http://www.stockopedia.co.uk/content/andrew-neilson-of-aim-and-asx-listed-ceramic-fuel-cells-talks-to-stockopedia-46971/" target="_new" rel="nofollow" lpos="" lid="http://www.stockopedia.co.uk/content/andrew-neilson-of-aim-and-asx-listed-ceramic-fuel-cells-talks-t">http://www.stockopedia.co.uk/content/andrew-neilson-of-aim-and-asx-listed-ceramic-fuel-cells-talks-to-stockopedia-46971/ Over the last financial year, Ceramic Fuel Cells (LON:CFU) , the AIM and ASX listed fuel cell company, has succeeded in taking orders for 51 units of their key ‘BlueGen’ modular fuel cell generator including a single order of 30 units with the Victorian Government’s Office of Housing. It’s been a long road for a company that has been operating since the 1990’s, but in tandem with other leaders in fuel cell markets, their products are finally seeing real world installment. The company recently successfully raised another £10m from new investors to ramp up their production capabilities and drive the business forward into 2011. We spoke again with Andrew Neilson, the Group General Manager - Commercial, to discuss the progress made to date and the outlook for the next 12 months and beyond. Q. Andrew, since we last spoke in May, Ceramic Fuel Cells has made many announcements of BlueGen sales to utilities and government bodies across the globe. Can you tell us about the progress you've been making? As you've pointed out we've had quite a few sales. Starting out in the first months of the year in Germany, almost exclusively through German utilities. Since then we've had strong support in Australia, the Victorian Government order for 30 BlueGen units is particularly significant for us and recently we've made great progress in Japan - Osaka Gas have ordered their second unit and Tokyo Gas their first - and more recently we’ve had our first sale in the US . The utility that will be installing BlueGen there is Southern Californian Gas, the largest Gas company in the US. So the progress has been very strong. Our approach at the moment is to target early foundation customers who are ideally in the position to place large follow on orders themselves like utilities, or those who are in position to influence other people like VicUrban or the Victorian Government - those early customers can effectively give the product the tick of approval or an endorsement into the market. We do get lots of people wanting to buy BlueGen themselves, and we are working with Neco and Harvey Norman (Australias largest electronics retailer) to market to retail customers, but we haven't made sales through those channels yet. In time absolutely we want to sell to the residential market, but at the moment we are focusing on commercial customers. In broad terms, there will be a chunk of money to be spent on value engineering projects, to reduce the cost of the components of BlueGen and the integrated mCHP product. At the moment we know the product works, and the components all work, but some of them are still relatively expensive so some of the money will be used to fund projects to reduce the component cost. Some of the money will be used to set up our BlueGen assembly operation in the Heinsberg factory in Germany. Currently we assemble BlueGen in Melbourne but by January it will be moved to Germany. By the middle of next year, we will look to be assembling a couple of dozen units per week in Germany as a ball park estimate. Some of the funds will be used to get product certified for Japan and the US - some modifications to the power management system are needed for those markets. And the rest of the funds will be used to fund our ongoing sales, marketing and product development programme. When we announced the placing, we also announced an open offer to existing UK investors and a rights issue to existing Australian & NZ investors. It's important that we give existing investors the same opportunity to buy shares at the same price as new institutional investors. We are conscious that our retail shareholders have supported the company well. Each shareholder can subscribe for as many or as few shares as they want, it's not a fixed entitlement… but the overall offer is capped at 2.5m euros which is the maximum we can raise without having to go through the lengthy process of creating a full prospectus in the UK. Q. Victorian Government's Office of Housing, has just confirmed your biggest order to date for 30 BlueGen units. Can you explain a bit more about the significance of this? Sure, it's significant for several reasons. Firstly it's our first order for more than 3 units, but also it's an important first step in showing the office of housing how the products could fit into their social housing units. The Office of Housing owns and manages lots of social housing properties, so the potential for BlueGen to be installed in those properties is very large. It also provides a template for us going to other governments in other states in Australia or in other markets and offer them a similar project with similar benefits. The final reason is that in Victoria there's currently no feed in tariff (FIT) for our products, as they are restricted to renewables, specifically solar PV. The State Government are currently consulting on extending the FIT, so we like to think that having our product installed with government customers can help in our discussions on the FIT. We are encouraging the Victorian Government to extend that tariff to low emissions technologies such as fuel cells like the UK government and Germany has done. It's important to help us get into the mass residential market. In the worst case, if there's no FIT, it's not fatal to us, it just means our products would have to be sold to homes or building owners that could use all of the power on site, and there's plenty of buildings that can do that, so an FIT is really a way to help us get into the mass market of residential homes. Q. With the Australian election being inconclusive and looking headed for a hung parliament, it looks like the Green party may form part of a coalition government. What impact could that have on emissions and carbon taxes policy and how might that affect you? It's a really interesting time in Australian Politics. The Greens will hold the balance of power in the Senate, which is our equivalent of your House of Lords, and it looks like it will be some independents that will hold the balance of power in the Lower House which is where the government is formed. Those independents all seem to have different positions on emissions trading or on carbon taxes or climate change policies, so it is a bit of a mishmash at the moment. Certainly I think there's a strong move in Australia for an emissions trading scheme or for some other price on carbon. Unfortunately most of the major parties aren't taking a strong position on that, but ultimately I thinks it's a matter of time. A price on carbon will help any low emissions technology including ours. Q. BlueGen units are currently being assembled in Melbourne but the manufacturing facility at Heinsberg, Germany, is designed to produce at scale. When will manufacturing be moved completely to Germany? The factory in Heinsberg is currently set up to produce the fuel cell stack, the heart of the Gennex fuel cell module, where all the power is produced. The factory is currently making stacks in small numbers