Ceres Power - fuel cells

The fuel cells business recorded revenues of £10.6 million (H1 2022: £9.7 million) and a gross profit of £6.3 million (H1 2022: £4.7 million), with the year-on-year revenue increase reflecting the progress made with our commercial partners as they work toward scaling manufacture in Germany and South Korea.

In July, the stationary power SOFC system being developed by our partner Bosch received European funding of ~€160 million following its designation as an IPCEI aimed at developing an integrated hydrogen economy in Europe. The EU funding is to enable the mass production of Bosch 'Power Units', utilising Ceres' stack technology, with the aim of strengthening innovative capacity, global competitiveness and creating new jobs in Germany.

Construction of Doosan's 50MW factory in South Korea is complete.  All machinery and processes have undergone factory acceptance testing, installation on site is underway, and factory commissioning is on track for H2 2024.  Doosan is also pursuing the market for maritime power using SOFC technology, the operation of which meets the International Maritime Organization's regulations to achieve the 2050 GHG reduction goals. It has an ongoing programme with Shell and Korea Shipbuilding & Offshore Engineering for auxiliary propulsion and is seeking to launch its first marine fuel cell (using Ceres' stack technology) in 2025.

Ceres Hydrogen - electrolysis

Earlier this year, we announced significant initial results from the testing of our first 120kW electrolyser modules, providing confidence that the technology can deliver green hydrogen at <40kWh/kg, around 25% more efficiently than incumbent lower temperature technologies. The team is now working on the next SOEC product concept for a 2-3MW modularised system, which would facilitate larger scale installations. You can hear the team talking about our SOEC technology, programmes and partners from the Technology Teach-in held in June via the investor section of the Ceres website https://www.ceres.tech/investors/presentations/.

Meanwhile, the first-of-a-kind megawatt-scale electrolyser is undergoing commissioning and testing at AVL in Germany, in preparation for deployment later in the year to Shell's R&D 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, which has a significant role to play in harder-to-decarbonise industrial sectors.  It also allows for future generations of technology to be tested. 

In March 2023, we signed contracts with Linde Engineering and Bosch to start a collaboration to validate the performance, cost, and operational functionality of our SOEC technology. The companies are preparing a two-year demonstration of another megawatt class SOEC system, starting in 2024 and to be located at a Bosch site in Stuttgart, Germany. Its aim is to showcase that the technology provides a highly efficient pathway to low-cost green hydrogen.

Our electrolysis business has recognised revenues of £0.7m (H1 2022: £nil), which relates to early-stage evaluation contracts with prospective partners.

Focused investment for the future

The first six months of 2023 saw continued investment into people and capabilities to deliver our technology roadmap and drive future growth. Our highly skilled employee base grew as planned, with 586 people employed as at 30 June 2023 compared to 570 as at 31 December 2022. Recruitment will level off as we reach critical mass and fully resource the core business activities for SOFC and SOEC.  Additional growth will be to support new customer programmes.  Research and development expenditure increased by 27% to £26.7 million as planned progress is made with both the expansion of our SOFC business and development of our SOEC business.

Capitalised development costs in the period, which only relate to ongoing SOFC development, increased to £3.4 million compared to £2.9 million for H1 2022.  We have capitalised £16.2 million to 30 June 2023 (31 December 2022: £13.3 million). Amortisation of this to the income statement was in line with the prior period being a charge of £0.5 million (H1 2022: £0.5 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 continued expanding and upgrading our Redhill manufacturing capacity for prototype production of the next generation of our SOFC cell and stack technology. As a result, our committed investment in property, plant and equipment was £4.7 million in H1 2023 (H1 2022: £5.5 million) and depreciation charged increased to £3.4 million compared to £2.6 million in H1 2022.

