicle applications, and also more recently, getting into things such as marine decarbonization through our partners such as Doosan and various other interests that we have coming in there. We're starting to get into the transportation sector. The move into electrolysis really takes us into industrial decarbonization. Again, industrial decarbonization is one of the hardest areas where we probably can't decarbonize through direct electrification. You need green electrons going to green molecules to help to decarbonize industry. Really that's why we're making the investment that we have in electrolysis, because that for us, completes the whole map of addressing global decarbonization.
I touched upon this earlier, but you know, there's some notable milestones now in terms of the stationary power side, in particular with Doosan having completed their 10 kilowatt system. This was a joint development we kicked off with Doosan a couple of years ago, and they're now getting into a soft commercial launch of that product this year. That's on top of what we're doing more recently, which is scaling power systems to higher power with Doosan towards utility scale and some of these other applications as well. Doosan is obviously a very key partner for us. Today, I believe the world leader in stationary power.
Bosch, as we've mentioned, is already investing something like EUR 400 million into SOFC and is in progress of deploying about 100 of these type of systems into different applications. I mean, just to make that real for you in terms of what does it look like, where are these things going? Here's an example of a system powering a bakery in downtown Bamberg in Germany. You can see here a very neat distributed power system providing low carbon power in that working environment. That's just one of the applications that they're looking at. It's also looking at things like data centers, EV charging, grid reinforcement, et cetera.
That's probably becoming more and more relevant if you think about some of the, energy security issues that we're facing right now. This move towards decentralized power and moving towards more and more, natural gas towards hydrogen. This technology provides you with that fuel flexible route. Just to update on progress with Weichai, we're obviously making good progress on the commercial vehicle side, but we also have this new 30-kilowatt stationary power module as well, which takes us into stationary power into the Chinese market as well. China has a big mandate on things like green data centers, distributed power, et cetera. That's a pretty exciting development for us, is broadening the scope of the relationship with Weichai in China. That really brings me on to a brief update on the, collaboration for China.
As we announced about a month ago, we've now actually broadened the scope of that. The collaboration is now a three-way collaboration, including Bosch into the mix. What that means is our intention, and the teams are now working towards final contracts, is to have two joint ventures in Shandong Province. A three-way system joint venture, which will combine our system expertise, including the transportation and the stationary side, together with Bosch's expertise. The products that you saw there to developing products for the Chinese market. In addition to that, and probably, you know, very exciting for Ceres, is the intention to have a third manufacturing facility to produce our stacks in China, which will be a majority operated and controlled by Bosch with participation by Weichai.
That deal near term is worth about GBP 30 million to Ceres in license fees. It's gonna have a significant impact on our revenue lines in the coming periods. More importantly, we expect that manufacturing capability to provide, high margin royalty stream, and we expect that will grow with time as well, as we expect the market opportunity in China to be very significant in the future. I've given you a little bit of color, I think, on progress. All of that is on the power systems side. Power to businesses, power to transport, power to homes. We're continuing to grow the applications there and also expand in terms of the fuel capability and the power levels on the power systems.
We have this whole new opportunity, which is in the green hydrogen space. If you reverse the technology, you can actually produce hydrogen for industrial decarbonization, for feedstocks, for e-chemicals, et cetera. That's where we're going next as a business. We're making good progress on the first of a kind demonstrator. Really just remind people what we're targeting here is high efficiency electrolysis. Up to 20 percentage points higher than established technologies that operate at lower temperature. Really because of that, we believe we can actually enable partners to achieve hydrogen production at about $1.50 a kilo, which is where green hydrogen starts to really become competitive. All of that is consistent with our strategy. If you think about where we've come from, stationary power into transportation, now into green hydrogen.
On the left-hand side, we're broadening the applications for the technology. We'll have more and more partners using our technology at the systems level. What that does is it drives the demand for more and more manufacturing capacity globally. Again, the aim of this business is all about enabling gigafactories of production globally to happen. That will be in aggregate in the high-growth areas where we need this technology. I think, you know, we're successfully delivering on that plan, and that's really what drives the long-term high margin, high value business that Ceres is and intends to continue to be. Just in terms of an outlook and some targets for the year ahead, things to look out for, continued top-line growth.
