11th Sep 2007 07:00
Ceres Power Holdings plc11 September 2007 11 September 2007 Ceres Power Holdings plc ("Ceres", "Ceres Power" or "the Group") Preliminary results for the year ended 30 June 2007 Ceres Power Holdings plc announces its preliminary results for the year ended 30June 2007. Highlights •Integrated wall-mountable CHP Unit demonstrated •All milestones met on the CHP programme with British Gas £€0.6m contract secured with EDF Energy Networks for on-site power •New Product Facility fit-out completed •Machinery for cell manufacturing scale-up installed and being commissioned •Established supply chain for key balance of plant with global manufacturers •Brian Count, ex-Innogy plc CEO, appointed Non-Executive Director €43% increase in income from private and public sector contracts to £1.1m £€11.1m in cash and short term investments Results Summary 2007 2006 Unaudited Unaudited (as restated) £'000 £'000Turnover 98 110Other operating income 970 636*Operating loss (4,709) (3,888)Interest income 597 630*Adjusted Loss for the financial year (3,696) (3,180)**Adjusted loss per share (6.26)p (5.58)pNet cash outflow (2,879) (3,023) * calculated before share-based payments charge (operating loss and loss for thefinancial year including share-based payments are £5,879,000 (2006: £4,489,000)and £4,866,000 (2006: £3,781,000) respectively) ** Adjusted loss per share calculated before share-based payments charge (seenote 4 to the preliminary financial information) Philip Holbeche, Chairman, commented: "I am delighted to report that the Group has successfully demonstrated anintegrated wall-mountable Combined Heat and Power (CHP) Unit that is capable ofgenerating electricity and all of the central heating and hot water requirementsof a typical home. Achievement of this important milestone is not only asignificant step forward in the commercialisation of our unique technology butalso represents an industry-leading position. We are now focusing on valueengineering of the CHP Unit and the scale-up of core manufacturing processes" For further information contact: Philip Holbeche, ChairmanPeter Bance, Chief Executive +44 (0) 1293 400 404Ceres Power Patrick d'Ancona / Charlotte Kirkham +44 (0) 207 153 1531M: Communications Chairman's Statement Business Transition There has been major progress in all aspects of the business during the year.The Group has made substantial technical advances and expanded its commercialrelationships. The platform technology has been developed from a 1kW stack, to aFuel Cell Module suitable for a range of market applications including anintegrated wall-mountable Combined Heat and Power (CHP) Unit. A new ProductFacility is completing its commissioning, and planning is under way for a majornew plant (the 'Mother Plant') to manufacture fuel cells in substantial volumes.These various advances form the basis of Ceres Power's transition towardsbecoming a product business. The relationship with British Gas has continued to develop, with all milestonesachieved to date on the residential CHP programme. The most recent announcementof the demonstration of an integrated wall-mountable CHP Unit, with the CeresFuel Cell Module at its heart, has shown that the Group has the capabilitiesrequired to design and build a product appropriate for the UK and overseasmarkets. The integrated CHP Unit runs off mains natural gas and utilisesexisting water, gas and electricity connections, ensuring that it will bestraightforward to install. The focus is now on value engineering the CHP Unitand the scale-up of core manufacturing processes. The CHP Unit is capable of generating electricity and all of the central heatingand hot water requirements of a typical home, substantially reducing carbondioxide emissions through the much more efficient use of resources. The fuelcell technology at the core of the Unit can deliver high efficiency operation onmultiple fuels, including mains natural gas, bottled gas/LPG, hydrogen, methaneand biofuels. With increasing political and industrial interest in thedevelopment of micro-power generation options, the widespread uptake ofresidential fuel cell CHP units would greatly lessen the need for investment inpower stations and the electricity grid infrastructure. EDF Energy Networks has awarded the Group a £0.6 million contract to design,build and evaluate energy security products for the UK residential market. Theprogramme is expected to deliver initial prototype units for evaluation in 2008and 2009. The product is designed to provide reliable back-up electricity fromcylinder gas and it has wide applicability in the developed world and theaffluent developing world. The physical expansion of the Group continued with the completion of a newProduct Facility on the Crawley site. The facility will enable us to validatevolume manufacturing processes before transfer to a mass manufacturing fuel cellplant on a separate site and to build prototype products for field trials.Planning for the 'Mother Plant' is being carried out currently and it isexpected that commissioning of this new facility will begin in 2008 and that itwill become operational during 2009. Industry Leadership The Group continues to play a leading role in placing fuel cells andmicro-generation on the UK's energy agenda. We were