Half Yearly Report

3 March 2014

Ceramic Fuel Cells Limited

("CFCL" or the "Company)

Interim Report for the Half-Year Ended 31 December 2013

Ceramic Fuel Cells Limited (AIM/ASX: CFU), a leading developer of small scale, highly efficient generators that use proprietary fuel cell technology to convert natural gas into electricity and heat for homes and small commercial buildings, announces today its interim financial results for the six months ended 31 December 2013.

Highlights of the Half-Year

· Sales volume - 124 units sold this half year - 38 per cent increase over the same period in FY2013.

· 45 BlueGENS to be installed as part of a Virtual Power Plant on the Dutch island of Ameland.

· Assets of powder plant sold for circa A$1.9M (£1.2M).

· Share Purchase Plan and Overseas Offer raised A$5.8M (£3.2M) before expenses.

· Research and Development taxation refund of A$4.02M (£2.3M) received.

· Increased number of German State Governments providing subsidies.

Dividends

No dividends were recommended, declared or paid during the half-year and to the date of this report.

Review of Operations and Activities

A summary of the financial performance of the Group for the six months ended 31 December 2013 is set out below:

Overview

CFCL makes small scale, highly efficient generators that use proprietary fuel cell technology to convert natural gas into electricity and heat for homes and small commercial buildings. CFCL is successfully selling its commercialised products to both commercial and retail customers directly, and via a number of distribution and installation partners. The Company's current sales activities are focused on the UK and Europe, however, other opportunities are being monitored and it would consider entering new markets if they presented near term sales opportunities.

The Company continues its research and product development programmes and is introducing an enhanced product to the market in the coming six months with significantly lower degradation rates. Substantial development progress has also been achieved in thermal cycling and changes are planned to be introduced to production in the first quarter of FY2015. The Company would consider developing products for other markets providing funding is available.

Sales

Sales activity during the half-year was focused on Europe with the primary markets being Germany, the UK and the Benelux region. In the first half of FY2014, 124 units were sold which is 38 per cent greater than for the same period in FY2013 and 84 per cent of the total sales volume of FY2013.

Monthly sales for the six months to 31 December 2013 were as follows:

Sales by geographical region for the six months to 31 December 2013 were as follows:

Since June 2013 the Company has successfully reduced the cost of manufacturing its products by approximately 4 per cent. This follows on from reductions of over 25 per cent that were made in the previous year. Driving all costs down, and particularly manufacturing, is a major focus point for the Company and greater production volumes will greatly assist in this regard.

In addition to the North-Rhine Westphalia (NRW) subsidies that the Company has previously announced, in October 2013, the Company advised that the Government in the German state of Hesse had announced a funding programme to support mCHP installations. The level of subsidy per unit is comparable to that of the NRW programme at circa €13,000 per installed mCHP unit. The Government in the German state of Saxony has also announced a €3M funding programme for fuel cell products. Under the programme up to 75 per cent of the product and installation costs will be funded. The programme is expected to be in place until the end of CY2014.

There continues to be policy support for our products in the United Kingdom, where the feed-in tariff that applies to mCHP units that are accredited under the UK's Microgeneration Certification Scheme (MCS) is now 12.5 pence per kilowatt-hour (kWh) for all electricity generated plus an additional 4.5 pence per kWh for electricity not used on site and exported to the grid. BlueGEN is currently the only fuel cell based mCHP appliance accredited under the MCS and hence the only fuel cell product eligible for this feed-in tariff.

The Directors believe that the abovementioned Governmental support will have an increasingly positive impact on sales, albeit rather slower than anticipated.

Sales successes for the Company during the reporting period were:

· funding approval by the Dutch 'Wadden Fund' for the installation of 45 units for The Netherland island of Ameland's virtual power plant. 5 of these units were delivered in December, with the remaining 40 to be delivered during the coming 6 months;

· the sale of 23 mCHP units to EWE in Germany;

· the agreement with National Grid Affordable Wealth Solutions to deliver 10 units for installation in selected Housing Associations;

· the confirmation of commencement of the installation of the second tranche of mCHP units under the Soft-Pact project for the first quarter of CY2014;

· the awarding of a tender to supply 12 units to the Local Gas and Heating Institute's "Innovation City Ruhr", in NRW, Germany; and

· The sale of 5 units to Liander in the Netherlands.

