29th Aug 2006 07:08
Ceramic Fuel Cells Limited29 August 2006 29th August 2006 CERAMIC FUEL CELLS LIMITED PRELIMINARY RESULTS 12 MONTHS ENDED 30 JUNE 2006 Ceramic Fuel Cells Limited (AIM / ASX: CFU) a world leading manufacturer ofsolid oxide fuel cells and provider of enabling technology for micro-combinedheat and power (m-CHP) units and distributed generation, announces itspreliminary results for the year ended 30 June 2006. 2006 Highlights Financials •Net assets of £34.7m (A$85.7m) and no debt. •Revenue for the year from continuing operations was £840k (A$2m), up 153% from last year, as a result of successful field trial contracts and higher interest earnings. •Operational expenses - excluding borrowing costs - down by 3.2% including reduced research and product development costs. •Achieved successful and oversubscribed admission to the London Stock Exchange AIM market in March 2006, raising gross proceeds of approximately £37.2 million. •All convertible notes issued in August 2005 to raise £3.3m (A$8.2m) were converted into CFCL shares before June 2006. Technical •Passed a key milestone of 10,000 hours of system operation in commercial field trials of m-CHP units across its current programme of independent customer field trials in Germany, Australia and New Zealand. •Launched NetGen(TM), a pre-commercial m-CHP unit, in October 2005. NetGen(TM) is less than half the size of the field trial m-CHP units. •Granted four additional patents: two relating to CFCL's solid oxide fuel cell (SOFC) technology; one for the process of producing ceramic powders used in solid oxide fuel cells; and one relating to the process of producing electricity using a fuel supply that includes hydrocarbons higher than methane. This brings the total number of patents within the portfolio to 50 (in 28 patent families). Partnerships •In June 2006, signed a second international contract with EWE, the fifth largest utility in Germany, to supply them with ten NetGen(TM) units, following the initial two m-CHP field trials that began in January 2006. This is CFCL's most significant contract to date, taking the company within striking distance of its target selling of 12 NetGen(TM) units by December 2006. •Building relationships with appliance manufacturers, to integrate CFCL's fuel cells into m-CHP units and other distributed generation applications. Market •European "CE" safety approval awarded to NetGen(TM), CFCL's fully integrated pre-commercial m-CHP system. •UK government has voiced its support for CHP and distributed generation in its Energy Challenge Report, published July 2006, and by allocating an additional £50 million to develop microgeneration technologies. •Placed the first fuel cell electricity generator into an Australian office in szencorp's groundbreaking energy efficient commercial office building in Melbourne, known as "40A". Operational •Appointment of Mike Atkinson, Manager, Capital Projects, and Simon Howard, Powder Manufacturing Engineer, to supplement CFCL's UK management team. •Appointment of Professor Michael Dureau to CFCL's Board of Directors as an independent Non-Executive Director. Since 30 June 2006 •Appointment of Robert (Bob) Kennett to the Board of Directors as CFCL's first UK-based Non-Executive Director on 24 August 2006. Bob Kennett, 56, has spent his career in the energy sectors and has been focused on Combined Heat and Power and renewables. He was Managing Director of Powergen Combined Heat and Power Ltd for 12 years and, for three years simultaneously, was Chairman of PowerGen Renewables Ltd. Bob is currently a consultant advising financiers and investors on business opportunities in the UK Combined Heat and Power and Renewable Energy markets. This appointment reflects the Company's commitment to strengthening its base in the United Kingdom, following on from its listing on AIM and also its increased focus on commercialising its technology, particularly throughout the European market. Brendan Dow, Chief Executive Officer, commented: "Ceramic Fuel Cells has continued to build momentum month by month on each ofthe financial, technical and partnership fronts during the year. I am pleased toreport that the strategy and timeline we presented to the market late last yearhas not changed - we are doing what we said we would do. As we move towards the commercialisation of our technology, we are encouraged bythe excellent headway made in both deepening our existing relationships withutilities and developing new relationships. We plan to have signed up furtherutilities and appliance partners by December 2006. In order to reach our key commercial milestones, we are focused on developingthe most commercially viable