News alert from Ceres

1. Adjusted EBITDA loss is an Alternative Performance Measure, as defined and reconciled to operating loss in the non-GAAP section at the end of this report.

2. Adjusted EBITDA by segment is reconciled to operating loss in Note 3.

Analyst presentation

Ceres Power Holdings plc will be hosting a live webcast for analysts and investors on 22 September 2022 at 09.30 BST. To register your interest in participating, please go to:https://www.investormeetcompany.com/ceres-power-holdings-plc/register-investor.

For further information visitwww.ceres.techor contact:

About Ceres Power

Ceres is a world-leading developer of electrochemical technologies: fuel cells for power generation, electrolysis for the creation of green hydrogen and energy storage. Its asset-light, licensing model has seen it establish partnerships with some of the world's largest engineering and technology companies, such as Weichai in China, Bosch in Germany, Miura in Japan, and Doosan in Korea, to develop systems and products that address climate change for power generation, transportation, industry, data centres and everyday living.  Ceres is listed on the AIM market of the London Stock Exchange ("LSE") (AIM: CWR) and is classified by the LSE Green Economy Mark, which recognises listed companies that derive more than 50% of their activity from the green economy.

Chief Executive's Statement

Ceres' purpose is to develop the technologies that the world needs to decarbonise and bring them to market at the scale and pace needed to help global energy systems transition to a net zero carbon future.

We are proud to be a British business that exports technology globally through collaborations with some of the world's most progressive companies building manufacturing facilities in Germany, South Korea and now a third planned factory in China. Our aim is to enable multi-gigawatts of capacity producing hydrogen and fuel cell technologies to decarbonise the hard-to-abate sectors of the energy system and in the process build a sustainable business that delivers long-term benefits for our people and shareholders, our communities, and our planet.

I am pleased to report that in the first half of 2022 we have continued to invest capital focused on scaling our technology for use in multiple applications and geographies. We have accelerated the development of our fuel cell business (SOFC) with global partners, enabling major expansion of our electrolysis activities (SOEC) by signing a new partner in Shell, and strengthening the management and wider Ceres team to address the substantial market opportunities that exist for our clean energy technology. 

The Group reported revenues and other income of £9.9 million for the first six months of 2022 (H1 2021: £17.4 million), all related to the fuel cell business. The decrease when compared with the prior period primarily reflects the significant licence revenue recognised in H1 2021 on our contract with Doosan and accordingly gross margins reduced to 55% (H1 2021: 72%), also impacted by the higher proportion of licence fee revenue recognised in the prior period.  As we have stated in previous results announcements, gross margin percentage will vary period on period based on timing and quantum of licence revenue recognition within the overall revenue mix.

As noted in our recent Trading Update, the phasing of revenue in 2022 and early 2023 is highly sensitive to the timing of the establishment of the China JVs, where Ceres, Bosch and Weichai are making good progress towards definitive agreements. The collaboration represents an important milestone in Ceres' ambitions for the Chinese market and it is a critical part of delivering global manufacturing capacity for our technology, with the potential to establish one of the strongest partnerships in the global fuel cell industry. We are confident that the JV agreements will be signed in Q4 but because of the various approvals required before the JVs themselves can be established, it is therefore expected that initial licence fee revenue recognition will be in the first half of 2023.

The world around us continues to transition towards a sustainable green economy, driving increasing demand for clean energy technologies. The current geopolitical instability in Europe has only served to push energy security firmly up the political agenda and the rising costs of fossil fuels is adding another tailwind to the urgency for decarbonisation of our energy system. 

In July, thestationary powerSOFC systembeingdeveloped by our partner Bosch wasapprovedby the European Commission asoneof thefirst Important ProjectsofCommonEuropeanInterest (IPCEI) aimed at developingan integrated hydrogen economyin Europe.  Bosch's SOFC programme is now eligible for state funding on the basis of this approval under state aid law aimed at strengthening innovative capacity, global competitiveness and creating new jobs in Germany. In Germany, more than eight billion euros in funding is available for the development of hydrogen and other green technologies.