Unfortunately for the Company, Synergy International OU ("SI"), has reneged on the agreement reached in November 2013 as they have not paid the upfront payments. This is a major setback for the Company as it had invested significantly to gear up its production in order to meet the sales order. SI was appointed as distributor for the Baltic and Scandinavian regions and contracted for the purchase of a minimum of 1,000 BlueGEN mCHP units over CY14 and CY15. SI agreed to purchase a minimum of 500 units per calendar year on a take-or-pay basis. The total sales value of the transaction was in excess of €20M. Whilst at the time of writing this report dialogue with SI continues, the Board has taken the decision that it is unlikely that SI will honour the Agreement. The Board is extremely disappointed with this development, as considerable financial resources and management time were invested in this project, which began in May 2013. The Company's in-house legal advisor had performed due diligence, and a visit to the Estonian distributor and its shareholders was undertaken. Since the announcement to the market of SI's reneging, the Estonian press has reported that SI still intends to honour the agreement.

The Company is currently investigating other large order opportunities.

Manufacturing and Supply Chain

The Company's assembly plant in Heinsberg, Germany, has been performing very well with significant success rates in the sintering of its fuel cell stacks. The 4X4 furnace is meeting production expectations.

The Company's component outsourcing programme has progressed well with high quality, lower cost parts being received from its suppliers. Strategies are now in place to outsource further manufacturing of components in China which will further reduce the cost of production. In addition, our major suppliers have indicated that there will be significant cost savings once production volumes increase to reasonable levels. Unfortunately, with the SI agreement defaulting, these benefits will not be forthcoming in the short term. The Company works closely with its key supply chain partners and believes that they are both ready and capable of meeting the Company's future production volumes and required pricing levels.

At the time of writing, the Company no longer intends to increase production, until it secures orders which merit such an increase in capacity.

Technology

During this reporting period the Company continued to develop its technology further to improve the lifetime, reliability and robustness of its fuel cell stacks. Significant technical progress has been made on reducing the stacks' degradation rates. An enhanced product with these attributes is due to be released to the market in the last quarter of FY2014. In addition, substantial progress has been made on the ability of the stack to thermal cycle and modulate. These thermal cycling improvements are planned to be introduced to production in the first quarter of FY2015. Further work on improving the product will continue during the second half of this financial year.

Refund from Taxation Office for expenditure on research and development

The Company received A$4.0M (£2.2M) from the Australian Taxation Office during November for research and development expenditure incurred during FY2013. A further refund is likely to be received in November 2014 for FY2014.

Sale of powder plant assets and transfer of staff

In December the Company sold its powder plant assets in Bromborough, UK, for £1.1M (circa A$2.1M). A change in production process had resulted in CFCL no longer using the powder from the plant, hence, it realised a surplus asset which will have no detrimental effect on the production or financial operations of the Company. All the staff employed by CFCL at the powder plant have been transferred to the purchaser of the assets.

Financial Operating Results

During the half-year the number of units sold increased by 38 per cent over the comparative prior year period, and the overall level of revenue increased from A$2.6M (£1.5M) to A$3.4M (£2.0M). Revenue per unit sold is down from the prior period owing to the sales of the integrated units to EWE which were at a lower price in order to generate the sales and to enable the development of the integrated mCHP units with our integration partner, Bruns Heiztechnik. In order to promote sales, the Company sold units at close to standard cost price with the expectation that it will be able to reduce the cost of production and thus improve its gross margin in the future.

Over the comparative half-year period the average manufactured cost of the unit has reduced by approximately 15 per cent. Reduction of the manufactured cost continues to be a key strategic focus for the Company and the cost down programme that is in place is expected to achieve further significant cost reductions over the coming year.

