Good morning, ladies and gentlemen, and welcome to the Ceres Power Holdings plc Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged, and they can be submitted at any time using the Q&A tab just situated on the right-hand corner of your screen. Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation, and I'd now like to hand over to CEO Phil Caldwell. Good morning.
Good morning, everybody, and thank you for joining. I'm joined by Eric Lakin, CFO, and this morning, we're going to talk you through what I believe is a very strong set of interim results for Ceres Power. We've been having a fantastic year this year. We've signed two new stack license partners, major manufacturers, and one system license partner this year to date. That's resulted in a record first half year revenue, increasing by 144% to GBP 28.5 million, and gross profit increasing also by more than 200% to GBP 22.9 million. That's backed by a record order intake of just under GBP 47 million in the first half, and we've been busy since then as well. Order intake, as we stand at the end of August, is actually over GBP 100 million.
We now have four global stack manufacturing license partners progressing towards scale production, and it's not just that we have four, but it's the quality of these people that we're working with, with the addition of Delta and Denso this year on top of Bosch and Doosan. As a licensing business, it's essential we maintain technology leadership, and I'm very pleased that our development on SOEC has gone very well. We have the 1MW demonstrator currently being commissioned with Shell as we speak, and we've entered into a joint development with them on scaling that to 10MW pressurized electrolyzer modules, and then enabling scale up to 100MW to GW scale plants. This year's been all about commercial acceleration. We started the year in January in Taiwan with Delta Electronics.
This is a manufacturing collaboration for both SOFC and SOEC, so that's very important. It's the first one we did for SOEC, but also has the SOFC side to the license as well. We followed that up with the second manufacturing license purely for SOEC with DENSO Corporation in Japan, and then since then, we've also signed a system level license, so a smaller level license, but equally important with Thermax Limited in India. This provides us entry into the dynamic, high-growth Indian market. So three new major partners taking us into three new geographies. On top of that, we continue to support both Bosch and Doosan as they continue to implement their initial volume manufacturing, and there's great progress there as well.
We have strong business momentum going into this year, with additional license agreements leading to what we believe will be record order intake, revenue, and gross profit, not just at the half year, but at the full year also. I mentioned the technology leadership. It's been a relatively short period since we entered into the SOEC market, and I think this year is the first year where we're starting to see the benefit of the investments we've been making over the past few years coming through now in commercial agreements. As I mentioned, I was in India just a few weeks ago for the inauguration of the one-megawatt electrolyzer at Shell Center in Bangalore, India, and we're very busy getting on with the next level of the design of pressurized SOEC modules, which I think is quite unique in the industry.
This architecture scales readily to 100MW+ building blocks that can take us into gigawatt scale, and we've done some work there with AtkinsRéalis that we shared, I think, earlier this year as well. And also, we're sustaining our leadership position in fuel cell technology. You know, there's very few players in the SOFC market, and we have that leading position, and we've been working obviously with Bosch and Doosan, and Weichai on that technology, and we've added Delta to the SOFC portfolio as well this year. So very strong progress on technology and on the commercial acceleration. And that's really underpinned the results that we're gonna take you through this morning. So with that, I'll hand over to Eric, our CFO, to talk you through the finances.
Thanks very much, Phil, and good morning. I'm very pleased to announce first-half financial results, which are consistent with the high end of the trading update guidance we gave in July this year. Also, as Phil said, these are record sets of financial results in Ceres history. We have revenue of GBP 28.5 million relative to the guidance we gave at GBP 27-29 million, and that represents a 144% increase from the first half last year. With the high growth and a strong revenue mix with a high contribution from license fees, that resulted in an 80% gross margin at the high end of the trading update guidance, and that represents a significant increase from the margin in the prior year period.
As a consequence, gross profit of GBP 22.9 million is over three times higher than the first half of last year. As a result of high revenue and margin, and whilst maintaining the cost base at comparable levels to last year, there's a significant reduction in the EBITDA losses from GBP 23.5 million last year to GBP 9 million loss in the first half of this year. We finished the half with a cash balance, including short-term investments of GBP 126.1 million, compared to GBP 140 million in the end of December last year. That represents a cash outflow of approximately GBP 14 million, so a significant reduction in the outflow in the same period last year of GBP 21.1 million.
As Phil mentioned, as a consequence of the Delta contract, plus some other orders, the total order intake for the half was GBP 46.9 million, compared to GBP 15.4 million order intake in the first half of last year. And on the back of the Denso contract, that, that's won at the beginning of the second half, we're today reaffirming the upgraded guidance of revenue for the full year to the range GBP 50 to 60 million. So just wanted to talk through the development of revenue and gross profit for the last four six-month periods. And as can be seen, there's a significant uptick in the first half of this year, and that was largely driven by the recognition of revenue from the technology transfer for the Delta contract, as well as revenue contributions from other existing partners.