In South Korea, the market has received a further boost from a new Clean Hydrogen Portfolio Standards bill that passed in May 2022, stipulating that a certain percentage of electricity provided by electric companies must be produced from hydrogen.  The existing portfolio standard has also been amended so that by 2026, 25% of energy supplied in South Korea must derive from renewable energy, with incremental increases every year thereafter.

Over the summer, President Biden signed into law the Inflation Reduction Act, which includes $369 billion of funding over 10 years to promote the transition to cleaner energy.  The largest investment commitment in clean energy in US history, it includes various elements that specifically support hydrogen and fuel cell businesses including tax credits for green hydrogen, credits for renewable energy and biogas production, and financial support for companies demonstrating technologies that can help decarbonise heavy industry, agriculture, and shipping.  These are all areas of the energy system where Ceres' technology can play an important role, and we have seen an increase in enquiries from the US and continue to explore opportunities with potential US partners.

Ceres Power - fuel cells

Ceres has established a leading position in solid oxide fuel cell technology that is being demonstrated in several applications through global partners. Our focus now is meeting growing demand for higher-power systems and broadening applications for use in hard-to-decarbonise sectors such as marine.

All revenues in the first half of the year are derived from the SOFC part of the business.  This recorded a gross profit of £5.3 million (H1 2021: £12.2 million), reflecting lower revenue following the significant revenue recognised on the Doosan contract in the comparative period, and an increase in adjusted EBITDA loss to £10.2 million (H1 2021: £0.4 million).  Investment in research and development for SOFC increased by 26% to £13.2 million (H1 2021: £10.5 million).

We continued to accelerate investment in the first half of the year in areas such as research and development, capability of our CP2 pilot production facility, and test stand capacity including signing and outsource agreement with Horiba Mira.  In line with our strategy, there will be continued investment in SOFC to support future expansion.  The level of losses or future profitability of this part of the business will continue to be highly influenced by the level of SOFC licence fee revenue recognised in each period, until royalty revenue streams become material.

Our partners Bosch and Doosan are both targeting 2024 for the scale up of manufacturing capabilities to 200MW and 50MW of SOFC capacity, respectively. In August, Doosan raised approximately £44 million and confirmed that half would be used to build a new plant in South Korea for the mass production of solid oxide fuel cells to meet the rising demand from the hydrogen-energy market.

The three-way collaboration in China with Weichai and Bosch would represent our third manufacturing location following Germany and South Korea, and another major step towards enabling multi-gigawatt capacity of our technology globally.

Ceres Hydrogen - electrolysis

In SOEC, we are now investing in a potentially even larger addressable market for electrolysis through a differentiated offering for hydrogen with distinct advantages in efficiency, coupling with industrial processes that are high emitters of carbon dioxide today. Our SOEC business showed an adjusted EBITDA loss of £10.3 million (H1 2021: £4.1 million), reflecting increased research and development activities, including the initial costs of producing our first 1MW demonstration unit.  Investment in research and development for the SOEC segment increased by 100% to £7.8 million (H1 2021: £3.9 million).

Ceres has committed £100 million for the further development of its SOEC technology - with the aim of producing highly efficient, low-cost green hydrogen.   According to BloombergNEF's recent report, "Ukraine War Makes Green Hydrogen Competitive", grey hydrogen produced from fossil fuels has reached a levelised cost of $6.71/kg in the EMEA compared to $4.84-6.68/kg for green hydrogen - nearly removing the premium for newer, cleaner technologies. The International Energy Agency estimates the capacity of electrolysers needed by 2050 at 3,585GW, compared to cumulative installations today of just 1GW. It is no longer a question of credibility of the technology, but more a question about the scale and pace of deployment.