The cost of warranty expense for the half-year was steady at A$1.0M (£0.6M) compared to A$1.1M (£0.7M) for the prior half-year. The Company is cognisant of the need to maintain an appropriate and conservative level of warranty provisioning and the provision at 31 December 2013 was A$3.3M (£1.9M) compared to A$1.8M (£1.0M) at 31 December 2012 and A$2.6M (£1.5M) at 30 June 2013. This increase is predominantly due to the greater number of units sold and the length of the service contracts.

Operating costs during the half-year were A$11.5M (£6.7M) compared to A$11.4M (£6.6M) for the comparative period last year. The prior year's figure included A$0.9M (£0.5M) of costs directly associated with the restructure of the Company's activities in late-2012. Research & Product Development costs have decreased by A$0.4M (£0.2M) from the corresponding period due to the afore-mentioned restructure and the consequential reduction in expenditure on core research & product development activities.

Manufacturing costs have been disclosed separately, as production in Germany is now a major activity for the Company. The increase in Manufacturing costs of A$0.6M (£0.3M) above the corresponding period is due to the increased production volumes in Germany and the under absorption of overheads.

General & Administration costs have decreased by A$0.8M (£0.5M) compared to last year due to the afore-mentioned restructure.

Sales & Marketing costs have increased by A$0.7M (£0.4M) over the corresponding period owing to the Company's previously disclosed strategy of increasing resources to target direct sales.

The impairment reversal of A$2.0M (£1.2M) for the half-year is a partial reversal, upon sale, of the A$2.6M (£1.5M) impairment charge recognized for the year ended 30 June 2012 on the full impairment of the plant and equipment of the Group's UK powder production plant.

Financing Activities

In December 2013 the Company completed a capital raising of A$5.8M (£3.3M) before expenses. This raising consisted of a Share Purchase Plan offer to qualifying shareholders in Australia and New Zealand that raised A$4.2M (£2.4M) and an Overseas Offer made to qualifying shareholders outside of Australia and New Zealand (and certain other territories) that raised A$1.6M (£0.9M). The Share Purchase Plan was undertaken at a price of 3.84 cents per share and the Overseas Offer was at a price of 2.14 pence per share (the equivalent of 3.84 cents). This pricing was designed to give eligible shareholders the ability to subscribe for ordinary shares at the same price as the investors who subscribed for the equity issue and convertible loan notes in May 2013. The Share Purchase Plan resulted in the issue of 109.3 million ordinary shares and the Overseas Offer resulted in the issue of a further 41.1 million ordinary shares.

As was disclosed in the Share Purchase Plan and Overseas Offer documentation, if the total amount raised was less than A$8.0M (£4.6M) the Company would be required to seek further funding in the first quarter of CY2014. It also stated that the Company would be unable to undertake the proposed capital expansion at its manufacturing facility and it would have to reduce the engineering work being done to lower the manufactured cost of BlueGEN units. The Directors believe this has resulted in a slower move down the manufacturing cost curve and, as a result, the Company has had to maintain a higher selling price which has reduced demand for the Company's products.

Matters Subsequent to the End of the Half-Year

As announced by the Company on 28 November 2013, CFCL had reached an agreement with Synergy International OÜ ("SI") whereby SI agreed to purchase a minimum of 1,000 BlueGEN mCHP units. The agreement stipulated a minimum order of 500 units per year on a take-or-pay basis for two years with an option to extend to a third year. The total sales value of the transaction was estimated to be in excess of €20 million.

Unfortunately, SI has reneged on the agreement reached in November 2013 as they have not made the upfront payments. This is a major setback for the Company as it had made significant financial investment in order to gear up its production to meet the sales order. Whilst dialogue between CFCL and SI continues, the Board has taken the decision that it is unlikely that SI will honour the agreement.

Partly as a consequence of SI's payment default, the Company has had to review the finances it has at its disposal. The Board has approved a fundraising of at least £3 million pounds to occur during March 2014, £1 million of which will be contributed by the Company's Chairman, Alasdair Locke. Discussions with prospective parties are significantly advanced and further details of the capital raise will be announced to the market in the near future. This capital raise will require approval by Shareholders at an Extraordinary General Meeting. Depending on the amount of capital raised and the success of both the Company's sales programme and its restructuring activities, a further capital raise is likely to be required in the second half of CY2014.