As a reminder, our revenue segments are comprised three elements. At the moment, we have engineering services, which is effectively consultancy for our partners to support them to start up production in their stack manufacturing licenses, but also providing support for system development. There is supply, which is provision of prototype stacks and components from our manufacturing excellence center in the UK to our partners. And then we also have license fee revenue, which is very high margin, and that can be recognized up front in the form of technology transfer, but also elements over time through development license, through the period of the manufacturing collaboration license arrangements we have. As shown here, the significant growth in the half was due to the license fee revenue recognition from the Delta contract.
The fourth element of revenue in the future will come from royalties, and that'll be effectively a 100% margin, and that's derived when our partners sell stacks or systems to third parties on commercial terms, and we get a royalty from that. And we expect the first royalties to occur by the end of next year, as Doosan stack factory comes online, and they have commercial sales from their existing pipeline. Despite the very strong growth, we were also ensuring we're managing our cost base, and that's a good example of the operational leverage of the business and also the asset-light model. And as can be seen from this chart, which shows, the last seven six-month periods, the evolution of our costs, and by costs, we include everything, including operating costs, capitalized development, and CapEx.
We have invested a significant amount in our SOEC and SOFC technology in recent years, and during that time, we've met a number of important milestones through in R&D, and also in our new product introduction for both sides of the business. And that's enabled us to a position where there's a natural reduction in spend on some of those projects, some of which are non-recurring in nature, such as test stand infrastructure build, the investment into our prototype factory, and also the first of a kind, one megawatt demonstrator that Phil talked about, which is in the commissioning phase. So as a result, we're in the position, as we indicated earlier in the year, that our cost base will stabilize this year compared to growth in prior years.
But in addition, we're in a position to to optimize our cost base, and we're announcing today, we have effectively implementing a restructuring in the business in this quarter, which will result in a approximately 15% reduction in head count and also our overall cost base, which will reduce our run rate of costs through into to next year, and again, demonstrating the ability of the business to grow the top line while also managing its cost base. As a result of that, we, we finished the half on a confident note, and we are well-funded for future growth. With that, I'll hand over back to Phil. I'm sorry, one more slide.
As a result of the revenue growth and margin improvement and also managing the cost base, we show the cash outflow of the business is reducing, and the GBP 14 million outflow in the first half of this year compares favorably to the GBP 21 million in the first half of last year. I should note, in the second half of this year, we expect the cash outflow to be more than the first half. There's a number of variables within that. It also includes the one-off restructuring costs in the half. But I should emphasize, the overall cash outflow this year is expected to be less than the total cash outflow last year. So with that, I'll hand back to Phil. Thank you.
Thank you, Eric. So I just wanted to take the time to update you on the business strategy. Fundamentally, it's built upon three main pillars: commercial acceleration, that we've started to talk about this morning, technology leadership, and how we execute both at scale and pace. On the commercial acceleration, we've been putting a lot of work in over the last few years on the SOEC side, and we have a very compelling case, when you look at the business case for hydrogen, for green steel, green ammonia, due to the high efficiency this technology brings, particularly in the areas for industrial decarbonization. On top of that, we're also seeing new licensees coming in, both on SOFC and SOEC applications, and we're seeing demand on both sides of the business.
On technology leadership, as I mentioned, we've got the demonstration with Shell and also the optimum architecture as we scale up towards hundreds of MW to GW offering with this technology. The execution at scale and pace is about how we operate. The business model of this company is different. We're not a pure play manufacturer, we're a licensing business, and therefore, what we essentially do is we leverage other partners' capabilities and balance sheets, and we have a compelling offering. Not just do we have the world's best technology in solid oxide, but we can provide a factory blueprint. We can give people the means to how they can actually localize production and also localize supply chains, and that's quite unique in the industry.
This is not purely a local play for us, this is a global play, and I think we're probably the only company of our nature in this sector that is actually addressing the global market. So let's go into a bit more detail on some of these partnerships. So the first one was Delta, and this is a dual license for both power and hydrogen. It was our first licensee partner to take on the SOEC license in addition to SOFC. You may be less familiar with Delta in Taiwan, but Taiwan, as you probably know, has a heritage in high volume, high quality manufacturing. Delta employs over eighty thousand people.
