Friday, 18 March 2022

Ceres Power - Full Year Results

Ceres is currently an AIM-listed company but has plans to move to the main market later this year. It is a world leader in low cost, next generation fuel cell technology which can facilitate the transition to zero-carbon emissions. The technology can be used in a variety of applications - transport, industry, data centres and home heating.

Fuel cell technology is already a core component of energy strategies in Japan, Korea, Germany and the US. Ceres are working with global leaders such as Bosch to embed their technology in mass market products. The stationary global fuel-cell market is estimated to be worth over $40bn by 2030

Ceres Power joined my green portfolio at 427p in February 2020...just before the pandemic.

German engineering giant Bosch hold an 18% stake in Ceres and believe their steel fuel cell technology as potentially the best in the business. Bosch say the market for the fuel-cell power station could be worth €20bn by 2030. They plan to invest €400m in its solid oxide fuel cell business by 2024. Other partners include China's engines giant Weichai Power who hold a 20% equity stake.

The company has licence agreements signed up with four of the world's largest engineering and power companies including Japan's Miura and Doosan of S. Korea who are a global leader in the stationary fuel-cell market. Doosan are preparing the launch of their 10KW SOFC system using Ceres’ technology later this year.


The company has this week released results for the full year to end 2021 (link via Investegate).

Ceres is growing quickly. From just under £1m in 2015, they have increased revenues significantly in the past few years. Over the past 12 months revenues increased by 44% to £31.7m (2020 £21.9m). Just over half of this came from licence fee income which has doubled over the past year. Strong revenue growth is expected for the coming year subject to the timing of a new joint venture with Weichai and Bosch to establish manufacturing facilities in China.

Gross profits increased to £20.3m on a margin of 66% whilst cash has increased to £250m following a successful fundraising of 179m to push ahead with electrolysis for the production of green hydrogen.

Commenting on expanding the business, CEO Phil Caldwell said:

“Globally, industry accounts for 24% of carbon dioxide emissions and electrification is not a credible route to decarbonise many processes. For steel (accounting for 7% of global carbon emissions), ammonia and cement (2% each), hydrogen provides an economic solution to address parts of the energy system that cannot be directly electrified, where we rely on fossil fuels today.  We need to start working on these hard-to-abate areas now as they are significant problems with major infrastructure challenges.  

In early 2021, we took the decision to broaden the addressable market of the Company, moving into the production of green hydrogen using Ceres' technology through electrolysis. To do that we are committing £100 million to develop megawatt-scale, high-efficiency Ceres electrolysers.  Importantly, solid oxide electrolysers such as Ceres' aim to produce hydrogen at efficiencies around 20% greater than other technologies, in the range from mid-80s to 90% efficiency, where it is possible to make use of waste heat in industrial processes to drive this high efficiency.  We believe we have a pathway to produce green hydrogen at $1.5/kg, which is  the point at which electrolysis becomes competitive with blue and grey hydrogen produced using fossil fuels, at a price point that is key to making green hydrogen commercially viable.

Estimates suggest hydrogen could eventually account for 18% of primary energy. That is a big opportunity - according to McKinsey it is a $2.5 trillion opportunity. In March last year, we raised £179m in the public markets to support our growth. I am seeing a change in the capital markets, certainly from when I took over as Chief Executive of Ceres in 2013, with recognition that greater investment is needed to scale companies like Ceres, and others, to meet the climate challenge.  I believe we have a very strong investment case”. 

Huge Potential

The invasion of Ukraine has brought into sharp focus the dangers of the West’s dependence on Russian oil and gas. This crisis has reminded every country that we need to move quickly to build our self-reliance on more sustainable forms of energy and this will mean far more energy sourced from renewables and hydrogen.

Earlier this month, the EU announced its revised energy strategy to reduce reliance on Russian gas by two-thirds by the end of 2022. The EU Commission will be looking at alternative sources for fossil fuels in the short term but medium and longer term will significantly ramp up the roll-out of renewable and aim for a quadrupling of the use of hydrogen by 2030.

Commission President Ursula von der Leyen said: “We must become independent from Russian oil, coal and gas. We simply cannot rely on a supplier who explicitly threatens us. We need to act now to mitigate the impact of rising energy prices, diversify our gas supply for next winter and accelerate the clean energy transition. The quicker we switch to renewables and hydrogen, combined with more energy efficiency, the quicker we will be truly independent and master our energy system. I will be discussing the Commission's ideas with European leaders at Versailles later this week, and then working to swiftly implement them with my team.”

The company doesn't want to focus on fuel cell manufacturing but rather a technology licensing company working closely with a range of partners who are looking to adapt their business' and address the huge challenges posed by climate change.

CWR - 1 Yr Share Price

The share price has been volatile over the past year but I believe the longer term prospects are very positive and I will continue to hold on through the ups and downs. The shares currently make up around 8% of my green portfolio.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies can be rewarding but is higher risk - always DYOR!

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