solid oxide fuel cell for use in micro-CHP anddistributed generation. We are also constructing a ceramic powder plant in theUK and implementing our plans for a high volume fuel cell foundry in Europe. We are delighted that Bob Kennett, former Managing Director of Powergen CombinedHeat and Power, has agreed to join our board. His previous experience in CHPand Renewable Energy markets in the UK, will be of enormous benefit to CeramicFuel Cells." For further information please contact: Andrew Neilson +61 419 950 771Brendan Bilton +44 (0) 7798 554 191Ceramic Fuel Cells [email protected] Nick Denton / Vanessa Orr / Sara Gelfand +44 (0) 20 7357 9477Hogarth Partnership Aamir Quraishi / Charles Goodfellow +44 (0) 20 7569 9650Libertas Capital ASX Preliminary Final Report Year ended 30 June 20064 Lodged with the ASX under Listing Rule 4.3A Results for announcement to the market Year ended 30 June 2006 (Previous corresponding period: Year ended 30 June 2005) Movement % $Revenue from continuing operations Up 153.1 2,077,249Loss after tax attributable to Down 22.8 (13,317,335)membersNet Loss for the period attributable Down 22.8 (13,317,335)to members +----------------------------------------+----------------------+--------------------+| | | |+----------------------------------------+----------------------+--------------------+|Dividend type | Amount per security | Franked amount per || | | security |+----------------------------------------+----------------------+--------------------+| | | |+----------------------------------------+----------------------+--------------------+| | | |+----------------------------------------+----------------------+--------------------+|Final dividend | None | Not applicable |+----------------------------------------+----------------------+--------------------+| | | |+----------------------------------------+----------------------+--------------------+| | | |+----------------------------------------+----------------------+--------------------+|Interim dividend | None | Not applicable |+----------------------------------------+----------------------+--------------------+| | | |+----------------------------------------+----------------------+--------------------+| |+------------------------------------------------------------------------------------+|No dividends were recommended, declared or paid during the period. |+------------------------------------------------------------------------------------+| |+------------------------------------------------------------------------------------+|The Directors do not propose to recommend the payment of a dividend in respect of ||the period. |+------------------------------------------------------------------------------------+| |+------------------------------------------------------------------------------------+|There is no dividend re-investment plan in operation. |+------------------------------------------------------------------------------------+| |+------------------------------------------------------------------------------------+ Brief Explanation of Revenue During the period: • Sales revenue of $480,981 was up 186.3% as the company expanded itsfield trial programme. • Interest received on surplus funds invested was up by 144.6% on theprevious corresponding period due to significantly increased cash levels in thelast quarter of the reporting period, arising from the company's listing andfund raising on the London AIM market. Brief Explanation of Loss (and Net Loss) The net loss for the period attributable to members of $13,317,335 compares to anet loss in the previous corresponding period of $17,239,831. The major reasonsfor the lower loss were: • a net foreign exchange gain of $2,850,898 on the translation offoreign currency denominated cash, cash equivalents and investments was earnedfor the first time, hence no such gain was earned in the corresponding reportingperiod, and • an increase in interest received of $943,666 over the correspondingreporting period (see above). These items were partially offset by an increase in borrowing costs of $820,831relating primarily to the issue of convertible notes during the year (thesenotes had all converted to equity by 30 June 2006). Preliminary Income Statements For the year ended 30 June 2006 Consolidated Parent entity Note 2006 2005 2006 2005 $ $ $ $ Revenue from continuing operations 2 2,077,249 820,602 1,795,247 819,807 Other income 3 3,058,990 153,066 3,153,698 153,066Research & Product Development (10,765,691) (11,910,499) (10,765,691) (11,910,499)General & Administration (5,618,265) (5,297,025) (5,618,265) (5,297,025)Sales & Marketing (1,247,137) (1,004,325) (453,314) (537,286)Borrowing