It operates at 200 facilities worldwide, has manufacturing obviously in Taiwan, but also in China, Thailand, India, and it has strong ambitions to diversify into decarbonization solutions for energy infrastructure, grid balancing, energy storage. It's already a big supplier into the data center and power electronics markets. So it's a natural partner for Ceres. This agreement included revenues of GBP 43 million through the technology transfer and licensing, and they're going quickly. So they are targeting initial production by the end of 2026. The second major manufacturing license partner we added this year was Denso in Japan. This is a non-exclusive global license for cell and stack production. Again, the same kind of structure as Delta, including license fees, engineering services, and hardware over multiple years.
And it's of a similar quantum of value to our other licensed partners. Denso is a Fortune 500 company, again, employing over 160,000 people, and it's a world-famous original equipment manufacturer with expertise in system control, thermal management, automotive supply chain. So again, a very high quality partner to add to the Ceres portfolio. Talk about getting into different markets. Japan has always been big in hydrogen, but recently it's mobilizing JPY 15 trillion, equivalent to $98 billion over the next 15 years of public-private investment. Japan obviously has some limitations in terms of it's a net importer of most of its energy. It's renewable constrained, and therefore, hydrogen and things like green hydrogen, green ammonia, are essential to part of its energy policy.
So, having a partnership in this key market for us in Japan is key with Denso. But again, Denso is a global player with operations worldwide, so we expect this partnership will address not just the Japanese market, but beyond. And it's our first pure SOEC licensee as well. So I think that's a testament to the quality of the technology that we've developed on the SOEC side. More recently, we announced the partnership with Thermax in India. This is a system-level partnership, and system licenses are, while they're lower value than our manufacturing licenses, they're important in how we build out the ecosystem. When you think about the hydrogen value chain, we need partners all across that value chain that create the pull for this manufacturing technology that we have with our major partners.
Thermax already has a very well-established market presence in India, and India is one of the key markets for us as it moves from being a net importer of energy, with ambitions to export green ammonia, green steel, to the rest of the world. And Thermax is already a big provider of equipment into the process industry. It has a lot of experience with thermal integration. It does things like chillers for cooling, which is interesting on the SOFC side. It has capability on EPC in terms of plants. So we think this is a great partnership for Ceres as well, to address the Indian market. And just taking a moment to explain the differences here. So we have two types of licensees. We have manufacturing partners, and we have system partners.
So on the manufacturing side, we now have four partners with the manufacturing license, Bosch, Delta, Doosan and Denso, and there we provide the cell and stack IP for manufacturing, and cells are integrated into the stacks, which are then ultimately integrated into systems, and we get royalties per kilowatt sold of stacks. That feeds into our system-level partners, and there we provide different IP. So we provide system-level IP for production of modules, electrolyzer designs, et cetera, and for fuel cell systems as well. That enables us to go into these industrial processes through these partnerships we talked about. Again, same structure with royalties and upfront license fees, and then royalties per kilowatt sold. Well, as you know, we've been more advanced on the SOFC side.
It's a more mature side of our business, and now what we're seeing is our partners developing power modules for various different applications. Doosan scaling to 600KW modules, Bosch in the 20KW, going into hundreds of kilowatts, and we're working with Weichai on scaling to 75KW modules that can go into megawatt scale. Add to that, the recent addition of Delta. What's interesting, I think, on the power side is we're starting to see, particularly in Asia and other parts of the world, more and more interest in distributed power generation and a trend that's coming about with increased power demand through AI, starting to put pressure on constrained grids.
The need to, you know, generate your own power is meaning that this is becoming, again, quite an interesting market for our SOFC business, on top of what we're now developing on the SOEC side. And then, as we get into the electrolysis side, which is the more recent development, I've already talked about the megawatt scale demonstrator. That will come online by the end of the year, and we've already signed the follow-on contract, how we scale that into these larger systems. We did a lot of work earlier this year with AtkinsRéalis, which has taken us through how this technology can be modularized. There's certain aspects of our technology which are compelling. Because of our lower temperature, we're able to centralise a lot more of balance of plant.
It means that overall plant costs can be lower, the materials that you use can be lower, and it lends itself to, like I said, centralization of some of the key peripheral auxiliary equipment that you would need as you scale. We're also going into pressurized because we see that as giving a big advantage in the balance of plant on the compression stage for hydrogen as well. And the model that we have is very similar to ARM in terms of we're building out an ecosystem, particularly to go after the green hydrogen market. So we operate with end users like Shell, who can see the compelling business case for this technology, and they want to pull this technology through.