Every year I've been here as CEO, we've delivered top-line growth, and I think we'll do so again in 2022. We are investing in SOEC and marine to drive future value, so we're investing for the future because we want to expand the demand for this technology, which in turn drives the demand for the manufacturing side. We're obviously highly focused on supporting our existing partners to get to scale. That's a big part of what we're doing, is supporting the activities in Germany and South Korea and China. A big focus this year is conclusion of the JV in China and bringing that to the positive conclusion for a third manufacturing plant.
SOEC progression is underway, and we are making progress also with commercial partnerships for green hydrogen, and we hope to have more to say on that this year. I think we're very pleased with the level of interest and the progress we're making on that. I've already mentioned we're expanding into some of these newer markets: higher power, future fuels, and maritime. We will move to the main market this year when we have the right timing to do so. I think overall, we're looking forward to another exciting year ahead. It's gonna be a high-growth year, but what we've done in the past two years has really laid the foundation for the business to continue to kick on and grow again, and I think that's what you're gonna see in 2022.
I think with that, we'll take any questions.
That's great. Phil, Eric, thank you very much indeed for updating investors this morning. Ladies and gentlemen, please could I ask you to continue to submit your questions using the Q&A tab situated on the right-hand corner of your screen? Just while the company take a few moments to review those questions submitted already, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your Investor Meet Company dashboard. Elizabeth, if I may, hand back to you.
Obviously, you've had a number of questions submitted from the participants online, and obviously, I know you have a number of attendees in the room. If I may just hand back to you to run through the Q&A, and I'll pick it up from you at the end.
Great. Thanks, Mark, and thanks guys for the update. Yeah, I've had a couple of pre-submitted questions, if I could just go to those first, from Adam Collins at Liberum, who asks, "When will the GBP 20 million of investment in China JV impact the cash flow?" I could come to you, Eric.
Yeah, sure. Hi, Adam. We've announced we expect a circa GBP 20 million investment for our 10% share in the new JV, in the system JV. The phasing of that yet to be determined, and it will be enshrined ultimately in the contracts which we're working on as we speak. My expectation is that investment will be phased over the investment period of that JV. If you wanted a best guess for modeling right now, I would suggest GBP 5 million a year for each of the next four years.
Great. Thank you. There's a follow-up question from Adam.
Great.
Also another person online just asking, "What was the level of production in CP2 during the year and, where will that head in 2022?" I don't know. Give a view, Phil.
I don't have an exact figure for that. I'm not sure we've disclosed that. The capacity of CP2 is around 2 MW, and there was obviously a ramp up last year. We're also looking to continually expand and debottleneck CP2. I think capacity intention will grow to around 3 MW. I think probably we could squeeze about 5 MW out of that facility. That's kind of the plan. Don't forget though, CP2 is a manufacturing technology center as well. It's where we introduce new products first so the customers can get them and then also bring that into their factory.
At some stage there will be some disruption in CP2 because we'll move from, as Eric said, a Gen one to a Gen one B to a Gen 2, and we'll continue to bring new technology through into CP2. You know, this is one thing I do want analysts to get in their heads is this is not a manufacturing business. CP2 is really an enabler for more and more licensees. The, you know, the margins that we get in CP2 are gonna be typical manufacturing margins, but really the margins you get from this business are all around the licenses. Occasionally we're gonna change CP2 configuration to produce the latest version of the technology because that's what we will continue to do.
It's as much an innovation center as a manufacturing center. You know, it's only ever gonna be low megawatt scale because the capacity is really done by our partners, several orders of magnitude greater than what we'll have at Ceres.
Yeah. Great. Thanks very much, Stuart. Great. Can I come to the room? If there's anybody who would like to ask questions, if you could just shout out where you're from and your name, that would be really helpful for everyone online.
Yeah, sure. Hi, it's Ed Mervin from Citigroup. My question is just around the China JV. What sort of dimension can we sort of start thinking about in terms of megawatts there? Just bearing in mind the respective sizes between Germany and China and the Wernau in Germany.