Ceres aims to produce hydrogen at efficiencies around 20% greater than other technologies, in the range of 85 - 90% where it is possible to make use of waste heat in industrial processes to drive this higher efficiency.  We are making progress with our SOEC development programme and have our first Electrolyser Cell Module (ECM) on test. We are making good progress on the "first-of-a-kind" system build and will integrate the ECMs into the container system to start testing in the early part of 2023.

In June 2022, we signed an agreement with Shell to deliver a megawatt scale SOEC demonstrator in 2023.  The system will be installed at Shell's research and development technology centre in Bangalore, India, where the hydrogen will be used in industrial processes on site. The testing programme is intended to run for at least three years, forming the first stage of a collaborative relationship.  Shell and Ceres are building this partnership to utilise SOEC technology to deliver high-efficiency, low-cost green hydrogen; now widely viewed as a credible route to decarbonise hard-to-abate parts of the energy system that rely on fossil fuels today.

Focused investment for the future

The underlying theme across both segments of the business for the first six months of 2022 continues to be investing to drive innovation and future mass market uptake for these technologies. Consistent with the capital raise in 2021, the investments we are making include both capital investments and investment in strategic resources in both SOFC and SOEC capabilities. Overall, our employee base grew as planned, with 523 people employed as at 30 June 2022 compared to 489 people as at 31 December 2021. Research and development costs increased by 46% to £21.0 million compared to H1 2021 largely due to the additional investment in SOEC. 

Capitalised development costs in the period, which only relate to ongoing SOFC development, increased to £2.9 million compared to £1.6 million for H1 2021 and we have capitalised a net £10.9 million to date (31 December 2021: £8.5 million). Amortisation of this to the income statement was consistent with the prior period, with a charge of £0.5 million recorded (H1 2021: £0.6 million).

As planned, we have continued the expansion of our test capability to support demand from our partners, and to cater for additional market opportunities including SOEC and SOFC applications such as marine and alternative fuels. We have also invested in expanding our manufacturing capacity for prototypes and demonstrators for both SOFC and SOEC products. As a result, our investment in property, plant and equipment increased to £5.5 million in H1 2022 (H1 2021: £3.6 million) and depreciation charged increased to £2.6 million, compared to £1.9 million in H1 2021. We expect this capital investment to accelerate in the second half of 2022.

Overall, this focused "investment in the future" (R&D costs, capitalised development and capital expenditure) increased by 56% to £25.7 million (H1 2021: £16.5 million). The £25.7 million comprises £17.3 million (H1 2021: £11.3 million) in R&D (excluding depreciation, amortisation and share-based payments), £5.5 million (H1 2021: £3.6 million) in capital expenditure and £2.9 million (H1 2021: £1.6 million) in capitalised development.

As a result of these investments and increased amortisation and depreciation, the Group reported an increased operating loss of £25.2 million in H1 2022, up from a loss of £7.6 million in H1 2021.

Strong financial position: the foundation for continued development and growth

The Group ended the period with a strong cash position of £221.6 million in cash and investments as at 30 June 2022 (31 December 2021: £249.6 million), with the decrease since 31 December 2021 reflecting the investment in the period and is in line with our plans to invest for future growth following last year's capital raise. 

Equity free cash outflow (defined and reconciled to net cash from operating activities at the end of this report) was £28.6 million (H1 2021: £18.7 million), being driven by net cash used in operating activities of £20.6 million (H1 2021: £13.2 million) reflecting the Group's operating loss in the period, capital expenditure of £5.5 million (H1 2021: £3.6 million), capitalised development of £2.9 million (H1 2021: £1.6 million) with the balance from interest payments and exchange rate movements. Movements in working capital included a £4.0 million increase in inventories (H1 2021: £0.9 million) primarily reflecting a higher balance of fuel cell stacks being held at the period end to satisfy customer demand for our technology hardware.  

Order Backlog (combining what was previously described as "Order book" and "Pipeline") as at 30 June 2022 was £76.2 million (31 December 2021: £79.8 million).