To do that, we need to work with EPCs and system integrators, but we also now have a growing portfolio of manufacturing suppliers that could supply that industry as well. So if you're looking at SOEC, and you look at the Ceres technology, you could have quite a diversified supply chain established with world-class manufacturers coming from Asia or Europe, and hopefully in the future, beyond that. So we think this business model scales probably better than anybody else's. It's asset light, it's highly leveraged, and the quality of the partners that we have, I think, is second to none. And that's emphasised if you look at the global map now, from British technology, which we're very proud of, we've now got factories concurrently being built into Germany, South Korea, Japan, and Taiwan, and these are the manufacturing powerhouses around the world.
On top of that, we obviously have the relationship with Weichai on the systems side to address the growing Chinese market, and also now starting to look at how do we access interesting markets like India. I think also, you know, there's lots of estimates around the demand for green hydrogen. Some of those have been coming down in recent years. I think what is clear, though, is when you look at the market for green hydrogen, about 50% of this market is gonna be for industrial decarbonization. So hydrogen's talked about as being compelling for lots of things, but for some things it's essential. So if you want to decarbonize steel, if you want to decarbonize ammonia, if you want to decarbonize future fuels, you will need green hydrogen as a feedstock, and that's where most of our partners are focused.
And the good news is, with SOEC technology, that's where we have this clear advantage on efficiency, about 25% or more, clear advantage on cost, and the thermal integration lends itself very well to most of those industrial processes. I think from an investment point of view, if you're only playing in the European market, you're only addressing 6% of this global opportunity. The Ceres business model is a cross-border model, so we do business globally, and if you look at where the decarbonization is gonna happen, it's gonna happen in China, it's gonna happen in India, it's gonna happen in Southeast Asia, it's gonna happen in Europe and the U.S. and the rest of the world. With this business model from the U.K., we license technology globally, and I think we're unique in the industry in being able to say that.
So the outlook for the remainder of the year is extremely positive. You know, three new licenses to date, two manufacturing licensees, very high quality, and system licenses as well. Bosch, Doosan, Delta, and Denso are now progressing towards scale production. So again, they all have incredible capability in manufacturing and scale-up. We continue to grow the relationship with Weichai in China, particularly for the stationary power market, and we're seeing that trend I talked about of increased electrification now starting to put pressure on power grids and starting to create, I think, a more robust market for the SOFC technology. We have demonstrated programs on track for green hydrogen, both with Shell in India and also with Bosch and Linde in Germany. We're reconfirming today the guidance which we upgraded in the middle of the year.
We've already upgraded once, and we're on track to achieve that with GBP 50-60 million of revenue, supported by the existing contracts that we already have and the order intake this year, which is over GBP 100 million coming into the business. And don't forget, because of the asset-light model, that's GBP 100 million of order intake of very high-quality margins. There is nobody else in the industry that gets anywhere near the margins that we do. So we have a very strong financial position driven by this increased order intake. We are now optimizing the cost base, and I think that's because we want this business to emerge in the strongest position we can after a couple of years, I think, of a difficult trading situation in the hydrogen industry.
As this industry starts to grow, and we're starting to see that, I think Ceres is well positioned from a very strong business model and cost base to exploit that. So with that, I will take any questions.
Phil, Eric, thank you very much indeed. Just a reminder for those online to submit their questions using the Q&A tab on the right-hand corner of the screen. Patrick, if I may just hand back to you just ahead of the Q&A.
Thank you. Thank you, Mark. We now open the floor to questions. If you'd like to ask a question, please raise your hand and wait for the microphone to arrive, and then address the team. Thank you.
Thanks, all. Excuse me. Ken Rumph from AIB Goodbody. A couple of questions. One for Eric on the cost. So last year, the costs were about GBP 90-odd million. As you say, you're on track for that, including capitalized and.
Yeah
... CapEx. You're on track for a bit less this year. The cost-saving program in the final quarter, just, is that gonna be kind of finished and therefore, you know, we can expect GBP 12-13 million off next year, or is it gonna take a bit of time to come through? And sorry, and for, for Phil, you've and Doosan have said that they're gonna be in mass production next year. Do we know where Bosch are at? Have they simply not said, they, you know, they've sort of rethought their approach and sort of scaled up what they wanna do in terms of size, but do we have any kind of timetable for that? Thanks very much. Congratulations, by the way, on three new licenses and a great set of results.
Great. Thanks, Ken. Yeah, so your question around the cost base, the reorganization cost will all be absorbed and completed by the end of this year, so in Q4. Therefore, the run rate of cost will, the benefit of that will feed into next year. I won't give a precise number. There's a number of moving parts, and obviously, we continue to invest in the business with third parties, and particularly, one of the major programs ongoing is the stack array module activity with Linde and Bosch. But to give you an idea of order of magnitude, we expect overall cost to be GBP 10 million or so less than this year.