costs (822,481) (1,650) (822,481) (1,650)Profit/(loss) before income tax (13,317,335) (17,239,831) (12,710,806) (16,773,587) Income tax expense - - - -Profit/(loss) for the yearattributable to members of CeramicFuel Cells Limited 6 (13,317,335) (17,239,831) (12,710,806) (16,773,587) Cents CentsEarnings per share for profit/(loss) attributable to the ordinaryequity holders of the companyBasic and diluted earnings per 9 (7.64) (15.66)share The above preliminary income statements should be read in conjunction with theaccompanying notes. Preliminary Balance Sheets As at 30 June 2006 Consolidated Parent entity Note 2006 2005 2006 2005 $ $ $ $ ASSETS Current AssetsCash and cash equivalents 11,367,347 5,470,018 11,330,196 5,456,800 Receivables 110,859 214,764 104,277 722,505Financial assets 4 30,087,872 - 30,087,872 -Other 269,200 900,831 258,848 900,831Total Current Assets 41,835,278 6,585,613 41,781,193 7,080,136 Non-Current Assets Financial assets 4 44,661,266 - 44,661,266 -Other financial assets - - 807,882 3Plant and equipment 2,090,618 3,138,484 2,063,929 3,094,988Intangibles 1,000 1,000 1,000 1,000Total Non-Current Assets 46,752,884 3,139,484 47,534,077 3,095,991 Total Assets 88,588,162 9,725,097 89,315,270 10,176,127 LIABILITIES Current LiabilitiesPayables 1,330,551 1,038,932 1,359,402 1,023,718Provisions 764,345 547,915 764,345 547,915Deferred (unearned) revenue 537,984 157,000 149,649 157,000 Total Current Liabilities 2,632,880 1,743,847 2,273,396 1,728,633 Non-Current LiabilitiesProvisions 201,331 151,898 201,331 151,898Total Non-Current Liabilities 201,331 151,898 201,331 151,898 Total Liabilities 2,834,211 1,895,745 2,474,727 1,880,531Net Assets 85,753,951 7,829,352 86,840,543 8,295,596 EQUITY Contributed equity 5 185,549,893 94,407,155 185,549,893 94,407,155Reserves 6 99,196 - 113,014 -Retained profits/(losses) 6 (99,895,138) (86,577,803) (98,822,365) (86,111,559) Total Equity 85,753,951 7,829,352 86,840,543 8,295,596 The above preliminary balance sheets should be read in conjunction with theaccompanying notes. Preliminary Statements of Changes in Equity For the year ended 30 June 2006 Consolidated Parent entity 2006 2005 2006 2005 $ $ $ $ Total equity at the 7,829,352 24,779,604 8,295,596 24,779,604beginning of theyear Changes in the fair 77,815 - 77,815 -value of financialassetsExchange (13,818) -differences on - -translation offoreign operationsNet income 63,997 - 77,815 -(expense)recognised inequity Profit/(loss) for (13,317,335) (17,239,831) (12,710,806) (16,773,587)the year Total recognised (13,253,338) (17,239,831) (12,632,991) (16,773,587)income (expense)for the year Transactions withequity holders intheir capacity asequity holders:Contributions of 91,380,789 289,579 91,380,789 289,579equity (net oftransaction costs)Employee share 35,199 - 35,199 -optionsDividends providedfor or paid - - - - 91,415,988 289,579 91,415,988 289,579 Total equity at the 85,992,001 7,829,352 87,078,593 8,295,596end of the year Total recognisedincome and expensefor the year isentirelyattributable tomembers of CeramicFuel Cells Limited. The above preliminary statements of changes in equity should be read inconjunction with the accompanying notes. Preliminary Cash Flow Statements For the year ended 30 June 2006 Consolidated Parent entity 2006 2005 2006 2005 $ $ $ $ Cash Flows from OperatingActivitiesReceipts from customers 1,775,818 951,341 1,106,853 951,341(inclusive of goods andservices tax)Payments to suppliers and employees (15,856,923) (16,229,480) (14,880,436) (15,601,008) (inclusive of goods andservices tax) (14,081,105) (15,278,139) (13,773,583) (14,649,667) Grant revenue 150,000 142,387 150,000 142,387Interest received 1,604,607 637,649 1,603,235 637,649 Other revenue 41,007 10,221 41,007 10,221Interest paid (1,650) (525) (1,650) (525) Net cash inflow (outflow) from operating activities (12,286,016) (14,489,532) (11,979,866) (13,861,060) Cash Flows from InvestingActivities Payments for purchase of - - - (3)subsidiaries Loan to subsidiary - - (330,083) (685,183) Proceeds from sale of 72,355 5,140 72,355 5,140plant and equipment Payments for plant and equipment (705,969) (709,552) (705,969) (666,056) Net cash inflow (outflow) from investing activities (633,614) (704,412) (963,697) (1,346,102) Cash Flows from FinancingActivities Gross payments for (209,575,697) - (209,575,697) -financial assetsGross proceeds fromdisposal of financial 135,325,852 - 135,325,852 -assetsNet payments for financial (74,249,845) - (74,249,845) -assets Proceeds from issue of 91,366,499 - 91,366,499 -shares Share issue costs (7,593,713) (746,434) (7,593,713) (746,434) Repayment of borrowings (283,881) - (283,881) - Interest paid on (12,065) - (12,065) -borrowings Proceeds from issuing 8,200,000 - 8,200,000 -convertible notes Convertible note issue (531,815) - (531,815) -costs Interest paid onconvertible notes (516,126) - (516,126) - Net cash inflow (outflow) 16,379,054 (746,434) 16,379,054 (746,434)from financing activities Net increase (decrease) in 3,459,424 (15,940,378) 3,435,491 (15,953,596)cash and cash equivalents Cash and cash equivalents 5,470,018 21,410,396 5,456,800 21,410,396at the beginning of thefinancial year Effects of exchange rate 2,437,905changes on cash and cash 2,437,905 - -equivalents Cash and cash equivalents 11,367,347 5,470,018 11,330,196 5,456,800at the end of the year The above preliminary cash flow statements should be read in conjunction withthe accompanying notes. Notes to the Preliminary Financial Statements Year ended 30 June 2006 Note 1. Summary of Significant Accounting Policies With the exception of a new accounting policy applicable to investments andother financial assets (refer below), there have been no material changes in thecompany's application of its significant accounting policies as presented in thecompany's consolidated financial statements for the half-year ended31 December 2005. Readers of this report should refer to Note 1, Summary ofSignificant Accounting Policies, in the aforementioned financial statements fordetails of these accounting policies. (a) Investments The group's current and non-current investments have been classified asavailable-for-sale financial assets. Available-for-sale financial assets,comprising principally marketable securities, are non-derivatives that areeither designated in this category or not classified in any of the otherfinancial asset categories. They are included in non-current assets unlessmanagement intends to dispose of the investment within 12 months of the balancesheet date. The investments are initially recognised at fair value plus transaction costsand are derecognised when the rights to receive cash flows from the financialassets have expired or have been transferred and the Group has transferredsubstantially all the risks and rewards of ownership. The investments continueto be carried at fair value in the balance sheet, with fair value gains andlosses being recognised directly in equity. Fair value is calculated for eachindividual asset by the group's independent treasury adviser, using period-endprojected swap curves. Translation differences on monetary securities denominated in a foreign currencyand classified as available-for-sale are recognised in the income statement asforeign exchange gains or losses, as appropriate, whilst changes in their fairvalue are recognised in equity. When securities classified asavailable-for-sale are sold or impaired, the accumulated fair value adjustmentsrecognised in equity are included in the income statement. (b) Explanation of transition to AIFRS The application of AIFRS significant accounting policies has not had anymaterial effect upon the retained earnings of the group as at 1 July 2004, norupon the reported profit of the group for the year ended 30 June 2005. Consolidated Parent entity 2006 2005 2006 2005 $ $ $ $ Note 2. Revenue From continuing operationsSales revenueField trial income 391,704 168,000 111,074 168,000Licensing income 89,277 - 89,277 - 480,981 168,000 200,351 168,000Other revenueInterest 1,596,268 652,602 1,594,896 651,807Total revenue from continuing operations 2,077,249 820,602 1,795,247 819,807 Note 3. Other Income Net gain on disposal of plant and equipment 17,085 - 17,085 -Foreign exchange gains 2,850,898 - 2,850,898 -Export Market Development Grant (see below) 150,000 142,387 150,000 142,387Sundry income 41,007 10,679 135,715 10,679Total other income 3,058,990 153,066 3,153,698 153,066 Export Market Development GrantThere are no unfulfilled conditions or other contingencies attaching to these grants. Thegroup did not benefit from any other forms of government assistance. Notes to the Preliminary Financial Statements Year ended 30 June 2006 (continued) Consolidated Parent entity 2006 2005 2006 2005 $ $ $ $ Note 4. Investments Current assetsFinancial assets 30,087,872 - 30,087,872 -Non-current assetsFinancial assets 44,661,266 - 44,661,266 - 74,749,138 - 74,749,138 - Note 5. Contributed Equity (a) Share capital The share capital account of Ceramic Fuel Cells Limited (the company) consistedof 309,505,559 fully paid up, ordinary shares. (b) Movements in ordinary share capital Movements in ordinary share capital of the company during the past two yearswere as follows: Date Details Number of shares Issue Amount price $ 1-7-2004 Opening balance 109,836,448 $1.00 94,117,576 24-9-2004 Issued for