The Board is in the process of restructuring the Company with a view to altering its direct sales strategy and removing significant cost from the operations. It is also pursuing joint venture possibilities with partners who are willing to pay for the Company's technology in order to produce systems of differing output.

On 28 February 2014, the Company received an order for 100 BlueGEN units, for delivery within the next twelve months, from the German company Avilos GmbH ("Avilos"). Under the terms of the agreement, Avilos will purchase 100 BlueGEN units on a take-or-pay basis and sell them to private and small commercial customers. Avilos had previously signed up as regional, non-exclusive BlueGEN distribution partner and have received formal training in sales and installation from CFCL.

Avilos has locations both close to Munich (Southern Germany) and in Bremen (Northern Germany) and provides energy solutions for residential buildings and small commercial businesses. Based on the combination of fuel cells, PV solar systems, heat pumps and batteries, Avilos has developed intelligent energy management systems to offer customers a high level of self-sufficient power supply.

No other matter or circumstance has arisen since 31 December 2013 which has significantly affected, or may significantly affect:

(a) the Group's operations in future financial periods, or

(b) the results of those operations in future financial periods, or

(c) the Group's state of affairs in future financial periods.

Consolidated Statement of Comprehensive Income

For the half-year ended 31 December 2013

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Consolidated Balance Sheet

As at 31 December 2013

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

Consolidated Statement of Changes in Equity

For the half-year ended 31 December 2013

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Consolidated Statement of Cash Flows

For the half-year ended 31 December 2013

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2013

Note 1. Basis of Preparation of Half-Year Report

This condensed consolidated interim financial report for the half-year reporting period ended 31 December 2013 has been prepared in accordance with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001. Accounting Standard AASB 134 is fully compliant with International Financial Reporting Standard IAS 34 Interim Financial Reporting.

This condensed consolidated interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2013 and any public announcements made by Ceramic Fuel Cells Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.

The financial report has been prepared on a going concern basis.

Going Concern

Over the life of the Group it has incurred substantial operating losses and is yet to become cashflow positive at an operational level. The Directors are mindful of this and continue to closely monitor the level of the Company's cash resources.

The Group has commercialised its fuel cell technology into products and has begun to make sales, but it has not yet achieved sales and production levels that allow the Group to generate positive operating cashflow or profits. The Company is thus reliant on the further raising of capital (debt or equity) in order to enable it to continue its research and product development and to implement its sales and production strategies.

These factors represent uncertainty about the ability of the Group to continue as a going concern. The Directors have considered these factors and believe it is appropriate to prepare the financial statements on a going concern basis given the following strategies:

Operational and business strategies

The Company continues its focus on increasing the number of sales orders received and intends to produce to order rather than to anticipated sales demand. It also continues to make significant inroads in reducing the cost per unit.

During this reporting period, the Company announced that the Governments in the German states of Saxony and Hesse had established funding programmes to support the deployment and development of mCHP's. These are in addition to the Government of North-Rhine Westphalia (NRW)'s funding programme. Whilst uptake of these programmes is often slowed by bureaucracy, it is anticipated that they will assist the Company in meeting its sales targets and will assist in reducing the net price of a BlueGEN unit for the end user.

Management and the Board's recent focus had been to secure orders and deliver and install the products in order to convert these orders into revenue and cashflow. Management and the Board are taking steps to increase sales more quickly by implementing more aggressive marketing and pricing strategies.

The Company continues to take measures to reduce the unit cost of the BlueGEN. These measures include: outsourcing production of components to high quality, lower cost, specialist manufacturers, and undertaking cost-down engineering work.

Financing strategies

The Company has been successful in raising funds in the past and in December 2013 raised $5.8M (£3.3M) before expenses via a Share Purchase Plan and an Overseas Offer. A$4.2M (£2.4M) of this was received in December and A$1.6M (£0.9M) in early January 2014.

The Company was also successful in selling the assets of its UK Powder Plant in December 2013 for £1.2M (A$1.9M). The powder produced by the plant was no longer being used by the Company and hence a decision was made to realise a surplus asset. This amount was received in December 2013.