The second question, Ken, was around the plans of Bosch and Doosan. You're correct, Doosan have officially said they're gonna launch product, and we expect first sales next year, 2025. Bosch are making progress, but they haven't officially said what their plans are as yet, and I think that there is development there in terms of what the scale of their products looks like in the future. But that, again, a consequence of this business model is we can't actually speak on behalf of our licensee partners, which I'm sure you appreciate.
Thank you.
Sean McLoughlin, HSBC. A couple of questions. Firstly, on the cost cutting, just to understand what is giving here, is this just some of the R&D projects that have come to a natural end? Are you, let's say, cutting around the edges on admin, on procurement? You know, is the R&D effort effectively continuing? How should we think about that cost-cutting drive?
I think the R&D effort is obviously continuing, and I think we have one of the largest R&D teams in the industry on solid oxide. I think that we've over the last couple of years, we've invested heavily in new stack platform, conversion of some of our infrastructure for testing towards electrolysis, some of the first system development. So a lot of engineering manpower has gone into that. Some of that is gonna come down and pro rata across the business. Some of the support functions will also come down as we come down on the headcount as well. So it's gonna be across the board, but it's gonna be driven by the completion of some of the major non-recurring engineering projects that we've now gone through.
When we actually last raised capital in 2021, it was explicitly for this move into SOEC. We're more or less on track in terms of what we actually said we were gonna deploy, and that's now coming to a natural roll-off. What we're now focused on is what's the steady-state kind of cost base for this business. And again, to stress the licensing model, you shouldn't expect this business to grow linearly, cost, and top line. So we should be able to service a couple of new licensed partners a year, with the cost base that we have, and maintain the world-class R&D.
Thank you. The second question is around the partnerships in the U.S. specifically. There's a clear pivot towards Asia, which obviously is an area where I think we'll see a lot of hydrogen-driven growth. Just thinking about solid oxide fuel cells and the natural gas opportunity that we're seeing in the U.S. around data centers, you know, how are your partners targeting the U.S.? Are you still looking at U.S.-specific partnerships beyond what you have already, just yeah, around the U.S.?
Yeah, look, we follow the market, so we follow the market demand of our partners, and I think this is a trend that's just emerging on the fuel cell side. We're definitely seeing it coming through in Asia, and yeah, I think what's maybe slightly different in Asia, you're seeing a transition from coal to natural gas before you get to renewables and hydrogen. So even that trend is there, and in some geographies like Taiwan and China, that's more pronounced. But obviously, the U.S. and other markets are a key target for us as well on this as well. So the business model that we have lends itself to partnerships in all geographies, really.
But we, you know, like I said, I think this is an emerging theme that's not gonna go away now, so it's something that we're gonna obviously look at quite hard as a business.
Thanks.
Thanks. Nick Walker from Peel Hunt. A couple questions, please, Phil. First one is on partnerships. I think it's been mentioned in the past a few times that there's sort of plenty more opportunities in the hopper. I wonder if you could just sort of comment on sort of how you see them sort of coming through to fruition. Does the sort of the role that you're now on in terms of commercial partnership deals signed this year, does that help with other partners in terms of speed of getting on, if you like?
And just on that, you mentioned, I think it was about a year ago, sort of in terms of a global infrastructure for Ceres and with respect to sort of stack and system partnerships, I think you said something in the order of sort of five to six stack partnerships, potentially globally, is a reasonable number, supporting perhaps twenty to thirty long-term system partners. Is that still a sort of configuration that you see, sort of medium to longer term? And in terms of the hopper, if you like, is the build-out sort of progressing towards that, if you like?
I'm not gonna comment on the hopper because it's very difficult to forecast. If you think about the kind of deals that we do, these are major corporate development type deals, and we've always guided, you know, if we. A way to think about this is if we do one major manufacturing licensed partner a year, the cash burn of this business is pretty low, and we're building that market share, and we wanna be, you know, we wanna have the biggest market share in solid oxide. If in any year we get two partners, this business is more or less cash break even. You know, and I think people need to get their heads around this, is this is a very asset-light model that we have. So that's the way we look at it.