and we aren't currently using our large volume furnaces at the moment. We said in our update that we are working with the manufacturer of the furnaces to make sure we can scale up those furnaces at an acceptable quality rate. We will need to do some work on the furnaces to scale up production, but in the mean time we are comfortably making stacks here in Melbourne, so it's not a key constraint for us, but the we plan on transferring the assembly of the BlueGen units from Melbourne to Heinsberg from January 2011. Ultimately, Melbourne will remain focused on R&D product development, pilot manufacturing and small scale manufacturing. But it is important that our factory in Germany becomes the location where we do scale up for volume. It's not a bad thing that they are physically so separate. The culture of a manufacturing operation should be very different from the culture of an R&D volume manufacturing plant. In Germany, there's no experiments allowed, it's about making the same thing day in and day out. Q. With the enormous potential markets in Germany, the UK and Netherlands, investors will be keen to see similar numbers of integrated CHP units being sold to utilities there. What's the progress to date on that front? We are obviously still working very hard with EWE in Germany, GDF Suez in France, and E.On in the UK. The first integrated units were installed late last year, early this year and have been running for a good time. The nature of these projects is that they have definite staging gates or phases, so what we are doing now is talking to each of those partners about the details of the next phase. We do have a contract with E.On in the UK that maps out a product development agreement leading to an order profile for a commercial product, so we are still very much working to that programme. It is the nature of these agreements that unlike BlueGen where we announce sales on a regular basis, these collaborations tend not to generate news when you are working through the project phase but when you reach the next phase the announcement will come out. We are still working hard with all those partners and are confident that we will have more to say in future. Q. What is the current lifespan of your fuel cell stack and how much progress has been made over the last 12 months in extending it's longevity? One of the challenges of all fuel cells is lifetime, but we have made good progress. One of the facts of fuel cells is that at the moment there's no model for accelerated lifetime testing! So to prove that a fuel cell stack can last for 4 years, you have to operate it for 4 years, but of course, by the end of that period you've moved on 3 or 4 iterations in your technology. We do have very long term tests that have been running in Melbourne. We've got a fuel cell stack that has been operating for more than 2 years. We do have a lot of test data, and are offering BlueGen with a warranty and support period of typically 12-24 months, so the Victorian Government for example it's 24 months. We are certainly confident that the product is ready to go out to early customers, we will keep improving the lifetime. We've said before that the target is 5 years, or roughly 40,000 hours - that's still the target and we are very confident we will achieve it. Q. Usually, fuel cells companies are quite proprietary about their intellectual property, but in June you announced a licence agreement with NexTech Materials to market your patented coatings formulations to third parties. Could you let us know the thinking behind that? We've got a patented solution that solves a problem that lots of other fuel cell companies have. We think there's a market need for the solution we've created. It's unlikely that other fuel cell companies would feel comfortable buying a solution directly from us, and frankly we're not set up to sell products or services directly to other companies. NexTech is an independent company that already markets powders, coatings and solutions to the Fuel Cells industry, so we think they are an ideal partner to licence our IP and offer products to other companies. The marginal cost to us is almost zero, and while it's unlikely to be enormous in the early stages, it offers an opportunity to create some additional revenue. Q. Some US fuel cell companies such as Bloom Energy have been courting publicity this year in some eye catching ways. Do these kinds of Hollywood stunts frustrate you or does the extra media spotlight on the sector help? The Bloom Energy PR machine was certainly in overdrive for a while there but they had been in stealth mode for about 8 years and have been around for a long time. Of course there's a risk in any publicity that the market gets overhyped and promises are made that can't be delivered, but we think the publicity is positive. While we don't have the resources to get onto 60 minutes in the US, if Bloom Energy can do that and start educating the market in general about fuel cells and distributed generation then that's a positive thing for the sector. Q. For UK investors in solid oxide fuel cell companies, they sometimes see the portfolio choice as being between you and Ceres Power Hldgs (LON:CWR) . What do you see as your key differentiators and the main reason for investors to preferentially back your company over the next couple of years? It is a question we get asked a lot, but I don't see this as an either or decision. The markets we are targeting are enormous globally. Conceptually, if you think of every home that's connected to natural gas and the power grid. I think there's plenty of opportunity for several companies to survive and prosper. We do think that there are some things that we've put in place that maybe other companies haven't had the time to do - volume manufacturing and critically for us having customers in many different markets. One of the key risks of an emerging technology or a new product is having only one path to market or one market you can address, which is one reason why we do have customers in lots of different markets. On the technology side I would point to our electrical efficiency as being a key differentiator. Overall I wouldn't see it as a binary decision as these are huge markets and several companies will survive and do really well. Q. And finally what aspect of the next 12-24 months is most exciting to you at Ceramic Fuel Cells? We are really excited about actually having our product out in the market, ideally in people's homes, and really making the next step toward churning out products. We've come a long way with the technology and we are now on the point of actually installing products - I want to get one for my own house, but I've got to get in line! Thanks for speaking with Stockopedia News.
Andrew Neilsen - Group General Manager - Commercial Mr Neilson has worked as a solicitor with one of Australia's largest law firms, and as an in-house legal counsel and commercial manager for two NYSE-listed global IT firms. He has experience with commercialising technology, identifying and managing commercial risk and in structuring and negotiating a range of contracts with global partners, suppliers and customers. Mr Neilson is a Graduate of the Australian Institute of Company Directors and holds a Bachelor of Laws (Honours) and a Bachelor of Commerce. |
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