Yes. Look, it's a good question. I can't answer it precisely because ultimately that's for Bosch and Weichai to disclose when they have concluded on that manufacturing JV. But what I could say is, if you look at the building blocks of capacity, the several hundred megawatts is really the sweet spot where you get to very low cost, high volume modules, if you like. I think, it's clear that the priority, the first plant that you'll see will be Germany. Then I think you could imagine similar kind of levels of capacity coming on stream in China. From that, it's really growth and responding to the market demand.
Yeah. If I could just tack on to that. You know, it looks like with Japan sort of covered and South Korea and Germany and then now China. What about the United States? Are you sort of focusing on that market?
Yeah, we're gonna focus more on the U.S. I think, there's been a bit more favorable change under Biden with, particularly around green hydrogen and subsidies for that. Don't forget, though, that, a good illustration is our partnerships with Bosch and Doosan. Doosan has operations in the U.S. Bosch has operations in the U.S. as well. Some of our existing partners can also access those markets. Look, this business operates on bringing on new licensees as well. You should expect that we're gonna target other regional production in the right parts of the world. Not just the U.S.
Okay.
It's Anthony from Berenberg. Obviously really good strategic progress across the year. I don't think there's any mention of AVL in the statement. I think sort of at the half year, you're talking about three kind of early stage conversations. I guess how is that sort of progressing?
Yeah, the pipeline with AVL is growing. We haven't had much of an update, I suppose on specifics, but it's going very well. But I think those contracts are still at an earlier stage and when we can say more, we will. But they are bringing us into some of these new opportunities, and they bring capability in some areas that will be new to us. So, there'll be more to come on that, I think in the future.
just on the HORIBA, sort of testing partnership. How maybe a silly question. How the economics of that actually works. You're putting in money. Do you then have a research? I guess it's all around Ceres strategy when it comes to staying asset light. What's the sort of rationale behind that?
There's two aspects to it. There's a kind of a test as a service aspect where some of you may have been to Horsham recently. If you have, we couldn't shoehorn much more capacity in there than, we've got something like 70-odd test stands and we build our own test capability. We're building our own SOEC test stands. We're building test stands to run on future fuels like ammonia, et cetera. We have long duration durability test stands as well. The philosophy behind it is some of the more regular testing we can put in the hands of a trusted partner like Mira to run for us.
That means some of the higher end sophisticated test work that we need to do as part of the science and engineering programs we'll still do in-house. The other interesting thing is when we scale with partners, they need test capability as well, and we need them to be running the same test platforms that Ceres runs. We can't necessarily continue to build all our own test platforms and supply them to other partners as well. The good thing about HORIBA, the parent group, is they're one of the biggest providers of test stands globally. That's the Japanese parent. They're gonna produce Ceres test stands that we can then provide to our partners as well.
I'm not suggesting that's gonna become a whole new business stream for Ceres, but it's all about enabling our partners to get to scale. It does speak to the asset light nature of our business as well.
Yeah.
Hi. It's Chloe from Berenberg. I have two questions. The first being, you've often said on SOEC, you were not in a rush to do a licensing deal to get the maximum value. The statement in the half year and also today talks about high level of inquiries on SOEC. Can you just give us some better understanding of the balance between waiting to get the maximum value on licensing and what we should expect given people are obviously attracted to the high efficiency of your systems compared to-
What you should expect is, look, if we can build a demonstrator and initially we thought about we build a demonstrator and then we can convince people. I think actually there's a high appetite to get involved earlier to understand the system side of it, and also there's a lot of capability out there that we can tap into. We're new into this field of electrolysis. Really, in the initial partnerships, they're not necessarily pure-play license deals, but they're partnerships on the system side that would then take us into the end market. The first partnerships that we're looking to put in place will be more around the collaboration joint development stage, just as we've been through with the fuel cell side.
Licensing the core technology, I think will follow on from that. It's also of interest because strategically, if you're making fuel cells based on our technology, by default, you're making electrolysis cells. At some stage, there'll be some interesting opportunities for our existing licensees as well.