Now, it's very hard to predict when we get these major deals. A bit like London buses, you might not have one for a while, and then you might get three at once. So I'm not gonna be drawn on that because, you know, it creates a bit of an issue for the business. But in terms of the opportunity, we expect more end users than manufacturing licensed partners. Actually, what we're seeing now is, depending on incentives and national policy, you can start to see localization of manufacturing, and we're nowhere near, nowhere near the capacities that the market could sustain. So I think we're gonna look at this both on the EC and the FC side going into the future.
But for this year, you know, we've already contracted sufficient to give us the confidence on the upgrade to the guidance we have, but we obviously continue to chase partnerships and chase license deals all the time. That's what we do.
Cool. Okay, thanks. Second question. On the SOEC side, you've referenced obviously key markets that you're targeting or your partner's targeting: steel, ammonia, e-fuels, et cetera, et cetera. With respect to sort of timing of the maturation of the technology-
Mm-hmm
... and getting the end user customers, and it's obviously your partners' end user customers in terms of those steel manufacturers, the ammonia producers, the e-fuels producers. Obviously, you've got your test happening, commissioned or commissioning now in India with Shell, which I presume will produce some, you know, some meaningful results.
Yeah.
Obviously, Shell's a really solid sort of partner in the refining market and other markets. Question is, I suppose, with respect to the other technologies that are out there in the market. You've got the mature alkaline. You've got PEM obviously doing its thing. You've got AEM sort of doing bits and pieces-
Yeah
... at smaller scale, and you've got one or two other solid oxide players. What's the sort of speed with which you can foresee these trials, the sort of 1MW turning into 10MW , turning into a sort of slight thing, and then getting into steel plants of maybe 20-50MW scale, then going into the hundreds? Sort of how do you see the maturation and in terms of the, sort of deployment in real world, you know.
Yeah
... hard to evaluate, sectors?
I think that's a great question. I think what we're doing is we're doing things in parallel. So, you know, really, the megawatt scale demonstrator is really a test base that we can do lots of things with, with a partner like Shell, and we can also share that data with other partners like Bosch, Linde, and others. Some of the images you saw in the slide deck are the pressurized modules, which we're intending to have, you know, on test by the end of next year. And again, that'll give us a whole other level of technology, and that's moving quite quickly.
So while we're, you know, building and testing the first of a kind, we've already through partnerships, through the voice of the customer, like Shell, through the work with Atkins, working on the next generation of this technology. Now, what you say about maturity is key. I think a few years ago, everybody was saying, "Well, the hydrogen market's gonna go so fast, that if you're not in the market already, you're gonna miss it, and it's all gonna be alkaline and PEM." We've seen a major slowdown in the rollout of that. Maybe that's not bad for solid oxide technology. What we're also seeing is when end users look at the business case, the business cases for solid oxide with the thermal integration is so compelling that they want to pull this technology through.
Now, the people who are licensing at the moment, you could say, are early adopters, because it hasn't been deployed at scale, but they're still very credible organizations like DENSO, like Delta. I think once we actually get to those proof points on maturity, then you'll get some fast followers, and that's where I think the hopper point that you asked about earlier can start to probably accelerate a bit on the electrolysis side. But I think we have work to do on the technology side to demonstrate the maturity. Now, that maturity, don't forget, is built upon the 20 years or so that we've invested in the FC technology, because this is, broadly speaking, the same cell and stack technology.
So we have a really strong starting point, and I think that's enabled us to go, I think, relatively rapidly into this market from a standing start of just three years ago. So I think the timeline, if you look at, Delta, Denso, et cetera, you're probably talking about 2027, 2028 onwards, where you start to see solid oxide, I think, being in that scale. But already we're talking about, well, how do you demonstrate this at, at 10MW blocks? Because if once you have the 10MW blocks, then it's very easy to go 10- 100GW . So it's modular. It's very modular, like I said.
Hi there. James Carmichael from Berenberg. Just a couple from me. So just on the Delta agreement, I guess you're sort of nine months into that now. Can you provide any color on how it's progressing, just in terms of tech transfer? Are there any sort of additional challenges of having both the SOEC and SOFC involved in that? And obviously, I think you mentioned they're still on track for sales in 2026. Coming back to Bosch as well, I know you can't sort of speak for them specifically, but progress on the SOFC side is a little bit slower than maybe we hoped. But they're obviously still very engaged on the SOEC side.
Just wondering if you're seeing a bit of a shift in emphasis in Bosch, maybe towards electrolysis over the fuel cell market. And then lastly, maybe just quickly for Eric. I guess given the Denso deal that came in in July, I think, what's the sort of gross margin outlook for the year, essentially?