services rendered 300,000 300,000 Less: Transaction costs arising on share issues - (10,421) 30-6-2005 Balance 110,136,448 94,407,155 11-8-2005 Conversion of notes 380,000 $0.50 190,000 15-8-2005 Conversion of notes 380,000 $0.50 190,000 17-8-2005 Conversion of notes 1,000,000 $0.50 500,000 30-8-2005 Conversion of notes 200,000 $0.50 100,000 13-9-2005 Conversion of notes 400,000 $0.50 200,00011-10-2005 Conversion of notes 60,000 $0.50 30,00021-10-2005 Conversion of notes 100,000 $0.50 50,000 3-11-2005 Conversion of notes 40,000 $0.50 20,000 5-12-2005 Conversion of notes 100,000 $0.50 50,000 31-1-2006 Conversion of notes 20,000 $0.50 10,000 21-2-2006 Conversion of notes 60,000 $0.50 30,000 22-2-2006 Conversion of notes 300,000 $0.50 150,000 2-3-2006 London AIM listing and raising 175,000,000 $0.50 87,500,000 3-3-2006 Conversion of notes 460,000 $0.50 230,000 14-3-2006 Conversion of notes 2,000,000 $0.50 1,000,000 14-3-2006 Issued for services rendered 236,111 $0.60 141,667 20-3-2006 Conversion of notes 120,000 $0.50 60,000 23-3-2006 Australian private placement 7,733,000 $0.50 3,866,500 27-3-2006 Conversion of notes 2,640,000 $0.50 1,320,000 5-4-2006 Conversion of notes 460,000 $0.50 230,000 13-4-2006 Conversion of notes 20,000 $0.50 10,000 10-5-2006 Conversion of notes 500,000 $0.50 250,000 16-5-2006 Conversion of notes 2,040,000 $0.50 1,020,000 30-5-2006 Conversion of notes 300,000 $0.50 150,000 5-6-2006 Conversion of notes 560,000 $0.50 280,000 9-6-2006 Conversion of notes 4,200,000 $0.50 2,100,000 21-6-2006 Conversion of notes 60,000 $0.50 30,000 Less: Convertible note transaction costs (net of interest accretion) - (238,050) Less: Transaction costs arising on share issues - (8,327,378) 30-6-2006 Balance 309,505,559 185,549,893 Notes to the Preliminary Financial Statements Year ended 30 June 2006 (continued) (c) Ordinary shares Ordinary shares entitle the holder to participate in dividends, and the proceedson winding up of the company, in proportion to the number of and amounts paid onthe shares held. On a show of hands every holder of ordinary shares present at a meeting of thecompany, either personally or by duly authorised representative, proxy orattorney, is entitled to one vote, and upon a poll each share is entitled to onevote. (d) Share options Unissued ordinary shares of Ceramic Fuel Cells Limited under option at 30 June2006 totalled 844,200, all of which have been issued under the Ceramic FuelCells Limited Share Option Plan. All of the 5,274,999 share options issuedunder the Private Placement of 6 May 2004 lapsed unexercised on 31 March 2006. Issued to former directors Number of shares: 75,000 Consideration for grant of option: $Nil. Consideration for exercise of option: $1.50 per share When exercisable: Immediately, provided that, at the time of exercise: (a) the option has not lapsed; and (b) shares are quoted on a stock market of an Approved Stock Exchange; or (i) if a takeover scheme or takeover announcement or scheme orarrangement is made or undertaken in respect of CFCL and the Board reasonablydetermines exercise to be appropriate; or (ii) if an entity becomes entitled to 50% or more of the company'sshares, and the Board reasonably determines exercise to be appropriate; or (iii) in any other circumstance if the Board in its absolute discretiondetermines; and in each case the options must be exercised within 30 days after the Boardnotifies members of its determination. The entire 75,000 options have been escrowed as a condition of admitting thecompany to the official list of the Australian Stock Exchange (ASX). They areunable to be exercised before 5 July 2006. Issued to current employees Number of shares: 366,200 Consideration for grant of option: $Nil. Consideration for exercise of option: $0.58 per share Issue date: 12 October 2005 When exercisable: The options cannot be exercised before 12 October 2008. Thepercentage of options which vest is dependent upon escalating performancehurdles as follows: +--------------------------+-------------+|Compound share price |% of options ||growth p.a. |that vest |+--------------------------+-------------+|Less than 15% |0 |+--------------------------+-------------+|15% |50% |+--------------------------+-------------+|20% |75% |+--------------------------+-------------+|25% |100% |+--------------------------+-------------+ Issued to current employee Number of shares: 30,000 Consideration for grant of option: $Nil. Consideration for exercise of option: $0.77 per share When exercisable: The options are fully vested and the conditions for exerciseare the same as those for directors. Issued to current & former employees Number of shares: 278,000 Consideration