The second question I had, through the JV, you've addressed some concerns about IP protection in China. Could you just remind us why that was the best way to go forward and why you feel confident that that gives you an enhanced level of IP protection in China by using Bosch as opposed to have solely interacted with Weichai?
There's a couple of aspects to that. Just to make it clear, we trust Weichai. They're a very high integrity business. For us, as a two-way joint venture, we were talking about establishing manufacturing potentially in China from a standing start. We're a U.K. technology business, so the advantage that Bosch has is it has a pedigree of over 100 years of operation in China. It's got 55,000 people in China, and it's very used to dealing with high tech and protecting IP in China. Their capability compared to ours is significantly stronger. I think also, the level of investment, and Eric Lakin just talked about a small investment in this joint venture.
If you think about as we scale up manufacturing capacity, Bosch and Weichai really have the balance sheets to do that. What it means is Bosch can take the lead in the manufacturing in China and actually take a controlling position that Ceres probably wouldn't have been able to do. That will be under, the majority shareholding of Bosch, and that makes a big difference, I think, in terms of IP protection, because the license that we have will be with Bosch. We've extended that license through a partner that already has the license. If there was ever an issue around IP, we know how to progress, shall we say, with Bosch.
I'll ask you one quick one. The multi-million GBP investment for Europe. Can you give us some understanding of the multi-million GBP and how that's gonna be phased?
I won't give you the exact number, as you might imagine, but just to give you to help think about the level of investment this year, as I mentioned, we're gonna be increasing again the investment this year to double down on the opportunity. CapEx figure of the order of GBP 20 million-GBP 25 million in total is what you might expect. Obviously, it depends on the phasing and sometimes we make capital commitments and the actual spend goes into next year. Actually last year was a bit lighter than I think we or others might expect, partly because of that, so GBP 7 million or so. Some of that's coming to this year. This will be a significant increase.
Of that, there's a, meaningful proportion, but obviously a minority portion is in arena.
Thank you.
Yeah. I think to that point, we raised significant funding last year. We're starting to deploy it, but this year will be really where we accelerate that investment because this demand is not going away. You know, we wanna get into the businesses, the areas like marine, into electrolysis, as fast as we can really, 'cause that opportunity is there as well as support our partners as they scale. We're doing both growth and the investment to support partners.
Okay. Thank you.
Just checking on this. From GBP 34 million last year, this year we could anticipate also up a little bit.
If you're referring to the investment in the future metric, I'd say, not quite double, but that sort of order. You might think 60-70 territory, including R&D and the CapEx guidance I've given. Plus capitalized R&D.
Thank you.
Great. I have a couple of other questions online, if I can come back to you guys. Chris Leonard from Credit Suisse asks three questions. In 2022, do you expect the mix between license engineering services and hardware buckets to be more evenly split? Maybe you can pick that up, Eric Lakin.
Hi, Chris. I think the mix this year will partly depend on the JV signing and the associated revenue recognition with that. It presents some quite variability. The way we're expecting it to come through means it will have a very meaningful contribution of license fees again. That would mean a similar mix this year to last year. Worth noting, we put a comment on this in the release. Because that would represent a significant upfront license fee, a part of the total GBP 30 million, the timing of the growth this year will depend in part on when we actually sign contracts for the JV. Whether it's H1 or H2, that's worth keeping in mind when looking at the phasing in the year.
Um-
Great. Maybe, so like it comes to you just with the benefit of hindsight. Have you seen your partners, particularly with Doosan, put higher levels of investments in than you were originally thinking?
Yes, probably. I think with Doosan, what we're seeing is high levels of ambition, particularly into new markets. The Doosan Fuel Cell is a publicly listed company, so they have their own communications. You can see their ambitions for SOFC there. But also they're obviously forging partnerships with the likes of Hyundai Heavy and Shell on maritime. They've stated intentions to get into electrolysis as well. Doosan want to maintain that leading position in hydrogen and fuel cells in South Korea. I think that to do that, they are putting more investment in.
Just lastly from Chris, he asks, what's the expectations for new SOFC system partners?