extremely pleased to welcomethe current British Prime Minister Gordon Brown to our Crawley operations inMarch 2007, when we were able to outline the potential benefits of widespreaduptake of our CHP products. Financials The Group delivered a strong financial performance for the year. Income for theyear ended 30 June 2007 totalled £1.67 million (2006: £1.38 million) of whichinterest on cash balances provided £597,000 (2006: £630,000). Income fromprivate and public sector contracts totalled £1,068,000 (2006: £746,000), anincrease of 43% over the prior year, and the first time that contract revenueshave exceeded £1 million. The scaling-up of the capabilities of the Group is reflected in the increasedoperating expenditure (before share-based payments charges) which rose by 25% to£5,777,000, as a result of the recruitment of experienced personnel and thedepreciation of additional equipment. The adjusted loss for the year (beforeshare-based payments charges) increased by 16% to £3,696,000 (2006: £3,180,000). The Group's liquidity position continues to be robust with £11.1 million in cashand short term investments as at 30 June 2007. The net cash outflow for the yearwas £2.9 million (2006: £3 million). The Group has adopted the newly introduced accounting standard FRS 20,"Share-based Payment", in line with current reporting standards and has changedits accounting policy with respect to equity-settled share-based paymentsprovided to employees under the Company's share option scheme. This has resultedin a charge of £1,170,000 in the current year and a prior year charge of£601,000 for the year ended 30 June 2006. This charge has no impact on theGroup's cash flow or net assets. People Ceres Power has continued to build its experienced and highly motivated team,with a recent focus on personnel with manufacturing expertise to buildproduction capability. In addition, we were extremely pleased to welcome Brian Count as a non-executivedirector of the Group in March 2007. Dr Count was Managing Director of NationalPower in the UK and Chief Executive of Innogy and he provides insights into thenature and working of electricity markets, utility companies and governmentpolicy. The philosophy of the Group has always been to consider every employee as avalued member of the team, with an equity stake in the business and with theopportunity to build a satisfying and rewarding career. I wish to thank each ofthem for their important contributions to the enormous progress that has beenachieved. Philip HolbecheChairman Chief Executive's Review Business Environment The external environment for Ceres' products is becoming increasingly favourableas a result of a number of powerful drivers. Heightened consumer awareness ofenvironmental issues coupled with higher energy bills are beginning to affectreal spending decisions. Governments are implementing a wide range of regulatoryand fiscal incentives on regional, national and international levels toencourage changes to current models of energy provision and to stimulate theuptake of more efficient and environmentally-friendly alternatives. Creatingpower at the point of use, or so-called 'micro-generation', is increasinglybeing seen as a compelling alternative to centralised generation, due to theinherent economic and environmental benefits, with high-efficiency fuel celltechnology now recognised as a potentially key enabler. Corporations in a rangeof industries across the Group's supply chain are looking for new growthopportunities in this rapidly developing sector and attempting to positionthemselves to thrive in this emerging decentralised energy world. The Group is now well placed to commercialise its patented technology. Throughthe deployment of energy saving, low emission and cost-effective products theGroup will have the ability to address a number of the key challenges facingconsumers, businesses and governments worldwide. Business strategy The Group's business strategy remains driven by global market opportunities foralternative energy products which can reduce carbon emissions and address theissues of energy savings, energy security and fuel poverty. Products - Our product strategy is to focus on the development of CHP marketapplications based on the core Ceres' Fuel Cell Module. The compactness,cost-effectiveness and robustness of this module, together with its ability tooperate on mains gas and cylinder fuels, provides an excellent platform fordevelopment of a range of closely related products for on-grid and off-gridapplications both in the UK and overseas markets. Supply Chain - Development of strong supply chain partnerships is a vitalelement of the Group's strategy. A key focus of our commercial activitiescontinues to be securing upstream relationships with volume suppliers of rawmaterials, balance of plant components and machines for manufacturing. We areconfident that progress on these activities, with initial engagements securedwith major companies, will minimise production risk as we make the transition tovolume manufacturing. Manufacturing - The Group plans to establish its own mass manufacturingcapability to produce the core fuel cells in volume and is partnering with othercompanies for the final assembly of CHP products. The Group is commissioning itsProduct