Overall, this focused "investment in the future" (R&D costs, capitalised development and capital expenditure) increased by 19% to £30.6 million (H1 2022: £25.7 million). The £30.6 million comprises £22.5 million (H1 2022: £17.3 million) in R&D (excluding depreciation, amortisation and share-based payments), £4.7 million (H1 2022: £5.5 million) in capital expenditure and £3.4 million (H1 2022: £2.9 million) in capitalised development.

As a result of these investments, increased amortisation and depreciation, and other operating income of £1.6 million (H1 2022: £0.5 million) primarily relating to RDEC tax credits, the Group reported an increased operating loss of £28.5 million in H1 2023, up from a loss of £25.5 million in H1 2022.

Strong financial position: the foundation for continued development and growth

The Group ended the period with a strong cash position of £161.2 million in cash and investments as at 30 June 2023 (31 December 2022: £182.3 million), with the decrease since 31 December 2022 reflecting the investment in the period and is in line with our plans to invest for future growth and further expansion into electrolysis. 

Interest income (on an accrual basis) on cash, cash equivalents and investments increased to £2.8 million (H1 2022: £0.7 million) due to improved interest rates on money market funds and short-term investments.

Equity free cash outflow (defined and reconciled to net cash from operating activities at the end of this report) reduced by 24% at £21.8 million (H1 2022: £28.6 million), being driven by net cash used in operating activities of £15.5 million (H1 2022: £20.6 million) reflecting the Group's operating loss in the period, capital expenditure (net of disposal proceeds) of £4.6 million (H2 2022: £5.5 million), capitalised development of £3.4 million (H1 2022: £2.9 million), net interest receipts of £1.8 million (H1 2022: £0.2 million) and exchange rate movements. Movements in working capital included a £2.0 million decrease in inventories (H1 2022: £4.0 million increase), reflecting stacks shipped in the period and used in internal R&D projects, and a £3.6 million decrease in trade and other receivables (H1 2022: increase of £2.8 million) following the successful receipt of outstanding trade receivable balances in the first half of 2023.

Order Backlog as at 30 June 2023 was £61.1 million (31 December 2022: £67.8 million).

Main Market and Board

In June this year, we graduated to the Main Market of the London Stock Exchange and, as of 18 September, joined the FTSE 250 index. This follows almost 20 years on the Alternative Investment Market ("AIM"). Being on the Main Market with a Premium Listing enables Ceres to access new pools of investment and build greater international appeal.

We already operate to high levels of governance and this year we welcomed Karen Bomba and Caroline Brown as Non-Executive Directors. They each possess extensive business and sector knowledge as well as experience in growing teams to support international expansion. Their skills and perspectives are highly relevant to Ceres as we mature the business and continue to scale our partnership model globally.

Professor Dame Julia King, Baroness Brown of Cambridge, also assumed the position of Senior Independent Director succeeding Steve Callaghan who stepped down from the Board after 11 years' service.  Julia has served on the Ceres Board since June 2021. She brings huge experience across industry, academia and government and a focus on climate change and the low carbon economy, which has been hugely valuable in the progression of the Company's sustainability strategy as Chair of the ESG Committee.

The company would like to thank Steve for his outstanding contribution over many years seeing the company through a difficult turnaround in 2012 to positioning it to the FTSE 250 and to whom we owe a great deal.

Outlook

The business is continuing to make strong progress in award-winning green hydrogen technology following the significant investment we have made in this area over the past two years and our first demonstration at a megawatt-scale will be a major proof point for the business. We expect SOEC will grow to become the largest part of the business in the second half of this decade and we are building our technical and commercial offering to address this market.

As flagged in our recent trading update, the timing of the establishment of the China JVs with Bosch and Weichai, and the associated revenue, remains uncertain. We continue to make good progress in other areas of the SOFC business particularly in our partnerships with Bosch and Doosan.

The revenue for the full year will be impacted by the China JVs as already flagged in our recent trading update, and full-year numbers will depend on the timing of securing new licence partners.