That comes back to some of the things we talked about in terms of the AVL relationship and also some of the incoming that we've got now. I think if you think about the partners we have, there's a lot more out there on the power system side as we go forward. That's gonna be a, it's a key growth area for the businesses, driving more demand for the existing power system side of the business and also pioneering these new areas of that we discussed.
Great. There's another question there for Chris, just saying is there an update on the release of the next generation of the SOFC technology? We touched on that, Gen 2, just last time.
There's no particular update. It's something that we're working on now, and at the appropriate time, we'll take it through into CP2 first and then into partners after that. It's quite a big step change for us because it's the largest lower cost cell. It's something that we've worked on with Bosch, and it's therefore designed for mass manufacture, a lot fewer components and therefore that's ultimately what we'll move to in the future as we scale.
Nick Walker from Peel Hunt on the line. He asks, when do you expect manufacturing of both stacks and systems to begin in China?
I think at the system level, there's already prototype systems being built in China now with what we've been doing on the bus programs, et cetera. Weichai already have that capability, and they're building that up. Obviously, this expansion with Bosch and Ceres will be a much bigger initiative. In China, it will be systems first and then stack manufacturing will follow. I think that's the way to think about it. I think once we conclude the JV, system development can happen quite quickly. I think manufacturing of stack development will follow, scale up first in Germany and then secondarily in China.
Yeah. Great. Nick also asked the question, just could you talk a little bit about Ceres' radar and long duration energy storage? Actually we've had two or three questions on sort of long duration energy storage and the importance, its importance within the energy transition. Just some views on that.
Yeah, sure. Look, the Ceres Radar is really beyond what we're doing on Solid Oxide. If you think about our capabilities in electrochemical technology as a clean energy business, when we see it's it. Look, there's a lot of interest out there in new technologies, and you see it all the time. You see it with Bill Gates, Breakthrough Energy. People are looking at how do we accelerate technology to decarbonize society. One of the key areas I think that will be important next will be long duration energy storage because as we look to electrify more and more parts of society, one of the issues that we have is intermittency of renewable energy. Anything that's provides a solution to that is gonna be valuable. Hydrogen is a solution to that, potentially.
You know, you can use hydrogen to store energy, but equally, some of these new technologies. Now, this is, for us, a new initiative, which is really how do we identify technologies and how do we almost accelerate them, incubate them or accelerate them with our capability? 'Cause we have test capability, we have system engineers, we have some of the boring stuff like HR and supply chain, et cetera, that companies just don't have. That's very different from a financial investor. You see lots of these funds being formed now out there around hydrogen. What we can do with companies is really take a technology, evaluate it, and accelerate it if it's any good.
I think the first step in the RFC-type kind of technology is for us to assess it, work with them for a year, accelerate it, and then we'll make a judgment whether we think it's gonna be commercially viable or not. We'll do that with, several areas of technology, and that's part of Mark Selby's role in innovation is that landscaping piece of what else is out there. When we think any of those technologies becomes mature, then we'll bring it into the mainstream of the sales business as a potential new line of business. That's the philosophy.
Yeah. Great. Eric, if I could come back to you, just a couple of questions. Obviously, we're increasing investments, and there's a question around how long will your existing cash last?
As Sarah said during the fundraise, GBP 179 million raised last year fully funds the known business plan. That's probably the answer on that. That's still the case today.
Yeah. Great. Thank you.
The investors we talked about, the increased investment, is in line with that plan.
Yeah. I would just remind people as well; our top line revenue is growing. We make a pretty healthy gross profit. If you compare our company with any other company in the sector, we're miles ahead in terms of margins that we make. That margin helps us to fund a big part of our development costs. You know, but analysts often compare top-line revenue, and they don't always look at the margins that this business operates on. Ceres is a very different business. As we grow, we are throwing off, gross profit that we are reinvesting in the business, and that helps us to be pretty confident on our cash balances. We don't operate on the same kind of cash burn that other companies do.
Yeah. Absolutely. Okay. Just coming back, maybe if I can, to electrolysis, Phil. Just sort of couple of questions. One is the sort of scope for production scale for Ceres SOEC by, 2025 or 2030, however we view that in terms of how it's gonna scale up. Do we have a feel for what a standard module might be for electrolysis products in the future? I mean, we've already been talking about that megawatt demonstrator, but could it be a megawatt 2, 5? What does that look like to you, in your view?