Board and Management Changes

In early 2022 we strengthened our management team with the arrival of Eric Lakin as Chief Financial Officer andDeborah Grimason as General Counsel and Company Secretary. Both bring fresh perspective to our existing, talented team and important experience from much larger listed businesses as we look to transition from the AIM listing to the Premium listing segment of the Main Market of the London Stock Exchange, which is expected to follow the signing of the China joint venture agreements.

On the Board, we welcomed Trine Borum Bojsen as Non-executive Director who brings over 25 years of experience from the renewable energy space. Trine joins another of our Board Directors Julia King, Baroness Brown of Cambridge, in supporting the ESG Committee as an adviser.

Strategic update

Ceres is a technology business, and our purpose is to develop the technologies that the world needs to decarbonise and bring them to market at the scale and pace needed to help global energy systems transition to a net zero carbon future. We are making good progress in enabling scale production of our technology globally with partners building manufacturing facilities in Germany, South Korea and now a third planned factory in China. Our investment in SOEC for green hydrogen and continued growth in SOFC for power systems enables us to significantly increase the addressable market for our technology and significantly grow the value of the business through future licenses and royalties. Our aim is to enable multi-gigawatts of electrolysis and fuel cell technologies to decarbonise the hard-to-abate sectors of the energy system and in the process to build a sustainable business that delivers long-term benefits for our people,shareholders, communities, and our planet.

Outlook

As explained in the "Current trading and outlook" section above, the expected timing of the recognition of the up-front licence fee revenue in relation to the establishment of the China JVs means that revenue in the second half of 2022 is expected to be at similar levels to the first half.  However, we expect strong revenue growth in 2023 as most of the £30 million licence fee revenue would be recognised on establishment of the JVs. 

We will continue to make use of our strong financial position in order to make targeted investments in SOFC and SOEC capability in line with our plans to grow the business and support the significant future demand for leading fuel cell and electrolysis clean energy technology.

Philip Caldwell

Chief Executive Officer

CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2022

The accompanying notes are an integral part of these consolidated financial statements.

¹Other operating income relates to grant income.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2022

The accompanying notes are an integral part of these consolidated financial statements. 

CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2022

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2022

Comparatives for the six months ended 30 June 2021 are provided separately below:

Notes to the financial statements for the six months ended 30 June 2022

1. Basis of preparation

The interim financial statements have been prepared in accordance with the requirements of the AIM Rules for Companies. They do not include all of the information required for full annual financial statements and should be read in conjunction with the annual financial statements for the year ended 31 December 2021 which were prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The interim financial statements have been prepared on a historical cost basis except that derivative financial instruments, which are stated at their fair value.

The interim financial information has been prepared in accordance with the recognition and measurement requirements of UK adopted international accounting standards and applicable law and regulations. The same accounting policies, presentation and methods of computation are followed in the interim financial statements as were applied in the Group's latest annual audited financial statements. While the financial figures included in this half-yearly report have been computed in accordance with international accounting standards applicable to interim periods, this half-yearly report does not contain sufficient information to constitute an interim financial report as that term is defined in IAS 34.

The financial information contained in the interim financial statements is unaudited and does not constitute statutory financial statements as defined by in Section 434 of the Companies Act 2006. The financial statements for the year ended 31 December 2021, on which the auditors gave an unqualified audit opinion, and did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006, have been filed with the Registrar of Companies.

The consolidated interim financial information for the six months ended 30 June 2022 has been reviewed by the Company's Auditor, BDO LLP in accordance with International Standard of Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity.

