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Ceres Power will use big manufacturers to exploit value of its fuel cell technology

With a refreshing candour, Philip Caldwell, Ceres Power’s newly appointed chief executive, talks about the past – where the business model fell down, and how he plans to rebuild investor faith in the group.


With a refreshing candour, Philip Caldwell, Ceres Power’s (LON:CWR) newly appointed chief executive, talks about the past: where the business model fell down, and how he plans to rebuild investor faith in the group.

Many in his position would prefer to start with the clean slate he’s been given following the fuel cell specialist's £13mln refinancing and pretend the group existed in a vacuum before his arrival.

Instead Caldwell tackles the issue head on. “I am fully aware that Ceres has a poor reputation with investors in the market previously,” he told Proactive Investors.

“We have to show we have the technology and the new business model to recapture that investor faith. Then I think we can demonstrate this company is good value.”

He has a platform to build from following the rescue of the business, overseen by finance director Richard Preston, and the funds to deliver the company’s new strategy.

Costs have been cut back, as has headcount, to allow Ceres to focus on “the core technology rather than being a whole product company”.

It hopes to use the world’s largest engineering companies to leverage its breakthrough fuel cell technology.

Those familiar with the firm know it came up with a combined heat and power (CHP) system based on research by Imperial College in London.

It overcame some of the limitations of the existing technology, which either relied on hydrogen or required blast furnace temperatures to kick-start the process.

The stainless steel core of the Ceres CHP meant it needed only to be 'warmed' to 500-600 degrees Celsius and therefore could run on natural or bottled gas.

Ceres’s mistake was to believe it could become the maker of these heat and electricity units. It lined up British Gas as its route to market, while the utility also became a major shareholder.

The events of recent years have proven conclusively that this was not the correct route to commercialising the technology.

Ceres, under Caldwell and Preston, is looking to become a provider of core technology to OEMs (original equipment manufacturers) who specialise in making and selling the new generation of CHP boilers.

The business model is similar to one which has made ARM and Wolfson the masters of the smart-phone chip market – licensing out their designs for inclusion in the latest handsets. It has proved a lucrative template for them.

In Ceres’s case the aim is to generate revenues not just from licensing, but also from engineering development services, while receiving a decent upfront payment once the technology is adopted by a company.

Early signs of traction for the new model can be discerned from the technical partnership with KD Navien, Korea’s largest maker of domestic boilers.

It is also looking to Japan where Toshiba, Panasonic and Toyota are active in a very buoyant market for CHP units.

Japan, in particular, lacks significant reserves of fossil fuel, is reliant on gas imports and provides incentives to those who use renewable energy sources.

Management believes its fuel cells are superior to anything else currently on the market. They are cheaper and more efficient than the competition and could form the basis of next-generation wall-mounted units that are smaller and less expensive than their predecessors.

A report from McKinsey forecasts the worldwide stationary fuel cell market will grow to US$5bn next year, with Ceres’s “sweet spot” 1-5 kilowatt units being a “large subset of that”, according to finance director Preston.

CEO Caldwell hopes alliances with the major manufacturers will help the group tap into this sector and his CV suggests he has the experience to forge high level links with these multi-nationals.

His last role was corporate development director at fuel cells firm Intelligent Energy, where in a six-year tenure he helped boost revenues to £44mln from £1.5mln.

As important is his track record of negotiating commercial alliances with large manufacturers such as Suzuki, as well as partners in the automotive and electronics sector.

By his own admission it is a three-plus year project to develop a Ceres-driven product ready for market.

However, the process of getting the fuel cell technology adopted and integrated into within these manufacturers will give the fuel cell technology formal validation and will de-risk Ceres in the eyes of investors. This in turn should lead to an uptick in the value of the company.

“If we try to make short-term gains and license it [the technology] early then we’ll give the value away. This is not something we are prepared to do,” said Caldwell.

As well as providing the funds for the next 18 months, the group’s two cash calls have brought on board a number of new investors, including Richard Griffiths’s ORA Capital and Henderson Volantis.  Some notable original backers have also followed their money, which is a major vote of confidence in the new team.

Significantly, one of the cornerstone investors, IP Group, with 25% of Ceres, shares the vision for the company.

“We are lucky we have long term investors. We are looking long term and we have technology that is pretty unique,” said Caldwell.

“If we keep investing in it then it should remain unique. It is world class and people will come for it.”

For those who invested in the company’s rescue cash call at 1p the recovery in the share price to 8.85p has provided significant return for that initial show of faith, and there is a growing conviction within the Square Mile that the group is heading in the right direction.

“We think the new management team has implemented this strategy with success to date and has resulted with, what we think, is an important commercial and technical partnership agreement with KD Navien (South Korea’s largest boiler manufacturer),” said Gurpreet Gujral, analyst at N+1 Singer.

“We expect the company to secure similar tie-ups with other partners, probably in different geographies over the next 12 months, which should help to de-risk the strategy.”

Quick facts: Ceres Power Holdings PLC

Price: 552 GBX

Market: LSE
Market Cap: £946.27 m

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