27th Mar 2007 07:01
Ceres Power Holdings plc27 March 2007 Ceres Power Holdings plc ("Ceres", "Ceres Power" or "the Group") Interim results for the six months ended 31 December 2006 Ceres Power Holdings plc announces its interim results for the six months ended31 December 2006. Highlights: •British Gas CHP programme milestones achieved •Stack technology frozen, performance and durability demonstrated •Fuel Cell Module engineered for volume manufacture •Funded contract secured with EDF Energy Networks for on-site power •New Product Facility expansion and plans for mass manufacture on track •Brian Count, ex-Innogy plc CEO, appointed Non-Executive Director •Income from private and public sector contracts up 119% to £0.5 million •Strong balance sheet with cash and short term investments of £13.1 million Interim Results Summary Six months Six months ended 31 ended 31 December 2006 December 2005 £'000 £'000Turnover 30 80Other operating income 469 148*Operating loss (2,333) (1,973)Interest income 287 334*Adjusted Loss for the financial period (1,804) (1,639)**Adjusted diluted loss per share (3.08)p (2.90)pNet cash outflow (906) (1,643) * calculated before FRS 20 Share-based Payments charge (operating loss and lossfor the financial period including share-based payments are £2,954,000 (2005:£2,084,000) and £2,425,000 (2005: £1,750,000) respectively) ** Loss per share calculated before FRS 20 Share-based Payments charge (see note3 to the interim financial information) Philip Holbeche, Chairman, commented: "I am delighted to report that the Group's continued technical progress hasresulted in key milestones being achieved for our core CHP programme withBritish Gas, income growth from contracts and important manufacturingimprovements that should underpin our Company's future. Ceres' new fundedcontract with EDF Energy Networks to design, build and evaluate prototype homeenergy security products strongly endorses our commercially-led approach todelivering cost-effective, efficient and reliable solutions using our advancedfuel cell technology. It also highlights our ability to readily adapt Ceres'core technology platform - the Fuel Cell Module - to different applications andmarkets. We look forward to the future with confidence as Ceres approachescommercialisation." For further information contact: Philip Holbeche, Chairman Peter Bance, Chief Executive Rex Vevers, Finance Director +44 (0) 1293 400 404 Ceres Power Patrick d'Ancona / Elly Williamson +44 (0) 207 153 1547 M: Communications Chairman's Statement Introduction Ceres Power continued to make significant progress in the half year ended 31December 2006. The technical capabilities in the Group, together with the uniqueCeres' fuel cell technology, have underpinned progress in our core CHPprogramme, new commercial engagement, income growth, intellectual propertycapture and facilities expansion. Issues surrounding climate change, energy efficiency and security are high onboth national and global agendas, and the Group is ideally placed to provide thesolutions required in a variety of applications and markets. Ceres continues tocontribute to strategic energy initiatives through high-level engagement withthe UK government and major international companies. We believe that fuel cellmicro-power generation products, with high efficiencies and low carbonfootprints, can offer cost-effective solutions to mass markets worldwide. Financial Results Total income for the six month period ended 31 December 2006 increased by 40% to£786,000 (2005: £562,000). Technical progress achieved by the Group helpedproduce a 119% increase in income from private and public sector contracts to£499,000 (2005: £228,000). Operating expenses (before share-based paymentscharges) increased by 28% over the comparable period last year, reflecting thecontinued investment in growing the Group's product development and commercialcapabilities. This investment also resulted in interest on cash balances fallingby 14% to £287,000 (2005; £334,000). The adjusted loss for the period (beforeshare-based payments) increased by 10% to £1,804,000 (2005: £1,639,000). Capital expenditure during the period totalled £225,000, reflecting theinvestment in the fit-out of the 'Product Facility'. Capital expenditure in thesecond half of the financial year will relate to investment in machinery for thekey fuel cell manufacturing processes. The Group continues to maintain a strong balance sheet with £13.1m in cash andshort-term investments. Net cash outflow during the period fell by 45% to only£906,000 (2005: £1,643,000). This reduction in net cash outflow is primarilyattributable to cash inflows of £320,000 from R&D tax credits, an increase of£153,000 from the exercise of warrants and share options, a reduction in capitalexpenditure of £371,000 and maintaining cash outflows from operating activitiesin line with the comparable period last year. 