Okay, so taking those in order, on the Delta side, the technology transfer has gone extremely well. And it gives you an insight into how we do this. We had a very large delegation from our Taiwanese partner, living in Horsham for about three months, which is quite an interesting dynamic. And interestingly for us as well, we had some of the, you know, world-class manufacturing people that they have, who operate plants in Taiwan, China, and everywhere else, and looking at levels of automation, et cetera, that go far beyond what our limit is, et cetera. So I think it's gone very well. It's on track. In terms of the FC versus EC side, that's their domain in terms of their system development.
But at the manufacturing cell and stack level, it's the same. Same factories will service both. So I don't think there's any additionality issues there. On Bosch, the question on Bosch. I'm not seeing any diversity of thinking on moving from FC to EC. I think what we've seen on the fuel cell side in the past few years with the Ukraine situation has been a bit of a cooling in Europe towards natural gas-based power products, et cetera. However, I think, as I said, the trend globally is somewhat different. So I still think the FC side is the main priority for Bosch right now.
If you go on their website and you see the deployment, the testing that they're doing, it's on the FC side to date. The EC side is a new initiative, which again, we will test with Bosch in conjunction with Linde, and that will follow, but FC is the main priority.
Your third question about outlook for gross margin for the year. So on the back of the Denso. So the Denso arrangement, similar to Delta, will involve tech transfer at this half, so that significantly supports both the revenue underpins the full year guidance, but also provides high gross margin. It's worth noting, though, also in the second half, there will be a high component of stack shipments to support existing partners. You'll see the balance sheet at the end of June this year, there's an increase in inventory to support that. So the mix will be different, even though there's still a high component of technology transfer, license fee income. So the second half gross margin, while still high, be less than the first half. So for the full year, you're looking in the range 75%-80%.
Still very high, but not as high as the first half.
Skye Landon with Redburn Atlantic. You've got four manufacturing partners across EC and FC now, which means that there's four companies out there developing equipment based on your technology, which is great. But going forward, does that change your conversations that you're having with potential new customers around how they're thinking about entering the market? Are they worried by the fact that their new products would be competing with existing technology that's already out there in the market? And does this mean that you need to be more selective with partners going forward? And then secondly, just more of a clarification on the GBP 50-60 million revenue guidance. Is this a total revenue guidance for the year, including any new partnerships, or is this more of an underlying guidance from existing partnerships? Anyway, thanks.
Do you want to talk to the guidance first?
Yeah, sure. No. So, yeah, thanks for the question. So the revenue guidance is based on the existing contract base, including Denso. So any material new contracts would be upside to that. At that point in time, that's the right range, so supported by contracts.
On your question about manufacturing partners. Again, you have two sides to this. One is, I think people are coming to Ceres because of the company that we keep. So, you know, the quality of our partners means that if you're serious about solid oxide, and you're wondering, how do you do due diligence on this? Does it scale? Can it be mass-produced? Can it be done at cost? Is there a supply chain? Then you kind of look beyond Ceres to our partners and go, "Okay, that's... or if it's good enough for Bosch, it's good enough for Denso, they know what they're doing. It's good enough for Delta." So that effect is starting to happen, and, you know, early adopters, fast followers, I think that is there.
Now, so then you get a little bit of, well, do they wanna compete necessarily with some of those high-quality partners? We have been somewhat selective or self-selective because let's be honest, if you're gonna enter this market, you need very strong balance sheets. So the self-selection tends to be Fortune 500 -type global mass manufacturers. A lot of those guys are not necessarily intimidated by some of the competition, but I think what you start to see is this regional effect as well, which is, for example, Denso operating in Japan is covering potentially a slightly different market than, say, Bosch would in Europe, and again, have different licenses at this time. Delta in Taiwan obviously have an outlook that goes far beyond Taiwan into Southeast Asia and globally.
So I think there's room for more of these Fortune Five Hundred-type mass manufacturers globally. Can they coexist with some of our existing ones? Yes, I think they can, but they need to be of a similar caliber. I think is the key.
Any more questions from the room? No. Perhaps, Patrick, I'm gonna hand back to you just to take any online questions that have come through.
Thank you, Mark. We have time for one or two questions, I think. Just picking up on that point, Phil, can you confirm what level of exclusivities manufacturers may have, if any? Is there anything on a country-by-country or regional basis?
We don't have any exclusivities with manufacturing partners on cell and stack, so we tend to operate on a non-exclusive basis, because once you start to grant exclusivities, we limit the scope of the business, and it starts to get very difficult in how you actually write these license agreements because you start to have to have carve outs, so our standard is a non-exclusive basis.
Great. Thank you. A couple of financial ones for you, Eric.
Yep.