for grant of option: $Nil. Consideration for exercise of option: $1.50 per share When exercisable: The options are fully vested and the conditions for exerciseare the same as those for directors. Issued to former contractor Number of shares: 170,000 Consideration for grant of option: $Nil. Consideration for exercise of option: $2.01 per share When exercisable: The options are fully vested and the conditions for exerciseare the same as those for directors. No option holder has any right under the options to participate in any othershare issue of the company or of any other entity. Notes to the Preliminary Financial Statements Year ended 30 June 2006 (continued) Consolidated Parent entity 2006 2005 2006 2005 $ $ $ $ Note 6. Reserves and Retained Profits (a) ReservesInvestments revaluation reserve 77,815 - 77,815 -Share-based payments reserve 35,199 - 35,199 -Foreign currency translationreserve (13,818) - - -Total reserves 99,196 - 113,014 - Investments revaluation reserveBalance at 1 July - - - -Revaluation - gross 77,815 - 77,815 - Balance at 30 June 77,815 - 77,815 - Share-based payments reserveBalance at 1 July - - - -Option expense 35,199 - 35,199 -Balance at 30 June 35,199 - 35,199 - Foreign currency translationreserveBalance at 1 July - - - -Currency translation differencesarising during the year (13,818) - - -Balance at 30 June (13,818) - - - (b) Retained profitsMovements in retained profits/(losses) were as follows:Balance at 1 July (86,577,803) (69,337,972) (86,111,559) (69,337,972)Net profit/(loss) for the year (13,317,335) (17,239,831) (12,710,806) (16,773,587) Balance at 30 June (99,895,138) (86,577,803) (98,822,365) (86,111,559) Note 7. Interest Bearing Liabilities On 2 August 2005 Ceramic Fuel Cells Limited (the company) issued A$8,200,000 ofsecured convertible notes. The notes had a maturity date of 2 August 2008 andbore interest at a fixed rate of 10% per annum payable quarterly in arrears.The noteholders were able to elect to convert their notes into fully paidordinary shares in the company at any time prior to the maturity date at A$0.50per share. On 6 March 2006 the company gave noteholders 90 days notice of its intention toredeem, on 9 June 2006, all notes then outstanding. All noteholders elected toconvert their notes during the notice period, hence no redemption of notes wasnecessary. The notes were secured by a fixed and floating charge over theassets of the company, which is in the process of being discharged. Notes to the Preliminary Financial Statements Year ended 30 June 2006 (continued) Note 8. Contingent Liability The consolidated entity has the following contingent liability: R&D Start Grant Under an agreement with the Industry Research and Development Board (IR&D Board)acting on behalf of the federal government, the company received a $15 milliongrant under the R&D Start Grant programme. The company has received the fullamount of the grant. The agreement runs until 2009 and imposes certainobligations upon the company. If the company was to breach the agreement orbecome insolvent, the IR&D Board may elect to terminate the agreement. In theevent of such a termination, or in other specific circumstances, the agreementprovides that the IR&D Board may choose to require the repayment of any or allof the grant with or without interest. At the end of the year the maximum amount of this liability would have been$21.40 million (2005 - $20.17 million). Consolidated 2006 2005Note 9. Earnings Per Share Cents CentsBasic and diluted earnings per share (7.64) (15.66) Number NumberWeighted average number of sharesWeighted average number of shares used as the denominatorin calculating basic and diluted earnings per share 174,392,301 110,065,763 $ $Earnings used in calculating basic and diluted earningsper shareProfit attributable to the ordinary equity holders of the (13,317,335) (17,239,831)company Net tangible asset backing Consolidated 2006 2005 Cents Cents Net tangible asset backing per ordinary 27.7 6.5share Control over other entities During the period the company established a wholly owned European subsidiary,Ceramic Fuel Cells (Powder) Limited, headquartered in the United Kingdom. Nocontrol was gained or lost over any other entity during the period. Associates and joint venture entities The company has no associates, nor has it formed any joint ventures with anyother entity/s during the period. Commentary on the results for the period Overview The main activities of the Company during the year ended 30 June 2006 included: • Conducting field trials of demonstration micro-Combined Heat and Power(m-CHP) units in customer's premises in New Zealand, Australia and Germany; • Designing, building