Going Concern

The Group has reported a loss after tax for the six months period ended 30 June 2022 of £23.3m (six months ended 30 June 2021: £6.5m) and net cash used in operating activities of £20.6m (six months ended 30 June 2021: £13.2m).  At 30 June 2022, the Group held cash and cash equivalents and investments of £221.6m (31 December 2021: £249.6m).  The directors have prepared annual budgets and cash flow projections that extend 15 months from the date of approval of this report. These projections include management's expectations of the cash flows associated with the Group's future investment in R&D projects and expansion of manufacturing and testing capacity, together with contracted and anticipated customer contracts and the planned investment in the China collaboration with Bosch and Weichai. The projections were stress tested by applying different scenarios including the loss of significant future revenue and continued adverse macroeconomic factors. In each case the projections demonstrated that the Group would have sufficient cash reserves to meet its liabilities as they fall due and to continue as a going concern. For the above reasons, the directors continue to adopt the going concern basis in preparing the financial statements.

Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.

In preparing the interim consolidated financial statements, the areas where judgement has been exercised remain consistent with those applied to the annual report and accounts for the year ended 31 December 2021.

New standards and amendments applicable for the reporting period

The Group has adopted all standards, interpretations amended or newly issued by the IASB that were effective in the period. Their adoption has not had any material effect on the consolidated financial statements.

2. Revenue

The Group's revenue is disaggregated by geographical market, major product/service lines, and timing of revenue recognition:

Geographical market

For the six months ended 30 June 2022, the Group has identified two major customers (defined as customers that individually contributed more than 10% of the Group's total revenue) that accounted for approximately 44% and 39% of the Group's total revenue recognised in the period (6 months ended 30 June 2021: two major customers that accounted for approximately 65% and 23% of the Group's total revenue for that period and 12 months ended 31 December 2021: three major customers that accounted for approximately 59%, 25% and 11% of the Group's total revenue recognised for that year).

Major product/service lines

Timing of transfer of goods and services

2. Revenue (continued)

Amounts transferred at a point in time during the prior periods included the recognition of significant license income in the first half of 2021 related to a major contract.

The contract-related assets and liabilities are as follows:

3. Segmental analysis

In accordance with IFRS 8 the method applied to identify reporting segments is based on internal management reporting information that is regularly reviewed by the chief operating decision maker, which the Group considers to be the Executive team. The Group's internal segmental reporting continues to separately reflect results down to adjusted EBITDA level from its Power (SOFC) and Hydrogen (SOEC) divisions.

¹Adjusted EBITDAis an alternative performance measure, as defined at the end of this report.

4. Operating costs

5. Finance income and expenses

6. Taxation

No corporation tax liability has arisen during the period (6 months ended 30 June 2021 and 12 months ended 31 December 2021: £nil) due to the losses incurred. A tax credit has arisen as a result of the tax losses being surrendered in respect of research and development expenditure.

7. Loss per share

8. Property, plant and equipment

'Assets under construction' represents the cost of purchasing, constructing and installing property, plant and equipment ahead of their productive use. The category is temporary, pending completion of the assets and their transfer to the appropriate and permanent category of property, plant and equipment. As such, no depreciation is charged on assets under construction.

Assets under construction consist entirely of plant and machinery that will be used in the manufacturing, development and testing of fuel cells.

8. Property, plant and equipment (continued)

Comparatives for the six months ended 30 June 2021 are provided separately below:

9. Right of use assets

9. Right of use assets (continued)

Comparatives for the six months ended 30 June 2021 are provided separately below:

During the six-month period ended 30 June 2021, the Group revised the expected term on one of its property leases, recognising an adjustment of £1,035,000 to reduce the right of use asset.

10. Intangible assets

The customer and internal development intangible primarily relates to the design, development and configuration of the Company's core fuel cell and system technology. Amortisation of capitalised development commences once the development is complete and is available for use.

Comparatives for the six months ended 30 June 2021 are provided separately below:

11. Inventories

Inventories have increased in line with the continued improvement in manufacturing capacity in the period and to ensure the Group can satisfy existing and anticipated customer demand for technology hardware.

12. Trade and other receivables

Included within other current receivables is the research and development tax credit of £1,551,000 (30 June 2021: £502,000; 31 December 2021: £1,304,000).

13. Other current assets

14. Net cash and cash equivalents, short-term and long-term investments