Firstly, in a typical license deal, when do you expect to receive cash compared to the timing of revenue recognition? So is there a difference there? And secondly, do you have any thoughts about when the business might become EBITDA positive?
Yep, on the first one, of course, the accounting standard for revenue recognition, IFRS 15, dictates that we recognize revenue, as we perform on our obligations. It doesn't necessarily tie with the cash receipts. But so it varies by contract, and you can see the movements and the difference on the balance sheet with contract assets and liabilities. So that's the effectively accrued and deferred revenue, but it broadly follows. So for example, a typical license is a significant element of upfront technology transfer, and we'll have invoicing milestones and payments that are broadly consistent with that. The timing obviously vary, and there's payment terms, but it's broadly consistent. Similar with development license and engineering services, the cash flows and billing milestones broadly follow the revenue recognition with some timing differences.
Hardware is more straightforward. We invoice on shipment. So there'll be some catch up on any given period end, on between cash and revenue. In fact, some contracts we get in cash ahead of revenue, so deferred income, and some it's the, we're getting, the revenue ahead of the cash, accrued revenue. It depends, but it is broadly consistent with rev rec.
... in, and the second question on EBITDA positive. Not gonna give any medium-term guidance, but as Phil said, with the current revised optimized cost base, in a year where you get two material stack license partners, we should expect to be broadly profit breakeven.
Thank you. A couple for you, Phil, on government policy. So has the new Labour government given any financial incentives towards electrolyzer production in the UK? And what sort of incentives would be helpful for Ceres, and how is the company engaging with government to try and make this happen?
I think to answer the first part, not yet. I think it's too early to say. What would help, I think, is government support, not just in terms of looking at the U.K. in terms of, you know, offtake for hydrogen in the U.K., but actually look at the business opportunity that companies like Ceres represent. If you look at this industry and you think it's a trillion-dollar industry, all our licensed partners see clearly a big business opportunity. They don't see a cost, they see an opportunity, and I think in the U.K., we need to start thinking that way, which is: What's the next industry for growth in the U.K.? If clean energy, clean tech is gonna be part of that, we've got some world-class companies here in the U.K., which the government should get behind, I think.
So any help that they can give towards R&D, manufacturing scale of these businesses would be very, very well appreciated. We're seeing this happening elsewhere. You know, we're seeing it with IPCEI funding in Europe, IRA funding in the U.S. I talked about Japan, talked about India. We indirectly benefit from other countries' government policies because of our licensing model. So when we license technology to, you know, our partners, they are often also benefiting from local government support. But that's because of our business model. Without that, I think the U.K. is in danger of being disadvantaged, because proactively, other countries see this as being strategically important for them. So I think the U.K. needs to also follow suit and make these companies strategic areas of investment for the U.K. going forward.
Thank you. Final questions are really around electrolysis. So, can we offer any insight as to why Denso only chose to take out an SOEC license? Do they have any activities in SOFC? And then finally, have any of our partners booked firm orders for electrolyzers?
I think it all depends on the business case and opportunity that our partners are looking at. So with DENSO, they're clearly focused on, as I mentioned, that green hydrogen opportunity in Japan. I can't... Again, I can't talk for those people, but if you start to look on their public material, you start to see the arrangements they've got in place with off-takers and some of the business that they're starting to target. So they're all publicly traded companies. You can see that for yourselves. So I think, what was the second part of the question?
Have any of our partners booked firm orders for electrolyzers?
I think at this stage, that's too early to say. I think when they do, it's up to them whether they disclose that.
That's great. Thank you very much indeed, Patrick. Eric, Phil, thank you very much indeed. I'm shortly gonna redirect those online to give you their feedback, but perhaps before doing so, just ask you for a couple of closing comments.
Yeah, certainly. Look, I think today we've presented a very strong set of results. We're very proud of these results. I think it's a testament to the hard work that the organization, the wider business, has put in over the last few years. And I think we're starting to see an emergence, a very strong emergence from the last few years for Ceres, and I think the industry opportunity is very significant going forward. So I think we're looking forward to the full year and beyond, and our job here is to position Ceres for, from a position of strength to really grow, and I think that's what we're talking about here.
I'd also like to thank Avik, because we are going through a transition at the CFO, so this will be Avik's last interim results, and we also have Stuart Painter here in the room today, introducing our new CFO. We're excited to have Stuart on board, and there'll be a very smooth transition and hand over there as well. Thank you to Avik as well.
That's great. Thank you, Phil, Eric, Patrick, for updating investors. We'll now redirect those online to provide their feedback. Good morning to you all.