and demonstrating NetGenTM, a pre-commercial m-CHPunit, as the next step from the field trial units to a commercial product; • Raising funds from new institutional investors, and existinginvestors, and listing the Company's shares on the London Stock Exchange AIMmarket; • Planning the construction of a plant in the UK to produce ceramicpowders, using the Company's patented technology; • Continued work on establishing a large scale fuel cell manufacturingplant in Europe; • The continued development of improved fuel cells and associatedsystems. The Company continued to implement its strategy and business plan - and timeline- presented to the market in late 2005. The Company made significant progresson its commercialisation activities, having commissioned and operated m-CHPunits in three countries for an aggregate of more than 10,000 hours of systemoperation. Financial Results In the Income Statement revenue for the year from continuing operations was$2,077,249 (£840,663), up 153% from $820,602 (£332,098) last year. The increasewas due to higher revenue from field trial contracts and higher interest incomedue to significantly increased cash levels in the last quarter of the year,arising from the Company's listing and fund raising on the London AIM market. The Income Statement also includes other income of $3,058,990 (£1,237,973), duelargely to a net foreign exchange gain. As the Company holds its cash inseveral currencies to cover forecast expenditure, but reports its income inAustralian dollars, foreign exchange movements will affect the Company'searnings as reported in the Income Statement. This year the income included atranslation gain of $2,850,898 (£1,153,758), which arose because those othercurrencies appreciated against the Australian dollar; however in future yearsthe effect may be the opposite. The Company does not currently intend to hedgeagainst foreign exchange movements (other than the 'natural' hedge of holdingcash in the same currency as expected expenditure). Underlying operational expenses - excluding borrowing costs - were $17,631,093(£7,135,303), 3.2% lower than last year. Of these expenses, Research & ProductDevelopment costs for the year were 9.6% lower, at $10,765,691 (£4,356,875).The Company would expect these costs to increase in the coming financial year,as the Company builds and deploys its pre-commercial NetGen m-CHP units. (Inaccordance with Australian equivalents to IFRS (AIFRS) the cost of prototypesare being expensed as incurred.) Research and Product Development costsincorporate direct labour and direct materials costs, as well as most of thecompany's depreciation and amortisation charges. They exclude indirect projectsupport costs and otherwise apportionable overheads which are borne in theGeneral & Administration expense classification. The Company's R&PD and production headcount level was 79.8 full time equivalentpositions, which was similar to last year. Sales & Marketing costs increased from $1,004,325 (£406,450) last year to$1,247,137 (£504,716) in the current year. The majority of these costs relateto business development and commercialisation activities in Europe. These costsare expected to increase in the coming year as the Company expands its effortsto form partnerships with utilities and appliance manufacturers. The Company's expenditure on General and Administrative expenses rose 6% overlast year. The net loss for the period of $13,317,335 (£5,389,525) was $3,922,496(£1,587,434) lower than the net loss for the preceding period of $17,239,831(£6,976,960). The major reasons for the lower loss were a foreign exchange gainof $2,850,898 (£1,153,758) on the translation of foreign currency denominatedinvestments, and an increase in interest received of $943,666 (£381,902). Theseitems were partially offset by an increase in borrowing costs of $820,831(£332,190) relating primarily to the issue of convertible notes during the year(these notes had all converted to equity by 30 June 2006). The net loss of $13,317,335 (£5,389,525) represents a loss per share of 7.64cents compared to 15.66 cents in the prior year. The much lower loss per shareis mainly due to the large number of shares that were issued to raise equityduring the year. The company's operating cash outflow for the year was $12,286,016 (£4,972,151).This includes interest received of $1,604,607 (£649,384). Cash outflows fromunderlying operational activities (receipts from customers less payments tosuppliers and staff) was $14,081,105 (£5,698,623), down from $15,278,139(£6,183,063). Cash outflows from investing activities were $633,614 (£256,424) which weresimilar to the prior year. The Company expects this to