Facility to produce limited numbers of complete prototypes and validatekey manufacturing processes ahead of the planned scale-up into the volume fuelcell manufacturing plant. Intellectual Property - The Group's strategy is to register, protect and exploitits intellectual property assets which form the basis of its unique technologyand product range. A significant IP portfolio has been developed in the form ofpatents, trademarks and know-how, covering a range of innovations spanningmaterials, product designs and manufacturing processes. Our background IP hasenabled us to enter into supply chain and market channel relationships from aposition of strength and so pave the way to maximise value capture. Channels to Market - By partnering with large energy companies with millions ofcustomers, the Group is building the channels to get product to market involume. We are pleased with the progress that has been achieved in our CHPprogramme with British Gas and we were delighted to announce a new relationshipwith EDF Energy Networks to design, build and evaluate home energy securityproducts. Both these product variants also have major potential in overseasmarkets which we plan to exploit over time as part of our global market entrystrategy. Business Operations Over the past year we have significantly de-risked the business by developingsignificant product and manufacturing capabilities. The Group has also achievedmeaningful growth in income from contracts as a result of securing furthercommercial agreements and delivering on government programmes. The keyachievements over the last twelve months have included: •Designed, built and demonstrated an industry-leading natural gas fed integrated wall-mountable combined heat and power unit capable of generating electricity and all of the central heating and hot water requirements of a typical UK home •Met all technical and commercial milestones for private and public contracts, delivering income in excess of £1 million •Secured a funded contract with EDF Energy Networks worth £600,000 to design and build energy security products for the UK residential market •Established supply chain relationships for all key balance of plant components with well-established volume manufacturers in Europe and the USA from industries including automotive and white goods •Secured and fitted-out a dedicated Product Facility to scale-up fuel cell manufacturing processes for mass production with all key machinery successfully installed and being commissioned We continue to invest in our operational capabilities to minimise developmentlead time, cost, and technical risk and to maximise the potential for valuecapture as part of our product commercialisation path. Outlook Building on the strong technical and commercial achievements of the past year,the Group is focusing on accelerating time to market and building an operationalcapability to scale the business. To deliver on this objective and secure theemerging commercial opportunities, the priorities for 2008 are as follows: •Value engineering of the CHP Unit, focusing on part count and cost reductions, performance improvements and optimisation of the product ergonomics in terms of size and weight •Validation of key mass manufacturing processes through statistical process trials in the Product Facility in preparation for volume scale-up •Completion of planning for the 'mother plant' and securing an appropriate site for the facility •Delivery of contract milestones under existing collaborative programmes with British Gas, EDF and other partners •Grow revenues with existing partners and establish new market channel relationships I look forward to reporting on further developments and progress over the comingyear. Peter Bance Chief Executive Officer CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 30 June 2007 2007 2006 Note Unaudited Unaudited (as £'000 restated) £'000 Turnover 98 110Research and development costs (4,922) (3,495)Administrative expenses (2,025) (1,740)Other operating income 970 636 Operating loss before share-based (4,709) (3,888)paymentsShare-based payments charge (1,170) (601) Operating loss (5,879) (4,489)Interest receivable and similar 597 630incomeLoss on ordinary activities before (5,282) (3,859)taxationTax credit on loss on ordinary 416 78activitiesLoss for the financial year 7 (4,866) (3,781) Loss per £0.05 ordinary share- basic and diluted 4 (8.24)p (6.63)p CONSOLIDATED BALANCE SHEET as at 30 June 2007 2007 2006 Unaudited Unaudited Note £'000 £'000Fixed assetsTangible assets 1,842 1,870 Current assetsDebtors: amounts falling due 53 53after more than one yearDebtors: amounts falling due 628 554within one yearShort term investments 8 9,500 11,900Cash at bank and in hand 1,642 2,121 11,823 14,628Creditors: amounts falling due (788) (438)within one yearNet current assets 11,035 14,190Total assets less current 12,877 16,060liabilitiesNet assets 12,877 16,060 Capital and reservesCalled up share capital 5 2,981 2,925Share premium account 15,594 15,137Other reserve 7,463 7,463Profit and loss account (13,161) (9,465)Shareholders' funds 7 12,877 16,060 CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 June 2007 2007 2006 Note Unaudited Unaudited £'000 £'000Net cash outflow from operating activities 6 (3,894) (3,613)Returns