Look, I think that's where, the business scales in modularity. You know, a 5-kW stack is a 10-kW electrolysis stack. In time, you expect power density to go up, so those modules will get bigger. Ultimately, you're adding stacks, and yeah, it's in that low MW to 10 MW kind of range, I think is gonna be, the typical module size. Again, we're the technology provider, so this is where collaboration with systems people and some of the people in the business will determine what that ultimately looks like.
Yeah. Absolutely. Tarek from HSBC is also on the line, and he just says, "Am I correct in thinking that most of Sarah's units are currently geared towards natural gas?" I think we've touched on this, but how much of the planned expansion is towards natural gas versus green hydrogen? Or I guess we could touch on other fuels. I don't know.
Yeah. Look, we have systems operating in Horsham on pure hydrogen. The technology is hydrogen ready. The Bosch systems have a degree of hydrogen flexibility, so if we were to start to introduce hydrogen into gas streams, they're compatible today. The systems actually get simpler. If we suddenly woke up in a hydrogen economy, the systems are ready to go. They actually get cheaper. But in terms of answering the question, we're continuing to do development on pure hydrogen 'cause for reasons I said, you can adapt a simpler system. We're also getting into some of these future fuels as well, like e-fuels, ethanol, ammonia, et cetera. Because again, different parts of the world, different applications will need different fuel solutions.
Yeah.
That's a big part of our R&D. It's around future fuel compatibility.
Yeah. Maybe one for you, Eric. Do you think growth will be driven organically or through M&A? If M&A at all, where might we look to accelerate growth?
Good question. The business plan is for organic growth. Everything we've described today fuels that, including the investments, both the fuel cell business and the electrolyser business as well. That provides strong medium-term, long-term growth. M&A is an interesting one. I think it's secondary to our organic plan. Part of the scope of on Sarah's radar that Phil mentioned is looking at doing that horizon scanning for future opportunities and looking where if there's a complementary business where we can add value, particularly through our electrochemical capabilities, then that's one of the filters we look at. We'll follow up if opportunities like that arise, like RFC last year.
Any more questions in the room? Maybe I could leave you with Phil this last one, which is, when do you expect the first gigafactory to be live?
I think that's an aggregate. For me, it's an aggregate. I can already see a pathway to about half a gigafactory already in some of the planning discussions, et cetera, that's out there. I see that, if we're successful in that initial stage, then growth beyond that can happen quite rapidly. I think for us, our focus is getting to that first scale-up, because I think beyond that then, you've proven everything in terms of commerciality and then it's just business demand , our internal plans are for multi-gigawatts by the end of this decade. It goes far beyond the first gigafactory for me.
Absolutely. Maybe I can hand back to Mark. Thanks.
That's great. Elizabeth, Phil, Eric, thank you very much indeed. Thank you to all the investors that have taken time to submit questions online. If any further questions come through, we'll obviously make those available to the company after today's meeting. Phil, I will shortly redirect investors to provide you with their thoughts and expectations via feedback, which I know is particularly important to you and the company. Before doing so, I wondered if I may just hand back to you just for a few closing comments.
Yes. Thank you. Look, thank you, everybody, for joining today. It's really nice to, yeah, see you all and also have the high level of participation online. I think, we've put Sarah's in really good shape, as well as Eric, who's sat with me. We've also added considerable strength in a new CTO, Caroline Hargrove, and a new GC, Deborah Grimason. We're adding capability into this team. We're adding world-class scientists and engineers all the time. We're growing what is a fantastic business here in the U.K. We've got fantastic opportunities. I think like I mentioned, 2022, there should be a lot of things to look out for in terms of progress with Sarah's. Thank you for joining today.
That's great. Phil, Eric, Elizabeth, thank you once again for your time and for updating investors. Can I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Ceres Power Holdings plc, we'd like to thank you for attending today's presentation. That now concludes today's session, so good morning, should I say, to you all.