increase in the comingyear as the Company upgrades its Australian production facilities and invests inits European specialist ceramics powder manufacturing plant and fuel cellmanufacturing plant. Cash flows from financing activities reflect three fundraising activities duringthe year and the investment of temporarily surplus funds pending their use inexecuting the business plan: •An issue of convertible notes to raise $8,200,000 (£3,318,540) in August 2005. These notes were all converted to shares before 30 June 2006. •A placement to UK and European investors in March 2006 in connection with the Company's listing on the London Stock Exchange AIM market, raising $87,500,000 (£35,411,250) before costs; •A placement to existing Australian investors in March 2006, raising $3,866,500 (£1,564,773) before costs. •Net payments to acquire financial assets $74,249,845 (£30,048,912). The cumulative effect of financing activities was a net cash inflow of$16,379,054 (£6,628,603) At 30 June 2006 the Company's total net assets were $85,753,951 (£34,704,624),compared to A$7,829,352 (£3,168,539) on 30 June 2005. Technical The Company passed a key milestone when its field trial m-CHP units passed anaggregate of 10,000 hours of system operation in commercial field trials inGermany, Australia and New Zealand. The Company built and launched its NetGen(TM)unit, a pre-commercial m-CHP unit, as the next phase of its commercialisationactivities, from field trials to commercial product development. NetGen(TM) isless than half the size of the field trial m-CHP units. The Company was granted four additional patents during the year: two relating tothe Company's solid oxide fuel cell (SOFC) technology; one for a process ofproducing ceramic powders used in solid oxide fuel cells; and one relating tothe process of producing electricity using a fuel supply that includeshydrocarbons higher than methane. The Company is continuing to work on improving the performance of its fuelcells, in particular to increase power density and stack life. The Company hasconsiderable experience with many SOFC designs and materials, havingsuccessfully designed, built and operated both 'all-ceramic' and 'metalsupported' kW size fuel cell stacks. This broad expertise is reflected in theCompany's intellectual property portfolio, including 28 patent families aroundits principal inventions. Commercial The Company placed the first fuel cell electricity generator in an Australianoffice in szencorp's groundbreaking energy efficient commercial office buildingin Melbourne, known as "40A". In June 2006 the Company signed a second international contract with EWE, thefifth largest utility in Germany, to supply them with ten NetGen(TM) units, inaddition to the two m-CHP field trial units that were commissioned in Germany inJanuary 2006. This is the Company's most significant contract to date. The Company is also continuing to build relationships with appliancemanufacturers, to integrate CFCL's fuel cells into m-CHP units and otherdistributed generation applications. The Company was also awarded European "CE" safety approval for the NetGen(TM) unit,allowing the unit to be deployed in Europe. The European market for fuel cells and m-CHP unit continues to develop. The UKgovernment has voiced its support for CHP and distributed generation in itsEnergy Challenge Report, published July 2006, and by allocating an additional£50 million to develop microgeneration technologies. Personnel During the year the Company appointed Mike Atkinson, Manager, Capital Projects,and Simon Howard, Powder Manufacturing Engineer, to supplement the Company's UKmanagement team. Professor Michael Dureau was also appointed to CFCL's Board of Directors as anindependent Non-Executive Director. Since 30 June 2006 Robert (Bob) Kennett has been appointed to the Board of Directors as CFCL'sfirst UK-based Non-Executive Director. Bob Kennett has spent his career in theenergy sectors and has been focused on Combined Heat and Power and renewables.This appointment reflects the Company's commitment to strengthening its base inthe United Kingdom and its focus on the European market. Future Growth The Company will continue the commercialisation of its technology in the comingyear. Significant areas of focus will be delivering NetGen units to EWE andother utility partners, engaging with appliance manufacturers to developproducts using the Company's fuel cell technology, and the construction of theEuropean powder plant and fuel cell manufacturing plant. Compliance statement This report is based on accounts which are in the process of being audited. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Ceramic Fuel Cells