on investmentsInterest received 597 630Net cash inflow from returns on 597 630investmentsTaxation 494 -Capital expenditurePurchase of tangible fixed assets (577) (1,099)Net cash outflow for capital expenditure (577) (1,099)Net cash outflow before management of (3,380) (4,082)liquid resources and financingManagement of liquid resourcesDecrease in short term deposits with banks 2,400 3,700FinancingIssue of ordinary share capital 5 501 1,009Net expenses of share issue - 50Net cash inflow from financing 501 1,059(Decrease) / increase in net cash (479) 677Reconciliation to net fundsOpening net funds 14,021 17,044(Decrease) / increase in net cash (479) 677(Decrease) in short term deposits (2,400) (3,700)Closing net funds 11,142 14,021 Notes to the preliminary announcement 1. Basis of preparation These preliminary results do not constitute statutory financial statementswithin the meaning of Section 240 of the Companies Act 1985. The results for the year to 30 June 2007 have not been audited. The statutoryaccounts and auditors' report for the year ended 30 June 2007 have not yet beensigned by the directors or the auditors respectively. The results for the yearended 30 June 2006 have been extracted from the statutory financial statementsfor that year, that have been filed with the Registrar of Companies and uponwhich the auditors have reported without qualification. 2. Principal accounting policies These preliminary results for the year ended 30 June 2007 have been prepared inaccordance with the accounting policies set out in the statutory financialstatements of Ceres Power Holdings plc for the year ended 30 June 2006, with theexception of the adoption of Financial Reporting Standard (FRS) 20, 'Share-basedPayment'. The adoption of FRS 20, constitutes a change in accounting policy.Therefore, the impact has been reflected as a prior year adjustment inaccordance with FRS 20. Note 3 sets out the effect of adopting FRS 20. 3. FRS 20 Share-based Payments The Group is required to adopt FRS 20, 'Share-based Payment', for the first timefor accounting periods commencing on or after 1 January 2006. In accordance withthe transitional provisions of FRS 20, the Group is required to recognise anexpense in respect of options granted after 7 November 2002 that were unvestedas of 1 January 2006. This expense, which is calculated by reference to the fairvalue of the options granted, is recognised on a straight line basis over theperformance period based on the Group's estimate of options that will eventuallyvest. The charge is then credited back to reserves. The adoption of thisStandard has no effect on the Group's cash flow or net assets. Comparative figures for the year to 30 June 2006 have been restated to apply theprovisions of FRS 20, increasing expenses and the loss for the year as shownbelow: 2007 2006 Unaudited Unaudited (as restated) £'000 £'000Loss for the financial year (4,866) (3,781)Share-based payments charge 1,170 601Adjusted loss for the financial year (3,696) (3,180)before FRS 20 Share-based Payments 4. Loss per share 2007 2006 Unaudited Unaudited (as restated) £'000 £'000 Loss per £0.05 ordinary shareLoss for the financial year (4,866) (3,781)Share-based payments charge 1,170 601 Adjusted loss for the year before (3,696) (3,180)FRS 20 Share-based payments Weighted average number of shares 59,057,064 57,039,938in issue Basic and diluted loss per share (8.24)p (6.63)pAdjusted basic and diluted loss (6.26)p (5.58)pper share before FRS 20Share-based payments 5. Called up share capital 2007 2006 Number £'000 Number £'000AuthorisedOrdinary shares of £0.05 each 100,000,000 5,000 100,000,000 5,000 Allotted, called up and fullypaidOrdinary shares of £0.05 each 59,618,027 2,981 58,504,885 2,925 Between 11 October 2006 and 29 June 2007, the Company issued 205,525 ordinaryshares of £0.05 each on the exercise of employee share options for cashconsideration of £83,746. Between 18 July 2006 and 20 June 2007, 902,405 ordinary shares of £0.05 eachwere issued on the exercise of warrants for cash consideration of £417,023. During the year, a total of 5,212 ordinary shares of £0.05 each were issued asremuneration for services provided by a non-executive director. The value of theshares on the day of issue totalled £11,798. 6. Net cash outflow from operating activities Reconciliation of operating loss to net cash outflow from operating activities: 2007 2006 Unaudited Unaudited (as restated) £'000 £'000Operating loss (5,879) (4,489)Depreciation charge 674 494Loss on disposal of fixed assets - 1Share-based payments charge 1,170 601Share-based remuneration for services 12 -(Increase) in debtors (129) (213)Increase / (decrease) in creditors 258 (7)Net cash outflow from operating activities (3,894) (3,613) 7. Reconciliation of movements in shareholders' funds 2007 2006 Unaudited Unaudited (as restated) £'000 £'000Loss for the financial year (4,866) (3,781)Proceeds of issue of ordinary share 513 1,009capitalShare-based payments charge 1,170 601Share issue costs - 50Net change in shareholders' funds (3,183) (2,121)Opening shareholders' funds 16,060 18,181Closing shareholders' funds 12,877 16,060 8. Short term investments Short term investments comprise cash deposits at bank. 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