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2013 (continued)

As previously mentioned, the Company is currently pursuing several funding options to strengthen its balance sheet and to allow it to continue its research and product development programme whilst it implements its sales and production strategies. As advised to the market, the Board has approved a fundraising of at least £3 million pounds to occur during March 2014, £1 million of which will be contributed by the Company's Chairman, Alasdair Locke. Discussions with prospective parties are significantly advanced and further details of the capital raise will be announced to the market in the near future. This capital raise will require approval by shareholders at an Extraordinary General Meeting. Depending on the amount of capital raised and the success of both the Company's sales programme and its restructuring activities, a further capital raise is likely to be required in the second half of CY2014.

The Heinsberg capital expansion programme is on hold until further capital is raised.

The Managing Director is in the process of restructuring the Company to drive down its costs significantly and to focus on larger volume sales orders rather than individual unit sales. An example of this is the order received from Avilos (referred to previously). Securing sales such as these will assist in reducing inventory and provide working capital to sustain the research and product development activities and to enable the Company to produce to order rather than hold high inventory levels.

The continuing viability of the Company and its ability to continue as a going concern and meet its debts and commitments as they fall due is dependent on the successful conclusion of the afore-mentioned fund raising activities, approval by shareholders at an Extraordinary General Meeting, the ability to achieve profitable sales growth and the successful implementation of the restructuring as approved by the Board. As such, there is material uncertainty as to whether the Company will continue as a going concern and, therefore, whether it will realise its assets and settle its liabilities and commitments in the normal course of business and at the amounts stated in the financial report.

The Directors believe that the Company will be successful in the above matters and, accordingly, have prepared the financial report on a going concern basis.

At this time, the Directors are of the opinion that no asset is likely to be realised for an amount less than the amount at which it is recorded in the financial report at 31 December 2013. Accordingly, no adjustments have been made to the financial report relating to the recoverability and classification of the asset carrying amounts or the amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2013 (continued)

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2013 (continued)

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2013 (continued)

The contractual maturities of the Group's non-derivative financial liabilities were as follows:

As at 31 December 2013

As at 30 June 2013

1. The total contractual cash flows for borrowings (excluding finance leases) as at 30 June 2013 consisted entirely of secured convertible loan notes; specifically, subscriptions of principal received, and interest accumulated thereon, which would have been immediately repayable if shareholders had not approved their issue at the Extraordinary General Meeting held on 2 July 2013.

The Group does not have any financing or borrowing facilities.

The Group has no right to set-off assets and liabilities.

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2013 (continued)

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2013 (continued)

Movements in provisions

Movements in each class of provision during the half-year ended 31 December 2013 were as follows:

Government grants

NRW

In recognition of the construction of its German fuel cell assembly plant and the concomitant hiring of employees, the Group was awarded €966,000 of the €1,386,000 regional development grant originally received in December 2009 from the Government of North Rhine Westphalia in Germany. The balance of €420,000 was repaid in February 2013, hence the remaining €966,000 ($1,489,591 as at 31 December 2013) has continued to be treated as deferred revenue and will be brought to account in a future period in line with the satisfaction of the remaining obligation, which is to maintain the number of jobs created through to December 2017.

EU Grant

In January 2012 the Group received a European Union grant of €573,667 ($884,606 as at 31 December 2013) for the development and field trial of ceramic fuel cell micro-CHP units. At reporting date the full amount of the grant has been treated as deferred revenue and will be brought to account in a future reporting period in line with the satisfaction of the obligations.

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2013 (continued)

Note 12. Fair Value Measurement of Financial Instruments

(a) Fair value hierarchy

AASB 13 Fair Value Measurement requires disclosure, by level, of fair value measurements in accordance with the following fair value measurement hierarchy:

· Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;

· Level 2: Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability,

either directly or indirectly; and

· Level 3: Inputs for the asset or liability which are not based on observable market data (unobservable inputs).

The following table presents the Group's financial liabilities measured and recognized at fair value on a recurring basis:

The Group did not measure any financial liabilities at fair value on a non-recurring basis as at 31 December 2013.

(b) Valuation techniques used to derive Level 2 and Level 3 fair values

The fair value of financial instruments which are not traded in an active market is determined using valuation techniques. These valuation techniques maximise the use of observable market data, where it is available, and rely as little as possible on entity-specific estimates.

If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

Specific valuation techniques used to value financial instruments include the use of:

· quoted market prices or dealer quotes for similar instruments; and

· discounted cash flow analysis techniques.

All of the resulting fair value estimates are included in Level 2.

(c) Fair values of other financial instruments

The Group also has a number of financial instruments which are not measured at fair value in the balance sheet, the values of which at 31 December 2013 are as follows:

The fair value of the convertible notes approximates their carrying value, net of the borrowing costs and the amount attributed to the fair value of the conversion rights (ie. the derivative financial liability).

Due to their short-term nature, the carrying amounts of the current receivables, current payables and current borrowings is assumed to approximate their fair value.

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2013 (continued)

Note 13. Contributed Equity

(a) Share capital

The share capital account of the company consists of 1,751,724,324 fully paid up, ordinary shares as at 31 December 2013.

(b) Movements in ordinary share capital

Movements in ordinary share capital of the company during the six months ended 31 December 2013 were as follows:

Note 14. Events Occurring After the Reporting Period

As announced by the Company on 28 November 2013, CFCL had reached an agreement with Synergy International OÜ ("SI") whereby SI agreed to purchase a minimum of 1,000 BlueGEN mCHP units. The agreement stipulated a minimum order of 500 units per year on a take-or-pay basis for two years with an option to extend to a third year. The total sales value of the transaction was estimated to be in excess of €20 million.

Unfortunately, SI has reneged on the agreement reached in November 2013 as they have not made the upfront payments. This is a major setback for the Company as it had made significant financial investment in order to gear up its production to meet the sales order. Whilst dialogue between CFCL and SI continues, the Board has taken the decision that it is unlikely that SI will honour the agreement.

Partly as a consequence of SI's payment default, the Company has had to review the finances it has at its disposal. The Board has approved a fundraising of at least £3 million pounds to occur during March 2014, £1 million of which will be contributed by the Company's Chairman, Alasdair Locke. Discussions with prospective parties are significantly advanced and further details of the capital raise will be announced to the market in the near future. This capital raise will require approval by Shareholders at an Extraordinary General Meeting. Depending on the amount of capital raised and the success of both the Company's sales programme and its restructuring activities, a further capital raise is likely to be required in the second half of CY2014.

The Board is in the process of restructuring the Company with a view to altering its direct sales strategy and removing significant cost from the operations. It is also pursuing joint venture possibilities with partners who are willing to pay for the Company's technology in order to produce systems of differing output.

On 28 February 2014, the Company received an order for 100 BlueGEN units, for delivery within the next twelve months, from the German company Avilos GmbH ("Avilos"). Under the terms of the agreement, Avilos will purchase 100 BlueGEN units on a take-or-pay basis and sell them to private and small commercial customers. Avilos had previously signed up as regional, non-exclusive BlueGEN distribution partner and have received formal training in sales and installation from CFCL. Avilos has locations both close to Munich (Southern Germany) and in Bremen (Northern Germany) and provides energy solutions for residential buildings and small commercial businesses. Based on the combination of fuel cells, PV solar systems, heat pumps and batteries, Avilos has developed intelligent energy management systems to offer customers a high level of self-sufficient power supply.

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2013 (continued)

There were no results from discontinued operations, nor net losses attributable to outside equity interests, to be taken into account in determining earnings used in calculating basic and diluted earnings per share.

Information concerning the classification of securities

All options issued will be anti-dilutive until such time as the Group generates profits, rather than losses, hence all options have been excluded from the calculation of diluted earnings per share.

DIRECTORS' DECLARATION

In the directors' opinion:

(a) the financial statements and notes set out on pages 12 to 25 are in accordance with the Corporations Act 2001, including:

(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and

(ii) giving a true and fair view of the consolidated entity's financial position as at 31 December 2013 and of its performance for the half-year ended on that date; and

(b) there are reasonable grounds to believe that Ceramic Fuel Cells Limited will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the directors.

Chairman 2 March 2014