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 £621,000 in the current period and a prior year adjustment of£108,000 for the six months ended 31 December 2005. This charge has no impact onthe Group's cash flow or net assets. Commercial Engagement The Group's proven product engineering capabilities and commercially-drivenapproach to business have enabled progress to be reported on existingrelationships and an important new contract to be secured. The core technology'sinherently attractive techno-economics and its proven ability to operate onnatural gas and LPG fuels have been important in establishing potential routesto a number of mass market applications. The Group's core Combined Heat and Power (CHP) programme with British Gas, partfunded by the DTI, continues to deliver all technical milestones on timeincluding: •Fuel Cell Module constructed and assembled •Components designed, procured and tested •Wall mountable CHP system design confirmed The success of this project has resulted in a significant increase in incomefrom private and public sector contracts in the half year, with the currentprogramme expected to continue until the end of 2008. Future milestones includethe demonstration of a CHP unit during mid-year 2007. It is expected that as theCHP opportunities are proven in the British market, consideration will be givento expansion into international markets. Work has also continued under a third contract with BOC. This has focused uponon-site generation from cylinder gases available in a number of internationalmarkets. The contract, together with the two previous pieces of work, confirmedthe technical capability of Ceres' fuel cells and the attractive marketopportunities available to this proposition. The results of recent work indicatethat a Ceres Power solution could provide advantages over existing products interms of efficiency, lifetime costs and emissions. The confirmation of this fuelversatility and efficiency has already provided benefits in the form of a newfunded contract with a major European utility-owned network operator. The Group has been awarded a funded contract by EDF Energy Networks (EDF) todesign, build and evaluate prototype 'energy security' products for the UKresidential market. The initial two year phase of the programme has a budget ofapproximately £1.2 million and should deliver initial prototype units forevaluation in 2008 and 2009. This will provide income of over £600,000 from EDFto Ceres, representing 50% of the costs with all intellectual property arisingfrom the work being retained by Ceres. The product being developed for EDF isbased upon the Ceres' Fuel Cell Module, and is designed to provide reliableback-up electricity from cylinder gas. EDF Energy Networks is a division of EDF, an integrated energy operator presentin all sectors of the electricity industry with over 40 million customersworldwide. In the UK it has approximately 5 million customers, and is also theUK's largest electricity distributor, providing power to a quarter of the UK'spopulation via its distribution networks in London, the South East and the Eastof England. The residential product being developed will initially target the approximately100,000 vulnerable or 'at risk' customers on EDF's UK network. Over time thereis the possibility of tailoring the product to meet the needs of European andoverseas customers. Building on this important niche, homeowners with smalloffice home office (SOHO) lifestyles dependant on reliable power can also betargeted. An exciting growth opportunity for a variant of this product exists inmany parts of the affluent developing world, where demand for power isoutstripping supply - users are demanding more effective solutions to so-called'load-shedding' where utilities are forced to disconnect their homes for hoursat a time. Technical Review Technical progress has been a key driver for increasing income from private andpublic sector contracts. This trend reflects a growing recognition of thepotential benefits derived from the Ceres' differentiated technology in a broadrange of market applications. In addition to the Group's continued focus onnatural gas fed CHP, the technology's ability to provide high efficiencysolutions from cylinder gas fuels has recently stimulated significant interestfor on-site power applications. Technical progress continues to build on the Group's unique fuel cell technologyposition. This has enabled the development of a differentiated fuel cell stackand module technology which provides a common platform as the basis ofcompelling propositions for a range of mass market opportunities. The Group announced in December 2006 that following the successful testingprogramme, the core stack technology had been frozen. On-going extended testingbeyond the 7,500 hours reported has continued to reinforce the robustness anddurability of the patented stack design. The innovative stack sealingarchitecture has demonstrated its ability to withstand repeated thermal cyclingover extended use and so meet the needs of demanding residential micro-CHPapplications. The design has been value engineered to minimise raw materialrequirements and part count which are reflected in its compact size, low massand commercial cost. Development of a compact Fuel Cell Module for volume manufacture has involvedhighly beneficial collaboration with major component suppliers. Development ofrelationships with key suppliers has enabled extensive experience in componentdesign, materials, and volume manufacturing processes to be harnessed, therebyminimising development lead time, cost and technical risk. This supplier engagement for key balance of plant (BOP) has enabled importantprogress to be made towards development of a cost-effective micro-CHP productfor mass market residential applications. All technical milestones have been metunder the collaborative programme with British Gas. Building on earlierprototype systems, successful testing of Fuel Cell Module components at theheart of the CHP product has demonstrated the basis of a commercially viablewall-mounted design. Manufacturing Scale-up Preparation of a new Product Facility has been completed on time and withinbudget and the effectiveness of the planning and delivery process is importantas more substantial expansion is planned. This facility now accommodatesexpanded design and manufacturing resources to develop customer-tailoredproducts for target market applications. A main function of this facility is toscale-up and thoroughly test volume manufacturing processes, before transfer toa fuel cell mass manufacturing plant, and also to produce prototype products forfield trials. Significant progress has been made towards developing key fuel cell and stackmanufacturing processes for volume manufacture. Major reductions in processingtimes of up to twenty-fold have recently been achieved, for example in the laserdrilling process. Ceres is working with key machinery suppliers to configure theequipment to Ceres' specification. Initial equipment will be installed andcommissioned during 2007 and will be used to validate these key manufacturingprocesses during the second half of the year. A new 'Mother Plant', expected to initially have the capacity to manufacture onemillion fuel cells per annum, is in the planning phase which will continuethroughout 2007. It is expected that commissioning will take place in 2008 withoperations commencing in 2009. Initial financial and technical projectionsindicate that it will be possible to have step-wise capacity increases as demandfor the fuel cells increases, thereby limiting the initial financial commitmentand on-going scale-up expenditure. Intellectual Property (IP) Ceres' fuel cells are based on a unique technology, operating in the range500-600 degrees C using ceramic layers deposited on stainless steel. These attributes allow very efficient delivery of electrical power and heat, combined with a competitive cost base and suitability to mass production. From the time of the company's formation in 2001, a major focus has been toprotect this valuable intellectual property in a highly professional manner.Much of the technology has been protected legally with patents filed and grantedin relevant countries around the world, whilst other technology is protected asknow-how and retained as trade secrets. The IP portfolio continues to expandrapidly and attention has also been given to trademarks and branding. The uniqueness of the technology has allowed the Group to establish a strong IPposition, not only in its core technology but also encompassing product design,key components and manufacturing processes and market applications. Awholly-owned subsidiary, Ceres Intellectual Property Company Limited (CIPCo) hasbeen formed to hold all of the patents and trademarks for the Group and to helpprofessionally manage, protect and exploit the Group's IP. People The Group has continued to strengthen its capabilities by attracting highcalibre people with both the expertise and experience to develop products,manage technical and commercial relationships with supply chain partners,deliver major revenue bearing contracts and to expand manufacturing operations. Appointments to the Ceres Power board reflect the strategic direction of thebusiness and relationships being developed with public and privateorganisations, key to the Group's success. I am pleased to report that Rex Vevers joined the Group in September 2006 asFinance Director. He provides a wealth of experience from senior financial rolesin global companies and of particular importance for Ceres is his extensiveinvolvement in the expansion of manufacturing facilities and commercial jointventures in international locations. Rex is a qualified accountant and corporatetreasurer, and has substantial expertise in the financing of business expansion. The board has also been strengthened by the appointment in March 2007 of BrianCount as a Non-Executive Director. He rose to become Managing Director ofNational Power's UK business, and subsequently Chief Executive of Innogy plc.Following the acquisition of Innogy plc by RWE, Brian then became CEO of RWETrading in Essen, Germany before retiring in 2005. He is currently aNon-Executive Director of Eskom, the South African electricity utility andChairman of the clean coal venture Progressive Energy. He is a member of theDepartment of Trade and Industry's Industrial Development Advisory Board inBritain. He is an advisor to Climate Change Capital and the Amsterdam PowerExchange, and is a well-respected figure in the European utility sector. Hisinsights, advice and guidance will be invaluable as Ceres progresses towardscommercialization and mass market delivery. I would like to thank Harry Fitzgibbons, who stepped down from the Board inMarch 2007, for his contribution to Ceres during its transition from a privateto a substantial public company. Review and Outlook During the last six months, Ceres has made substantial technical and commercialprogress, and has continued to put in place the facilities, equipment andpersonnel necessary to move towards substantial production and commercialuptake. The freezing of the core stack technology and the successfulconstruction of an integrated Fuel Cell Module using balance of plant developedwith volume component suppliers, has demonstrated that Ceres' unique technologyhas the ability to deliver durable, efficient, compact cost effective massmarket solutions. The key focus for the Group for the remainder of 2007 involves: •Demonstration of a natural gas fed micro-CHP unit •Validation of the key fuel cell volume manufacturing processes and machines •Delivery of contract milestones with British Gas, BOC, EDF and other partnerships •Completion of planning for the Mother Plant I look forward to reporting upon further progress throughout 2007. Philip Holbeche, Chairman CONSOLIDATED PROFIT AND LOSS ACCOUNT for the six months ended 31 December 2006 Six months Six months Year ended 30 ended 31 ended 31 June 2006 December 2006 December 2005 Unaudited Unaudited Audited (as restated) (as restated) Note £'000 £'000 £'000 Turnover 30 80 110Operating expenses includingshare-based payments (3,453) (2,312) (5,235)Other operating income 469 148 636 -------- -------- -------- -------- -------- --------Operating loss beforeshare-based payments (2,333) (1,973) (3,888)Share-based payments charge 3 (621) (111) (601) -------- -------- -------- Operating loss (2,954) (2,084) (4,489)Interest receivable andsimilar income 287 334 630Loss on ordinary activitiesbefore taxation (2,667) (1,750) (3,859)Tax credit on loss onordinary activities 5 242 - 78Loss for the financialperiod / year 3 (2,425) (1,750) (3,781) Weighted average number of shares in issue 58,625,285 56,432,218 57,039,938Basic and diluted loss per share 4 (4.14)p (3.10)p (6.63)p CONSOLIDATED BALANCE SHEET as at 31 December 2006 31 December 31 December 30 June 2006 2006 2005 Unaudited Unaudited Audited Note £'000 £'000 £'000Fixed assetsTangible assets 1,800 1,728 1,870 Current assetsDebtors: amounts falling due after more than one year 53 53 53Debtors: amountsfalling due within one year 439 344 554Short term investments 11,500 14,100 11,900Cash at bank and inhand 1,615 1,301 2,121 13,607 15,798 14,628Creditors: amountsfalling due within one year (775) (758) (438)Net current assets 12,832 15,040 14,190Total assets lesscurrent liabilities 14,632 16,768 16,060Creditors: amounts falling due after more than one year - (5) -Net assets 14,632 16,763 16,060 Capital and reservesCalled up sharecapital 6 2,968 2,838 2,925Share premium account 15,470 14,386 15,137Other reserve 7,463 7,463 7,463Profit and loss account (11,269) (7,924) (9,465)Total shareholders'funds 8 14,632 16,763 16,060 CONSOLIDATED CASH FLOW STATEMENT for the six months ended 31 December 2006 Six months Six months Year ended 30 ended 31 ended 31 June 2006 December 2006 December 2005 Unaudited Unaudited Audited Note £'000 £'000 £'000Net cash outflow fromoperating activities 7 (1,662) (1,604) (3,613) Returns on investments andservicing of financeInterest received 285 334 630Net cash inflow from returns oninvestments and servicingof finance 285 334 630Taxation 320 - - Capital expenditurePurchase of tangible fixedassets (225) (596) (1,099)Net cash outflow forcapital expenditure (225) (596) (1,099)Net cash outflow beforemanagement of liquidresources and financing (1,282) (1,866) (4,082) Management of liquid resourcesDecrease in short termdeposits with banks 400 1,500 3,700 FinancingIssue of ordinary sharecapital 376 173 1,009Net expenses of share issue - 50 50Net cash inflow from financing 376 223 1,059(Decrease) /increase in net cash (506) (143) 677 Reconciliation to net fundsOpening net funds 14,021 17,044 17,044(Decrease) / increase in net cash (506) (143) 677Movement in short term deposits (400) (1,500) (3,700)Closing net funds 13,115 15,401 14,021 Notes to the interim financial statements for the six months ended 31 December2006 1. Basis of preparation These interim financial statements do not constitute statutory financialstatements within the meaning of Section 240 of the Companies Act 1985. The results for the six months ended 31 December 2006 and 31 December 2005 havenot been audited. The results for the year ended 30 June 2006 have beenextracted from the statutory financial statements of Ceres Power Holdings plcfor that year, that have been filed with the Registrar of Companies and uponwhich the auditors have reported without qualification. 2. Principal accounting policies These interim financial statements for the six months ended 31 December 2006have been prepared in accordance with the accounting policies set out in thestatutory financial statements of Ceres Power Holdings plc for the year ended 30June 2006, with the exception of the adoption of Financial Reporting Standard(FRS) 20, 'Share-based Payment'. The adoption of FRS 20 constitutes a change inaccounting policy. Therefore, the impact has been reflected as a prior yearadjustment in accordance with FRS 20. Note 3 sets out the effect of adopting FRS20. 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 six months ended 31 December 2005 and the year to 30June 2006 have been restated to apply the provisions of FRS 20, increasingexpenses and the loss for those periods as shown below: Six months Six months Year ended 30 ended 31 ended 31 June 2006 December 2006 December 2005 Unaudited Unaudited Audited (as restated) (as restated) £'000 £'000 £'000 Loss for the financialperiod / year (2,425) (1,750) (3,781)FRS 20Share-based payments 621 111 601 Adjusted loss for thefinancial period / yearbefore FRS 20 Share-basedpayments (1,804) (1,639) (3,180) 4. Loss per share Six months Six months Year ended 30 ended 31 ended 31 June 2006 December 2006 December 2005 Unaudited Unaudited Audited (as restated) (as restated) £'000 £'000 £'000 Loss per £0.05 ordinary shareLoss for the financialperiod / year (2,425) (1,750) (3,781)FRS 20Share-based payments 621 111 601 Adjusted lossfor thefinancialperiod / yearbefore FRS 20Share-basedpayments (1,804) (1,639) (3,180) Weightedaverage numberof shares inissue 58,625,285 56,432,218 57,039,938 Basic anddiluted lossper share (4.14)p 3.10)p (6.63)pAdjusted basicand dilutedloss per sharebefore FRS 20Share-basedpayments (3.08)p (2.90)p (5.58)p 5. Tax credit on loss on ordinary activities The tax result for the period has arisen as a result of tax losses surrenderedin respect of research and development expenditure in 2005. 6. Called up share capital Ceres Power Holdings plc had called-up share capital totalling 58,504,885ordinary shares of £0.05 each at 30 June 2006 as disclosed in the statutoryfinancial statements of Ceres Power Holdings plc for the year ended 30 June2006. During the six months ended 31 December 2006, the Company issued 729,795ordinary shares of £0.05 each on the exercise of warrants for cash considerationof £337,076, and 126,325 ordinary shares of £0.05 each on the exercise ofemployee share options for cash consideration of £39,150. 7. Net cash outflow from operating activities Reconciliation of operating loss to net cash outflow from operating activities: Six months Six months Year ended 30 ended 31 ended 31 June 2006 December 2006 December 2005 Unaudited Unaudited Audited (as restated) (as restated) £'000 £'000 £'000Operating loss (2,954) (2,084) (4,489)Depreciation charge 317 239 494FRS 20 Share-basedpayments 621 111 601Loss on disposal offixed assets - - 1Decrease /(increase) indebtors 40 (83) (213)Increase /(decrease) increditors 314 213 (7)Net cash outflow fromoperating activities (1,662) (1,604) (3,613) 8. Reconciliation of movements in shareholders' funds Six months Six months Year ended 30 ended 31 ended 31 June 2006 December 2006 December 2005 Unaudited Unaudited Audited (as restated) (as restated) £'000 £'000 £'000Loss for the financialperiod / year (2,425) (1,750) (3,781)Proceeds of issue ofordinary share capital 376 171 1,009FRS 20 Share-basedpayments 621 111 601Share issue costs - 50 50 -------- -------- -------Net change inshareholders'funds (1,428) (1,418) (2,121)Opening shareholders'funds 16,060 18,181 18,181Closing shareholders'funds 14,632 16,763 16,060 Independent review report to Ceres Power Holdings plc Introduction We have been instructed by the company to review the financial information forthe six months ended 31 December 2006 which comprises the consolidated interimbalance sheet as at 31 December 2006 and the related consolidated interimstatements of income and cash flows for the six months then ended and relatednotes. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the AIM MarketRules which require that the financial information must be presented andprepared in a form consistent with that which will be adopted in the company'sannual financial statements. This interim report has been prepared in accordance with the basis set out inNote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany and for no other purpose. We do not, in producing this report, accept orassume responsibility for any other purpose or to any other person to whom thisreport is shown or into whose hands it may come save where expressly agreed byour prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 December 2006. PricewaterhouseCoopers LLPChartered AccountantsCambridge27 March 2007 Notes: (a) The maintenance and integrity of the Ceres Power Holdings plc web site isthe responsibility of the directors; the work carried out by the auditors doesnot involve consideration of these matters and, accordingly, the auditors acceptno responsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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