Despite what has been a challenging market backdrop over the past 12 months, we are approaching an important time for the business as we scale manufacturing and new developments in our first megawatt-scale deployment of SOEC, and our core cell, stack and systems come to fruition.  I have confidence that the investments we have made in the business, and the level of interest we are now seeing from new and existing partners, position us well to exploit the significant future global market for clean power and green hydrogen.

Responsibility Statement

The directors confirm that to the best of their knowledge:

·      the condensed set of financial statements has been prepared in accordance with UK adopted IAS 34 'Interim Financial Reporting'; and

·      the interim management report includes a fair review of the information required by DTR 4.2.7 (indication of important events and their impact, and a description of principal risks and uncertainties for the remaining six months of the financial year) and DTR 4.2.8 (disclosure of related parties' transactions and changes therein).

The full list of current Directors can be found on the Ceres website at https://www.ceres.tech

Philip Caldwell

Chief Executive Officer

CONDENSED CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2023

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

¹ The results for the 6 months ended 30 June 2022 have been re-presented to reflect the re-classification of the Group's RDEC tax credit of £610,000 to align to the change in presentation applied for the Group's 2022 full year results. This was previously disclosed within cost of sales but is now presented within other operating income. The Group's RDEC tax credit for the 6 months results to 30 June 2022 has also been restated to decrease the credit by £313,000 following the adjustment of prior year R&D tax credit claims. See Note 1 for details.

² Other operating income relates to grant income and the Group's RDEC tax credit.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2023

1.     Basis of preparation

The unaudited condensed consolidated interim financial statements have been prepared in accordance with UK-adopted International Accounting Standard 34 'Interim financial reporting' (IAS 34). 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 2022 which were prepared in accordance with UK adopted international accounting standards. The interim financial statements have been prepared on a historical cost basis except 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. The consolidated interim financial statements are presented on a condensed basis as permitted by IAS 34 and therefore do not include all disclosures that would otherwise be required in a full set of financial statements.

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 2022, 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 2023 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.

To reflect the presentation adopted by the Group in the preparation of the 2022 consolidated financial statements, the Research and Development Expenditure Credit ("RDEC") tax credit within the consolidated statement of profit and loss has been re-classified. The RDEC tax credit was previously presented within cost of sales and is now presented within other operating income. Prior year comparatives have been re-presented accordingly. The impact of this change was to increase cost of sales and other operating income for the six months ended 30 June 2022 by £0.6m.

Further, the June 2022 results have been restated to reflect an adjustment to R&D tax credit claims for certain costs which were inadvertently claimed in 2019 and 2020 under the Small and Medium-sized Enterprise (SME) R&D tax credit schemes, whereas they should have been claimed at a lower claim rate under the RDEC scheme. As a result, accumulated losses as at 1 January 2022 have been restated accordingly resulting in an increase from £153,088,000 to £154,056,000. At 30 June 2022 the taxation credit and other operating income has also been restated to increase the tax credit from £896,000 to £1,908,000 and reduce other operating income by £313,000. Further details are set out in Note 6. Other receivables as at 30 June 2022 have been restated from £3,503,000 to £4,264,000, and current tax receivable as at 30 June 2022 has been restated from £4,416,000 to £3,386,000 to reflect the adjustments of prior year R&D tax claims.  

Going Concern

The Group has reported a loss after tax for the six months period ended 30 June 2023 of £26.4m (six months ended 30 June 2022: £22.6m) and net cash used in operating activities of £15.5m (six months ended 30 June 2022: £20.6m).  At 30 June 2023, the Group held cash and cash equivalents and investments of £161.2m (31 December 2022: £182.3m).  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 continued investment in R&D projects and further expansion of our manufacturing and testing capacity, together with contracted and anticipated customer contracts and the planned investment in the China collaboration with Bosch and Weichai which is not expected to occur until 2024. The projections were stress tested by applying different scenarios including the loss of significant future revenue and continued adverse macroeconomic factors as well as a scenario where the Chinese JV does not progress at all. 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 2022.

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

Comparatives for the six months ended 30 June 2022 are provided separately below: